The extended repayment plan is for eligible federal student loans and has a 25 year maximum repayment period. This plan allows for your student loan payments to be either fixed or graduated as long as the loan will be paid off within 25 years.
For this week's student loan tip we are going to touch on the Revised Pay As You Earn (REPAYE) income-based repayment option.
REPAYE is an income-based repayment option for federal student loans. Under REPAYE your monthly student loan payment is generally 10% of your discretionary income.
In some cases, your monthly payment might be higher than it would be under the standard 10-year repayment option. The reason for this is because REPAYE takes into consideration your income and family size, so if your income increases over time your payment will likely increase. Every year you have to recertify your income by a deadline.
If you don’t recertify your income you will be removed from the REPAYE Plan and your monthly payment will no longer be based on your income. At this point, your unpaid interest will be capitalized. This means that the interest will be added to the principal balance of your loan, thus increasing the overall cost of your loan.
The repayment time frame for REPAYE is 20 years if all of your loans under the plan were for undergrad. If you have any loans that you’re repaying from graduate or professional school then you will likely be in the REPAYE program for 25 years (unless you are eligible for Public Service Loan Forgiveness).
High school graduation time is upon us! If you receive cash gifts for graduation consider using a portion of that money to directly pay for some college expenses. This will help reduce the amount of student loans you need to take out, saving you money in the long run.