What is a Graduated Repayment Plan?

The graduated repayment plan lets you repay federal student loans by starting small with lower payments, though those payments will then grow in amount over time. Specifically, you’ll see your monthly student loan payment increase every two years.

However, your payments will never be less than the amount of interest that racks up over the month. What’s more, your payments will never be more than three times greater than any other payment — so if your initial payment is $100, for example, your final payments won’t be more than $300.

On this plan, you’ll pay off your student loans over the course of 10 years (or up to 30 years for a Direct consolidation loan). If you need to lower your student loan payments in the short term, but expect your income to rise over time, then the graduated repayment plan could be a good fit for you.

Here’s what you need to know about choosing a graduated repayment plan for your student loans:

Loans that qualify for graduated repayment

Borrowers who took out the following federal student loans are eligible to opt for a graduated repayment plan:

  • 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

While individual loans and consolidated loans both qualify for the program, note that graduated repayment plans treat each a little differently.

Your payments on a graduated repayment plan

On a graduated repayment plan, your student loan bills will increase every two years. Let’s say you owe a $30,000 loan at a 5% interest rate. On the graduated plan,

  • Your first student loan payments will be $180.
  • Your final student loan payments will be $540.
  • Including interest charges, you’ll pay a total of $40,294.

In this case, your final payments are equal to three times your initial payments (but no greater). You can find this information for your own loans with the Department of Education’s Loan Simulator tool. Along with showing you the details for graduated loan repayment, this tool will also help you compare costs on other repayment plans.

You can also use our student loan calculators to estimate your monthly costs and interest charges on various plans.

The difference between unconsolidated and consolidated loans

As mentioned, your graduated student loan repayment plan starts with low monthly payments that increase every two years for both unconsolidated and consolidated student debt.

The major difference in how loans are treated in a graduated repayment plan is the term (or length) of the program: For unconsolidated loans, you’ll pay off your debt in 10 years; with consolidated federal student loans, though, the term could span from 10 to 30 years.

The length of your repayment period for consolidated loans depends on your “total education loan indebtedness.” In layman’s terms, that’s the total amount of student loan debt you carry, including federal loans that are not part of your graduated repayment plan, as well as any private student loans.

Even though private student loans are not eligible for this federal repayment plan, they are considered when determining your total indebtedness. Note that some private lenders might offer a plan that’s similar to this graduated plan. For instance, some will let you make interest-only payments for a few years before making full payments. If you need help with your private student loans, speak with your loan servicer about your options.

As for the graduated repayment plan, here’s how the terms break down:

Consolidated loan amount Repayment term
Less than $7,500 10 years
$7,500 to $10,000 12 years
$10,000 to $20,000 15 years
$20,000 to $40,000 20 years
$40,000 to $60,000 25 years
$60,000 or more 30 years

Pros and cons of graduated loan repayment

A graduated student repayment plan offers some benefits, including:

  • All borrowers are eligible.
  • Payments slowly rise over time, which allows new graduates to handle their student loans on lower, entry-level wages when they join the workforce.

But there are downsides, too:

Alternatives to the graduated repayment plan

The graduated student loan repayment plan is helpful for many borrowers — in fact, more than 3 million borrowers are enrolled in graduated repayment plans.

However, it may not be for everyone. Be sure to check out other federal programs designed to help you pay back your student loans.

These include:

  • Standard repayment plan: Get a set payment that you pay over 10 years (unless you consolidate your loans) and save the most money on interest with this plan.
  • Extended repayment plan: Payments can be fixed or graduated, and the plan allows you up to 25 years to repay what you owe. However, you’ll pay more in interest if you choose this route than you would on the standard plan.
  • “Pay As You Earn” (PAYE) and “Revised Pay As You Earn” REPAYE: These two loan repayment plans are only open to borrowers who meet certain requirements. Payments are calculated based on your household income and family size, and are generally set at 10% of your discretionary income.
  • Income-Based Repayment plan: You must have a high debt amount relative to your income. With this plan, your payments are set at 10% or 15% of your discretionary income, depending one when you took out your loans.
  • Income-Contingent Repayment plan: On this plan, your payments are either 20% of your discretionary income, or the amount you would pay on a repayment plan with a fixed payment over 12 years — you’ll pay whichever is less. That number is adjusted according to your income.

Make sure to explore all your options before choosing the student loan repayment plan that will benefit you the most. For many borrowers, an income-driven repayment plan is a superior option for adjusting monthly payments.

Not only do income-driven plans base your payment on your income, but they can also end in loan forgiveness if you still have a balance after 20 or 25 years of repayment (the time period will depend on the program, when you took out your loans and whether the loans were for undergraduate or graduate education). Plus, these repayment plans qualify for PSLF, so you should opt for one of them if you’re pursuing this program.

Consider your projected career path and financial goals, and be sure to ask questions and do your research. In addition, keep in mind that you can change your repayment plan at any time, for free — so if a graduated student loan repayment plan turns out not to be the right choice for you, you’ll still have other options available.

If you’re not sure, check out our guide on how to choose the right student loan repayment plan for you.

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