Student Loan Terms & Repayment Extensions

Stephatcake · #1 (**permalink**) 07-30-2010, 02:10 AM

I was recently researching ways to pay my student loans down the fastest and saw my lender offered extended repayment plans. I was thinking this would be ideal for me to lower my monthly payment so I could pay additional funds towards principal each month. Right now, I currently have around 80k in debt and my payment is around $750 a month and pay an additional $150 towards principle. If I extended repayment I could knock some of the monthly payment down but it would extend my loan 15 more years. The plus that I see is with having a lower payment allows for me to put more toward principal meaning less in interest paid in the long-run. There is no fee to pay the loan off early and no restrictions for making additional principle only payments if I extend my loan. Is this a smart decision or should I keep my loan at it is - a 24 year repayment plan and continue paying the $750 a month plus the additional $150 towards principle?

DavidBibby · #2 (**permalink**) 07-30-2010, 03:54 PM

Stephatcake,

Having the lender extend the repayment plan will end up with you paying MORE in interest and not less.

Since you're paying $900/month right now.. you are going to cut the time off significantly and pay it off much faster than than the 24 years they have you paying on it.

IF they extended your loan another 15 years... and yet you still paid $900/month... you'll pay it off in the EXACT same time frame.

However.. if you do get the loan extended.. and you DON'T pay $900/month... then you would have fallen into the trap that the lender is laying out for you.. They want you to pay the minimum only for the next 39 years and give them more interest then they deserve.

You see.. if they lower your payment.. they are TEMPTING you to not pay $900/month anymore.. Because they DON'T want you paying more than the minimum.

They act like they are doing you a favor, when in reality they want you to stay in debt to them longer.

It MIGHT make sense to do it if they were lowering the interest rate.. I say MIGHT.. because even if they do.. they are still getting you to pay LONGER, which costs you more.

I'd move forward with your current repayment schedule, and stick 'em with the extra $150 each month.

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