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What Is a Graduated Repayment Plan?

For some college grads, the income they earn right after graduation makes it difficult to pay down the balance on their student loans.

If this is a challenge for you, the government’s Graduated Repayment Plan might help make things more manageable by lowering your monthly student loan payments

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What is a Graduated Repayment Plan for student loans?

With this plan, your payments can start low and increase over time. Here’s how the plan works:

  • Every two years, your monthly payment amount increases.
  • The entire repayment period is 10 years (with a couple exceptions).
  • Your minimum payment is never lower than the interest that accrues between each payment.
  • Your highest payment will never be more than three times any other payment.
  • You can request to make interest-only payments on your federal student loans for the first four years. After that, you will need to make standard payments for both the principal and interest for the remainder of the term.

Who is eligible for this plan?

The Graduated Repayment Plan is available if you have one of these federal student loans:

  • Direct Subsidized 
  • Direct Unsubsidized
  • Direct PLUS 
  • Subsidized Federal Stafford 
  • Unsubsidized Federal Stafford, or

How does a Graduated Repayment Plan work with a consolidated loan?

If you have a Direct Consolidation Loan or FFEL Consolidation Loan, your repayment period may be between 10 and 30 years. The term will depend on the amount of your total student loan debt, including federal loans that are not part of the consolidation loan, as well as private student loans.

The Department of Education offers a helpful chart to clarify how a Consolidation Loan payment period changes according to a Graduated Repayment Plan.

What are the benefits?

The Graduated Repayment Plan is designed to start your loan repayment amount low, and then allow it to increase as your financial situation improves.

The plan helps make loan repayment easier right out of college and is ideal for those whose earning potential will likely increase in the years after graduation.

What are the drawbacks?

Because the plan begins with significantly reduced payments, the total cost of the loan actually increases. This is because the larger unpaid principle continues to collect interest. In addition, the plan’s 10-year repayment period may be burdensome for some.

When you weigh the options, also consider other income-driven payment plans that could be a better fit.

Refinancing your student loans is also a great way to lower monthly payments while reducing the overall cost of your loan. Find out how much you could save

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