Extended Graduated Repayment Plan: How It Works and Who It Benefits

The average bachelor's degree recipient in the 2022-23 academic year graduated with $29,300 in student loans, according to the College Board. Borrowers with federal student loans have several repayment options, including the Extended Graduated Repayment Plan. This plan can result in lower monthly payments, but may lead to higher total borrowing costs over time.

This guide explains how the Extended Graduated Repayment Plan works, who is eligible, and how to decide if this plan is right for you.

What is the Extended Graduated Repayment Plan?

The Extended Repayment Plan allows borrowers with eligible federal student loans to take as long as 25 years to pay off their debt, instead of 10 years under the default Standard Repayment Plan.

You can choose either fixed or graduated monthly payments under this plan. With the fixed option, you pay the same amount each month for the life of the loan. Or you can choose the Extended Graduated Repayment Plan, which means payments start lower and go up over time. In both cases, you repay the full balance after 25 years.

“Extended repayment plans reduce monthly payments by extending the loan term, which can ease the financial burden in the short term but increases total interest paid over time,” says Chad D. Cummings, certified public accountant and attorney at The Law Office of Chad D. Cummings. “These plans are helpful for graduates who need immediate relief and expect higher earnings in the future, but they ultimately cost more due to prolonged interest accumulation.”

Payments cover interest with the Extended Graduated Repayment Plan, so you don't need to worry about student loan interest accruing between payments, which can happen with income-driven repayment plans.

How does it work?

The Extended Graduated Repayment Plan is available to borrowers with the following types of federal student loans:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans
• Direct Consolidation Loans
• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• FFEL PLUS Loans
• FFEL Consolidation Loans

You must owe over $30,000 on Direct Loans or FFEL Loans, and can't have had an outstanding FFEL or Direct Loan balance as of Oct. 7, 1998, or on the date you received one of those loans after Oct. 7, 1998.

If you meet the requirements, you can contact your loan servicer to select this plan. Your monthly payment will be based on how much principal and interest you must pay each month to repay your debt within 25 years.

If you choose the Extended Graduated Repayment Plan, rather than the Extended Fixed Repayment Plan, your payments start lower and increase every two years.

Extended Graduated Plan vs. other repayment options

The Extended Graduated Repayment Plan typically results in lower payments than the Standard Repayment Plan, which has fixed payments over 10 years, or the Graduated Repayment Plan, which has lower payments initially that increase over time for up to 10 years. However, the Extended Graduated Repayment Plan costs more in total interest than the Standard, Graduated, and Extended Fixed Repayment Plans.

You'll repay your full loan balance under the Extended Graduated Repayment Plan, unlike income-driven repayment plans, where your debt can be forgiven after 10 to 25 years of payments, depending on the plan. You also can't become eligible for Public Service Loan Forgiveness or income-driven repayment forgiveness by making payments on the Extended Graduated Repayment Plan, unlike on an income-driven repayment plan.

“For some borrowers, finding the repayment option with the lowest payment is necessary, and repayment options like Extended Graduated Repayment can result in the lowest payment in some situations,” says Glenn Sanger-Hodgson, a certified student loan professional and founder of Shonan Gold Financial LLC. “While this may be great in the short term, it's often not so great in the long term.”

Sanger-Hodgson explains that many borrowers who need lower payments would be candidates for forgiveness if they choose a qualifying plan rather than the Extended Graduated Repayment Plan. He also warns that interest costs over time can be significantly higher than under the Standard Repayment Plan, which is usually a better choice for those who can afford the monthly payments.

“While the Extended and Graduated Repayment Plans can be appealing to some borrowers, they may not be the best strategy in the long run,” says Sanger-Hodgson.

Current student loan refinance rates

Pros and cons of the Extended Graduated Repayment Plan

The Extended Graduated Repayment Plan undoubtedly has some benefits.

“Most college grads aren't at their highest earning potential,” says Domenick D'Andrea, financial adviser and co-founder of DanDarah Wealth Management. “By starting with a lower payment, you can increase the payment as your income increases and you can free up cash for other needs.”

A lower payment also provides you more flexibility when you're deciding which student loans to pay off first. You could choose the Extended Graduated Repayment Plan so you can reduce the amount you're paying for federal student loans and redirect more money to private loans with higher interest rates that don't offer federal borrower benefits.

On the flip side, though, this payment option could come at a high cost. “By starting with a lower payment, you will extend the terms of the loan and pay considerably more interest than the original loan,” warns D'Andrea.

This loan repayment option also won't qualify for loan forgiveness, and it could affect your ability to obtain future loans since you'll have a higher balance for longer. Many lenders, such as mortgage lenders, consider this when deciding whether to give you a loan.

Who benefits from an Extended Graduated Repayment Plan?

In some cases, an Extended Graduated Repayment Plan could be the right option, despite the downsides. This type of plan may be good for:

• Borrowers who want to start with lower monthly payments but expect their income to increase
• Borrowers who want to keep their student loan payments low to prioritize other financial goals, like saving for a home

You should carefully consider the pros and cons, as well as likely changes to your earnings over time, to decide which repayment plan is best for you.