What Is a Graduated Repayment Plan?
The graduated repayment plan starts with lower payments and increases every two years. You will have 10 years to repay federal student loans on the graduated plan, or up to 30 years if you have a Direct Consolidation Loan.
Here’s everything you should know as you compare the standard versus graduated repayment plan, as well as other options:
Pros and cons of graduated loan repayment
A graduated student repayment plan offers the following benefits:
All borrowers are eligible if they have a loan on the approved list.
Payments slowly rise, allowing new graduates time to handle their student loans on lower, entry-level wages when they initially join the workforce.
But there are downsides:
You might pay more over time than with another option (like the standard 10-year repayment plan) since the smaller payments at the beginning take less of a bite out of the interest.
You may struggle when your payments increase if your income hasn’t risen as much as anticipated.
Unlike income-driven repayment plans, the graduated repayment plan does not have the potential to end in loan forgiveness.
The graduated repayment plan is not a qualifying plan for Public Service Loan Forgiveness (PSLF).
Loans that qualify for graduated repayment
Borrowers with the following federal student loans are eligible 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 student loans qualify for the program, the graduated repayment plan treats them a bit differently. (See more below.)
Payments on a graduated repayment plan
With the graduated repayment plan, your monthly student loan payment will increase every two years. However, your minimum payment amount will never fall below that month’s accumulated interest. In contrast, your monthly payment on an income-driven repayment plan can drop to “zero dollars.”
Furthermore, your payments will cap at three times the cost of any other payment plan.
ExampleHere’s what your graduated repayment plan payments would look like for a $30,000 student loan with a 5.5% interest rate:
- First student loan payment: $185
- Final student loan payment: $556
- Total amount (including interest charges): $41,453
You can use the Department of Education’s Loan Simulator tool to crunch numbers for your student loans. Along with showing details for a graduated loan repayment plan, this tool compares costs on other repayment plans. For example, you’d save $2,384 by sticking to the standard repayment plan in the above situation.
Our student loan calculator can also estimate your monthly costs and interest charges on various student loan repayment plans.
Unconsolidated vs. consolidated loans on graduated repayment
The main difference between unconsolidated and consolidated student debt on the graduated repayment plan is the term (or length) of the program:
- Unconsolidated loans: You’ll have 10 years to repay your debt
- 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, your current student loan balance. This includes all your student loans, even those not enrolled in a graduated repayment plan.
Even though private student loans are not eligible for any federal repayment plan, they are used to determine your “total indebtedness,” which in turn sets the number of years for your graduated repayment plan.
That said, the dollar amount that determines your loan term can’t be more than double the amount of the consolidation loan itself. So if you owe $100,000 in student debt but your consolidated loan is only $10,000, then the “total indebtedness” would be considered just $20,000, which translates to a term of 15 years.
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 |
Some private lenders offer plans similar to the graduated plan. For instance, certain lenders will let you make interest-only payments for a few years before making full payments.
If you need more help repaying your student loans, consider switching to a lower interest rate with a student loan refinance or discuss repayment options with your student loan servicer.
Alternatives to the graduated repayment plan
The graduated student loan repayment plan is helpful for many borrowers. As of 2023, more than 3 million borrowers enrolled in graduated repayment plans (out of the 45 million Americans with student loan debt).
Still, there might be better choices for some borrowers. Besides the standard and extended repayment plans, there are also income-driven repayment options. Here’s the rundown:
- Standard repayment plan: Payments remain unchanged over 10 years (unless you consolidate your loans). This plan typically saves the most money on student loan interest.
- Extended repayment plan: You can pick between an extended fix or extended graduated repayment plan, with terms going up to 25 years. However, you must have at least $30,000 in federal loans to be eligible. You’ll also pay more interest if you choose this route over the standard plan.
- Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE): These two loan repayment plans cap your monthly bill based on your household income and family size, typically at 10% of your discretionary income. Note that the Department of Education plans to stop accepting enrollments for the PAYE plan in July 2024 due to the new SAVE plan, which recently replaced the Revised Pay As You Earn (REPAYE) plan.
- Income-Based Repayment plan: You must have a high debt amount relative to your income to qualify for this plan. Your payments will be 10% or 15% of your discretionary income, depending on when you took out your loans.
- Income-Contingent Repayment plan: Your payments will be the lesser of either 20% of your discretionary income or the amount you would have paid on a repayment plan with a fixed payment over 12 years, adjusted to your income.
Explore all options before choosing the best student loan repayment plan for your situation. For many borrowers, an income-driven repayment (IDR) plan is a superior option for adjusting monthly payments.
Not only do IDR plans base your payment on your income, but they can also end in student loan forgiveness if you have a balance after 20 or 25 years of repayment. Additionally, you should opt for an IDR if pursuing the PSLF program.
Consider your projected career path and financial goals when deciding between the standard versus graduated repayment plan. 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 consider other options.
Frequently asked questions
A graduated repayment plan is an option for borrowers with federal student loan debt. Under this plan, your monthly payments start low, increasing every two years. Repayment terms go up to 10 years (or 30 years for consolidated loans) based on your total student loan indebtedness.
All federal student loans automatically start on the standard repayment plan with fixed payments over 10 years. This is one of the quickest ways to repay your student loans, plus it helps reduce your overall accrued interest. However, if you want to ease into student loan payments and slowly increase your monthly bill, the graduated repayment plan could be a good fit.
Furthermore, a graduated repayment plan allows you to take up to 30 years to repay your debt if you consolidate your loans first — but be prepared to pay more interest with this option.
Unfortunately, student loans on the graduated repayment plan will not be forgiven after a set period of time.
However, student loans on an income-driven repayment (IDR) plan will be forgiven after 20 or 25 years, depending on your IDR plan and whether you have loans from undergraduate or graduate school.