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How the Graduated Repayment Plan Works for Student Loans

graduated repayment plan

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As a new college graduate, you’ll likely start with a low salary and boost your income over time. That’s why the Graduated Repayment Plan can be appealing, since it involves low student loan payments in the beginning which gradually increase over the years.

While this approach can make your initial payments more affordable, it may lead to greater interest costs in the long run. Read on for all the pros and cons of the Graduated Repayment Plan so you can decide if it’s right for you.

How the Graduated Repayment Plan works

The Graduated Repayment Plan is one of several student loan repayment plans available for federal student loans. On this plan, your monthly student loan payments start out low and increase every two years.

But they won’t increase indefinitely. On the Graduated Repayment Plan, you’ll never pay more than three times your initial payment. So if your starting payment is $100, your final payments won’t be greater than $300.

For most loan types, your term will be 10 years, the same as the standard repayment plan. But if you have a Direct consolidation loan, your loan term could be anywhere from 10 to 30 years, depending on how much you owe.

Loan terms on the Graduated Repayment Plan for a Direct Consolidation Loan
Loan amount Number of years
$7,500 or less 10 years
$7,500 – $10,000 12 years
$10,000 – $20,000 15 years
$20,000 – $40,000 20 years
$40,000 – $60,000 25 years
$60,000 or more 30 years


Again, this chart only refers to Direct consolidation loans; other loan types have a term of 10 years on graduated repayment. If you need more than 10 years, you could,

  • Opt for the Extended Repayment Plan with the graduated payment option
  • Apply for Direct loan consolidation before applying for graduated repayment
  • Choose an income-driven repayment plan

Which loans are eligible?

Pretty much all Direct loans and FFEL loans are eligible for graduated repayment. These include,

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

Benefits of graduated repayment

Graduated repayment makes your student loan payments more affordable in the beginning, which can be helpful if you can’t afford your student loan bills. And for most loan types, it keeps your loan term at 10 years, same as the standard plan.

So even though you won’t have to pay as much at the beginning, you’ll still get out of debt in the same time frame. Although your payments will increase over the years, this might work with your budget if your income increases over the years along with it.

For borrowers with large balances on Direct consolidation loans, the terms of 10 to 30 years might also bring some welcome financial relief.

Drawbacks of this repayment plan

Before signing up for Graduated Repayment, it’s important to be aware of some important downsides.

It may make your loan more expensive

First, this plan will cost you more interest overall than the standard plan.

Since you’ll be making small payments at the beginning, you might not be paying down your principal at all. As a result, interest will accrue more in the first few years than it would on the standard repayment plan with fixed monthly payments.

And if you end up with a term longer than 10 years, you’ll pay even more interest over time.

Your future payments could become burdensome

Since your payments increase over time, you might end up paying a lot more than you are at the beginning.

Let’s say you owe a ton of student loans from medical school. You start paying them off at $500 per month, but at the end of your term you’re making payments of $1,500 per month. That could be even more than you pay in rent!

If you don’t end up increasing your income substantially, those increasing payments could become a burden.

You might find better terms on an income-driven plan

Finally, it’s worth noting that you might find better terms on an income-driven repayment plan, such as Pay As You Earn or Income-Based Repayment. These plans adjust your payments based on your income to make them more affordable.

They extend your terms to 20 or 25 years, which could lead to higher interest costs, but you can pre-pay your loan ahead of schedule to get out of debt faster.

If you can’t pay your loan off in this time, the remainder will be forgiven (you will have to pay taxes on the forgiven amount). If you’re looking to lower payments in accordance with your income, an income-driven plan might be preferable to graduated repayment.

Explore all your student loan repayment options

Federal student loans automatically go on the standard 10-year plan with fixed monthly payments, but you do have alternative options. These include,

If you’re looking for relief, explore all your options before choosing a plan to make sure you’ve found the one that’s best for your situation.

It might also be worth considering refinancing your student loans for better rates. Refinancing can save you money, but it does turn federal loans private.

Make sure you’re comfortable sacrificing federal repayment plans and programs before refinancing federal debt with a private lender.

By educating yourself on your options, you can find the right repayment plan for you while avoiding falling behind on your student loan payments.

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Variable rates start at...Fixed rates start at...Repayment termsWelcome bonus Check your rates
refinance student loans4.54%4.49%5 - 20 years$200Visit LendKey
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refinance student loans4.22%3.97%5, 7, 10, 15, and 20 years$120Visit Laurel Road
refinance student loans4.53%4.40%5 - 20 years$100 or $200, depending on the amount you refinanceVisit Credible
refinance student loans5.09%4.74%5, 7, 10, 15, and 20 years$100Visit SoFi
refinance student loans4.53%4.83%5, 7, 10, 15, and 20 years$100Visit ELFI