How Does the Graduated Repayment Plan Work for Student Loans? The Complete Guide

Many new college grads don’t start with high-salary roles; instead, it can take a few years to increase your income. This becomes a challenge if you have federal student loans because your payments will likely come due once your six-month grace period ends after graduation. 

For this reason, many new grads opt for a graduated repayment plan, which allows you to start with lower student loan payments and make larger payments down the road. This plan could be a good choice if your salary isn’t high now, but you expect regular increases over time. 

Here’s how graduated loan repayment works, which loans are eligible, what the repayment schedule looks like, and more. 

Table of Contents

1. How graduated loan repayment works
2. Which loans are eligible?
3. What does a graduated repayment plan schedule look like? 
4. Standard vs. graduated repayment plan
5. When is graduated repayment a good idea?
6. How to get on the graduated repayment plan

How graduated loan repayment works

A graduated repayment plan starts with low monthly payments that increase every two years until the loan is repaid in full. The payoff timeline is within 10 years for standard student loans (or up to 30 years for consolidated loans). This type of repayment is typically available for federal student loans, although some lenders, like Sallie Mae, offer something similar.

Here’s how graduated loan repayment works:

• Payments start low, covering mostly interest.
• Every two years, payments increase, assuming rising income.
• The loan is fully repaid within the repayment term, but the initial lower payments mean more interest accrues over time.

Graduated repayment is usually best for borrowers who expect their income to grow over time, such as recent graduates starting entry-level jobs. It can also be helpful for those with fluctuating incomes or professionals in fields with structured pay increases, like doctors.

Which loans are eligible for graduated repayment?

Graduated student loan repayment is an option for several federal student loans and a few private student loans. These federal loans are eligible for graduated repayment:

• Direct Unsubsidized and Subsidized Loans
• Federal Stafford Unsubsidized and Subsidized Loans
• PLUS Loans (Direct or Federal Family Education Loans (FFEL))
• Consolidation Loans (Direct or FFEL)

As we mentioned, a few private lenders have a graduated repayment plan option. For instance, Sallie Mae offers it for certain loans, including:

• Smart Option Student Loan
• Graduate School Loan
• Health Professions Graduate Loan
• MBA Loan, Law School Loan
• Medical School Loan
• Dental School Loan

This graduated repayment plan works differently than the one available for federal student loans. While federal loan graduated repayment plans start low and increase every two years until your loan is repaid, Sallie Mae’s plan requires you to make interest-only payments for one year following your graduation or grace period, and then your monthly payments increase to full principal and interest. 

Generally, graduated repayment options are few and far between among private lenders, and those that offer these plans tend to structure them differently from the federal student loan graduated repayment option. 

If you have private loans and are interested in lower payments upon graduation, speak to your lender before you get behind on payments. It may be willing to work with you on a payment plan or pause your loan payments until you’re on steadier financial ground. 

What does a graduated repayment plan schedule look like? 

A graduated repayment plan might work differently depending on your federal student loan type.

If you haven’t consolidated your loans, your graduated repayment plan will be structured as follows:

1. Low payments to start, with payment increases every two years
2. Full balances repaid after 10 years
3. Payments won’t ever be more than three times the amount of your initial low payments
4. Payments won’t ever be less than the total interest accrued between monthly payments

The repayment schedule looks different if you’ve consolidated your federal loans using a Direct Consolidation Loan or an FFEL Consolidation Loan. Here’s what to expect if you’ve consolidated:

1. Low payments to start, with payment increases every two years
2. Full balances repaid in 10 to 30 years
3. Payments won’t ever be more than three times the amount of your initial low payments
4. Payments won’t ever be less than the total interest accrued between monthly payments

Here’s an example of what a graduated repayment plan may look like for a borrower with $26,946 in federal student loans looking to pay off their debt in 10 years. 

Monthly payments would begin as low as $152 at the start of the repayment schedule. Payment amounts would increase every two years to reach $455 at the end of repayment. In total, the borrower would pay $33,979.

Given this hefty increase, it’s important to ensure you can afford high payments down the line before opting for a graduated repayment plan. If you’re unsure, a standard plan or income-driven repayment may be the better choice.

Standard vs. graduated repayment plan

The standard repayment plan and graduated repayment plan both aim to pay off federal student loans within a set term (typically 10 years), but they differ in monthly payment structure and who they benefit most.

Feature	Standard repayment plan	Graduated repayment plan
Payment structure	Fixed monthly payments	Starts low, increases every 2 years
Total interest paid	Lower overall interest	Higher due to smaller initial payments
Repayment term	10 years (up to 30 for consolidation)	10 years (up to 30 for consolidation)
Best for	Borrowers with steady income who want to pay less interest	Borrowers expecting income growth over time
Who should avoid	Those struggling with high initial payments	Those with uncertain future income growth

Here is how that looks when using the same example as above. 

With the standard repayment plan, the borrower’s monthly payment would be $272—steady across the 10 years. The total paid would also be less—$32,585

The standard plan is best for borrowers who want predictability and to pay less interest over time. The graduated plan is better for those who need low initial payments but anticipate income growth in the future.

When is graduated student loan repayment a good idea?

Here’s a look at when graduated repayment or standard repayment might make the most sense. 

If…	Graduated or standard?
Your post-graduation salary is high	Standard
Your post-graduation salary is low	Graduated
Your salary isn’t going up as much as expected	Graduated
Your salary is increasing faster than you expected	Standard
You want consistent, predictable monthly payments	Standard
You’re OK with making higher payments in the future in exchange for low initial payments	Graduated
You want to pay less interest over the life of your loans	Standard

Generally, graduated student loan repayment could be worth considering if you expect your salary to start low and increase over time. If you prefer the predictability of level monthly payments or are concerned your salary won’t keep up with higher student loan payments over time, a standard repayment plan may be a better choice. 

You may also want to consider an income-driven repayment (IDR) plan as an alternative. The Federal Student Aid office offers four IDR plans, but borrowers can only enroll in two at this time. If you qualify for one of these plans, your monthly payments are structured as a percentage of your monthly discretionary income, making them more affordable. 

I recommend the graduated repayment plan primarily for early-career professionals in fields with stable income growth over time. This includes medical professionals, lawyers, engineers, government employees (including military personnel), and entrepreneurs with a solid business plan and strong income potential. Ultimately, borrowers should account for future increased payments in their budget and have confidence in their ability to manage the higher costs as their earnings grow.

How to get on the graduated student loan repayment plan

It’s likely that the graduated federal student loan repayment plan is only your best option if your income will be low after graduation and increase consistently over time. If graduated repayment seems like the best choice, here’s how to get started with this type of repayment plan:

• Use the Federal Student Aid Loan Simulator to estimate your payments. This tool will help you understand what to expect with graduated student loan repayment. It provides information on potential monthly payments, how they will likely increase over time, and the total you’re likely to repay over 10 years. 

When we plugged our example into the simulator, this is what we saw to understand the Graduated Repayment Plan:

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Tip

Compare plan options with the Loan Simulator. You might find that a standard repayment plan or income-driven repayment plan could be a better choice. 

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Here is how our example looked compared to the standard repayment plan:

• Contact your loan servicer to discuss your options. If you’re on the standard repayment plan or an IDR and want to switch to graduated repayment, your servicer can help you decide which option is best for your situation.
• Follow your loan servicer’s guidance on updating your federal student loan repayment plan.