McPherson is expected to be back in East Lansing by the beginning of October.
He had planned to finish helping rebuild Iraq's banking system before the school year started.
The Michigan State Board of Trustees voted Monday to extend McPherson's leave until September 30.
With the vote, the board also approved continuing provost Lou Anna Simon's tenure as head of the university while McPherson is away.
McPherson said his job in Iraq was made more difficult by looting after the war and the country's failure to update its infrastructure in recent years.
Despite those problems, he said he has seen improvements.