How Does the Graduated Repayment Plan Work for Student Loans?

Many student loan repayment plans are designed to help recent grads stay afloat and pay off their loans. We’ll explain one option for your federal student loans: the graduated repayment plan.

What is the graduated repayment plan, and how does it work?

The graduated repayment plan is an alternative to the standard federal student loan repayment plan. It lets you pay off your student loans over 10 years. Payments start low and increase every two years to give you time to increase your income after college.

The example below shows the repayment schedule for a $20,000 student loan at 6% interest with a graduated payment plan:

Period	Monthly payment
Years 1 & 2	$127.00
Years 3 & 4	$190.50
Years 5 & 6	$254.00
Years 7 & 8	$317.50
Years 9 & 10	$381.00

For comparison, the monthly payments on the standard 10-year repayment plan would be $222 for the full repayment term.

Your monthly payments should never be less than the interest accrued between payments. This will keep your total debt amount from increasing.

Graduated plan payments will also never be more than three times greater than any other federal repayment plan, providing a level of protection against unaffordable loan payments.

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Student loan repayment

How it works with federal consolidation loans

Consolidation loans are set up to be paid off in 10 to 30 years, but graduated payments work the same way apart from the potential for a new repayment timeline.

Your consolidation loan timeline is based on the total amount of federal student loan debt you carry, including your consolidated loan and other federal student loans.

Graduated repayment plan schedule for consolidated loans

Federal student loan debt	Years to pay off
Up to $7,500	10
$7,501 – $10,000	12
$10,001 – $20,000	15
$20,001 – $40,000	20
$40,001 – $60,00	25
$60,001+	30

Pros & cons of graduated loan repayment

Pros

• Lower initial monthly payments when your income is likely lower

• Payment is never less than the interest accrued between payments

• Compatible with individual and consolidation loans

• Option for longer repayment period for consolidation loans

Cons

• More interest accrues over time because of smaller initial payments

• Large monthly payments later in the loan term, which may not be consistent with a change to your income

Does a graduated student loan repayment plan make sense for you?

To determine whether graduated repayment is right, look at how much debt you have and what you can pay each month. 

✅ If your monthly debt payment under the standard plan is higher than you can afford, a graduated plan may be a good fit, especially if you expect to earn more as your career progresses. 

❌ A graduated plan may not be the best option if you aren’t struggling to meet financial obligations. You’ll pay more because the interest accrued will be higher than a standard payment plan.

Which loans qualify for graduated payment plans?

U.S. Department of Education loans eligible for graduated repayment include:

• Direct Subsidized Loans (sometimes called Stafford loans)
• Direct Unsubsidized Loans (sometimes called Stafford loans)
• Direct PLUS Loans
• Direct Consolidation Loans
• FFEL PLUS Loans
• FFEL Consolidation Loans 

Standard vs. graduated repayment plan

The standard repayment plan comes with benefits and downsides compared to the graduated repayment plan. 

Here’s how payments might look if you chose standard vs. graduated repayment for a loan balance of $10,000 at 6% interest.

Plan & term	Monthly payment	Total interest paid
Standard (10 years)	$111	$3,300
Graduated (10 years)	$64 – $191	$4,200

The standard repayment plan requires higher monthly payments at the beginning of your loan term, which results in less flexibility with how you spend your income. This may make it harder to afford housing or other expenses on entry-level income.

However, the standard plan also allows you to pay less over the life of the loan because your higher payments will prevent the loan from building additional interest. It also means a more predictable monthly payment amount because it won’t change over time.

More alternatives to standard repayment

We’ve focused on graduated and standard repayment, but these aren’t your only repayment options. Income-driven repayment plans are another alternative to the standard repayment plan. 

Income-driven repayment plans

Income-driven repayment plans base your payments on a percentage of your discretionary income, which varies depending on the plan. These plans are excellent if you’re struggling to afford any payments; you could owe as little as $0 per month. 

Also, if you’ve made your monthly payments on time, your remaining loan balance could be forgiven at the end of the plan term. 

Income-driven repayment plans include:

• Pay As You Earn (PAYE): Pay 10% of your discretionary income for 20 years.
• Saving on a Valuable Education (SAVE): Pay 10% of your discretionary income for 20 years (25 years for graduate and professional student loans).
• Income-Based Repayment (IBR): Pay 10% of your discretionary income for 25 years.
• Income-Contingent Repayment (ICR): Pay 10% of your discretionary income for 25 years.

Income-driven plans are designed to help those struggling to make minimum monthly payments on their loans. Graduated plans are an option when your an income is too high to qualify for an income-driven plan.

Refinance

You may also be able to refinance your loans with a private lender to reduce your interest rate. The lower rate could make this a decent option to reduce your monthly payments but avoid the higher payments toward the end of the graduated repayment plan.

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Tip

Once you refinance with a private lender, you will forfeit your eligibility for income-driven repayment, student loan forgiveness, and other flexibility and protections that come with federal student loans.