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What is a Graduated Repayment Plan for Student Loans?

By Kayla Korzekwinski

Kayla Korzekwinski is a Scholarships360 content writer. She earned her BA from the University of North Carolina at Chapel Hill, where she studied Advertising/PR, Rhetorical Communication, and Anthropology. Kayla has worked on communications for non-profits and student organizations. She loves to write and come up with new ways to express ideas.

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Edited by Maria Geiger

Maria Geiger is Director of Content at Scholarships360. She is a former online educational technology instructor and adjunct writing instructor. In addition to education reform, Maria’s interests include viewpoint diversity, blended/flipped learning, digital communication, and integrating media/web tools into the curriculum to better facilitate student engagement. Maria earned both a B.A. and an M.A. in English Literature from Monmouth University, an M. Ed. in Education from Monmouth University, and a Virtual Online Teaching Certificate (VOLT) from the University of Pennsylvania.

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Updated: April 11th, 2024
What is a Graduated Repayment Plan for Student Loans?

Are you considering a graduated repayment plan for student loans? Graduated repayment plans can be ideal for borrowers who have low income at the start of repayment, but expect it to increase. Continue reading to learn the details about graduated repayment plans!

See also: How to lower student loan payments

What is a graduated repayment plan?

A graduated repayment plan for student loans will begin with low monthly payments that increase over time. Monthly payments will cover at least the amount of interest that has accrued since the last payment. This plan is ideal if you’re having trouble making monthly payments now, but expect your income to grow. However, the increase will occur whether or not your income grows. If your income is low now, but you expect it to grow, this plan could be right for you.

The Department of Education offers a graduated repayment plan for federal loans, and some private lenders offer their own graduated repayment plan.

See also: All about income-driven repayment plans

For federal student loans

For federal loans, monthly payments increase every 2 years. Monthly payments will never cost more than 3 times the previous payment. However, this increase will occur whether or not your income grows. If you’re looking for payments that are calculated relative to your income, check out the Department of Education’s Income-Driven Repayment Plans (IDR).

The following types of federal loans are eligible to be paid on the Graduated Repayment Plan:

  • Direct Subsidized Loans
  • Direct Consolidation Loans
  • Subsidized Federal Stafford Loans
  • Direct PLUS Loans
  • Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • Direct Unsubsidized Loans
  • FFEL Consolidation Loans

The repayment period for the Graduated Repayment Plan is 10 years. If you pay federal consolidated loans on the Graduated Repayment Plan, the repayment period can be extended up to 30 years, depending on your total indebtedness. 

See also: How to consolidate and refinance student loans

For private student loans

Some private lenders also offer graduated repayment plans, but they will likely have different terms than the federal option. For example, Sallie Mae’s graduated repayment plan allows students to make interest-only monthly payments for one year. 

Be sure to do research on the repayment plan options that are available for your private student loans. Often, enrollment in these plans will have to be requested by the student. 

Things to consider

A graduated repayment plan for student loans can keep monthly payments manageable, especially if you don’t have a large income right out of college. However, there are some things to consider before enrolling:

First, you will pay the debt down slower. This is because most of your monthly payment will cover interest that accrued. The principal balance will not be reduced as quickly as it would on the standard 10-year repayment plan.

Additionally, the payments at the end of the repayment term could be more difficult to pay. Payments can be up to 3 times as much as they were at the beginning. This can cause financial challenges, especially if your income doesn’t increase as much as you thought it would.

See also: How does interest work on a student loan?

What to consider before refinancing

If you hold federal loans and are considering consolidating or refinancing, you should be sure to take repayment plans into consideration. Federal plans typically have more flexible repayment options, and if you refinance to private loans, you may lose this option.

For some people, the interest savings from refinancing might be worth the limited options. However, for others, the possibility of income-driven and graduated repayment plans outweighs the reduced interest.

Related: Navigating different types of student loans

Final thoughts

If a graduated repayment plan sounds right for you, contact your loan servicer to discuss how you can switch to one! Make sure to be proactive about this; you don’t want to end up in default, which could result in higher fees and damage to your credit score.

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