How Does the Graduated Repayment Plan Work for Student Loans?
A graduated repayment plan could offer you lower monthly payments on your federal student loans right out of college. But it will mean paying more in interest over time. Here’s how to decide whether it’s right for you.
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Money is usually tight after leaving school, and entry-level jobs don’t typically pay well. Unfortunately, your student loan debt doesn’t care; you’ll still have to repay it.
Luckily, plenty of student loan repayment plans are designed specifically to help recent grads stay afloat and pay off those loans with ease.
In this article, we’ll tell you about one option for your federal student loans: the graduated repayment plan.
In this guide:
- What is the graduated repayment plan and how does it work?
- Pros & cons of the graduated repayment plan
- Does a graduated student loan repayment plan make sense for you?
- Which loans qualify for graduated repayment plans?
- Standard vs graduated repayment plan
What is the graduated repayment plan and how does it work?
The graduated repayment plan is an alternative to the standard repayment plan for federal student loan repayment. It lets you pay off your student loans in up to 10 years. Payments start low and increase every two years to give you time to increase your income after college.
Monthly payments will never be less than the amount of 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 some level of protection against loan payments you can’t afford.
How it works with federal consolidation loans
Consolidation loans are set up to be paid off in 10 to 30 years, but apart from the potential for a new repayment timeline, graduated payments work the same way.
Your consolidation loan timeline is based on the total amount of federal student loan debt you carry, including your consolidated loan as well as other federal student loans.
Graduated repayment plan schedule for consolidated loans
| At least | Less than | Years to pay off |
| $7,500 | 10 | |
| $7,500 | $10,000 | 12 |
| $10,000 | $20,000 | 15 |
| $20,000 | $40,000 | 20 |
| $40,000 | $60,000 | 25 |
| $60,000 | 30 |
Pros & cons of the graduated repayment plan
Pros
- Lower initial monthly payments when your income is likely lower
- Payment is never less than the interest accrued between payments
- Compatible with both 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 or 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 for you, look at how much debt you have and what you can afford to 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 for you, especially if you expect to earn more as your career progresses.
If you are in no way struggling to meet financial obligations, a graduated plan is probably not for you. You’ll end up paying more because the interest accrued will be higher than if you stuck with a standard payment plan.
Which loans qualify for graduated repayment 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
- FFELPLUS loans
- FFEL Consolidation loans
Standard vs graduated repayment plan
The standard repayment plan comes with some perks as well as some downsides when compared to the graduated repayment plan.
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
Although we’ve focused primarily on graduated repayment and standard repayment, these are not 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 which plan you go with. These plans are great if you’re struggling to afford any payments whatsoever; you could owe as little as $0 per month.
Also, at the end of the plan term, your remaining loan balance will be forgiven as long as you’ve kept up with the monthly payments.
Income-driven repayment plans include:
- Pay As You Earn (PAYE): Pay 10% of your discretionary income for 20 years.
- Revised Pay As You Earn (REPAYE): 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 come into play when you have an income that is too high to qualify for an income-driven plan.
Refinancing
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 good option to reduce your monthly payments but avoid the higher payments toward the end of the graduated repayment plan.
Before doing so, it’s important to know that 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.
