What is a Graduated Repayment Plan?

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The graduated repayment plan lets you repay federal student loans by starting small with lower payments and increasing the amount every two years.

You must repay a loan on the graduated plan within 10 years (or up to 30 years if you have a Direct consolidation loan).

Here’s what you should know as you compare the standard vs. graduated repayment plan:

Types of 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/Stafford loans
  • Direct unsubsidized loans/Stafford loans
  • Direct PLUS loans
  • Direct consolidation loans
  • FFEL PLUS loans
  • FFEL consolidation loans

While both individual and consolidated loans qualify for the program, note that the graduated repayment plan treats them a bit differently. (See more below.)

Payments on a graduated repayment plan

As noted, your student loan bills will increase every two years on a graduated repayment plan. Here’s an example of how payments will look for a $30,000 student loan with a 5% interest rate on the graduated repayment plan:

  • First student loan payment: $180
  • Final student loan payment: $540
  • Total amount (including interest charges): $40,294

Keep in mind that your graduated payment amount will never be less than that month’s accumulated interest. This is in contrast to an income-driven repayment plan, where your monthly payment can fall to “zero dollars.”

Furthermore, your payments will cap at three times that of your first payment. So if your initial payment is $100, your final payments can’t be higher than $300.

You can use the Department of Education’s Loan Simulator tool to crunch the numbers for your loans. Along with showing the details for graduated loan repayment, this tool will also compare costs on other repayment plans. For example, you’d save $2,110 by sticking to the standard repayment plan in the above situation.

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

Pros and cons of graduated loan repayment

A graduated student repayment plan offers some benefits, including the following:

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

But there are downsides:

Unconsolidated vs. consolidated loans on graduated repayment

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

The main difference in how loans are treated in a graduated repayment plan is the term (or length) of the program:

  • Unconsolidated loans: You’ll pay off your debt in 10 years
  • Consolidated loans: 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 — basically, the total amount of student loan debt you carry. This includes federal loans that are not part of your graduated repayment plan, as well as any private student loans.

That’s right: Even though private student loans are not eligible for this federal repayment plan, they are used to determine your total indebtedness.

Be aware, however, that your total education loan indebtedness cannot be more than twice the consolidation loan amount. So, if the consolidation loan has a balance of $25,000, your “total indebtedness” won’t exceed $50,000, even if you have more than that in student debt.

Here’s how terms for the graduated repayment plan break down:

Total education loan indebtedness 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

Note also that some private lenders might offer a plan similar to the graduated plan. For instance, some will let you make interest-only payments for a few years before making full payments.

Also, you might be able to score a lower interest rate with a student loan refinance. If you need help with your private student loans, speak with your loan servicer about your options.

Alternatives to the graduated repayment plan

The graduated student loan repayment plan is helpful for many borrowers. As of 2022, more than 3 million borrowers enrolled in graduated repayment plans (out of the 48 million Americans with student loan debt).

Still, this plan might not be the best choice for everyone. Be sure to check out other federal programs designed to help you pay back your student loans. These include:

  • Standard repayment plan: Payments remain the same over 10 years (unless you consolidate your loans). This plan will usually save you the most money on interest.
  • 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 interest if you choose this route than 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 specific requirements. Payments are calculated based on your household income and family size, and are typically set at 10% of your discretionary income.
  • Income-Based Repayment plan: You must have a high debt amount relative to your income to qualify for this plan. Your payments are set at 10% or 15% of your discretionary income, depending on 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 have paid on a repayment plan with a fixed payment over 12 years — 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 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 will depend on the program, when you took out your loans and whether the loans were for undergraduate or graduate education).

In addition, 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 when deciding between the standard versus graduated repayment plan. And keep in mind that you can change your repayment plan at any time, for free. So if a graduated student loan repayment plan is not the right choice, you can explore other options.

If you’re unsure about the graduated plan, check out our guide on choosing the right student loan repayment plan.

Interested in refinancing student loans?

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