Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."
It’s not uncommon for student loan borrowers to struggle to keep up with their payments. Fortunately, a Graduated Repayment Plan can make paying off your federal student loans more manageable.
Here’s everything you need to know about how the Graduated Repayment Plan works and why it may be worth considering.
- What is a Graduated Repayment Plan?
- How does Graduated Repayment work?
- Pros and cons
- Is Graduated Repayment right for you?
- Other repayment options
- Consider consolidating or refinancing your loans
What is a Graduated Repayment Plan?
A graduated repayment plan is designed to make repaying your student loans more manageable. Your payments are lowest in the early years of loan repayment and gradually increase over time.
The idea behind a graduated plan is that as your career progresses and your income increases, it will become easier for you to make larger monthly payments. By starting with smaller payments that slowly grow, you’ll have a chance to adjust to the financial demands of repaying your student loans.
Most types of federal loans have a 10-year term under Graduated Repayment, but consolidated loans may have terms up to 30 years.
The U.S. Department of Education offers a graduated plan for federal student loans, including:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Federal Family Education Loan (FFEL) PLUS Loans
- FFEL Consolidation Loans
If you have private student loans, your payment options vary by lender. Check with your lender to see if a graduated plan is possible.
Here are some examples of private lenders with similar plans:
- Ascent offers progressive repayment to eligible borrowers, which slowly increases your payment amount over time.
- Sallie Mae has its own graduated repayment period, which allows you to make interest-only payments for 12 months, after which your normal payment amount will resume.
How does the Graduated Repayment Plan work for federal loans?
Unlike the Standard Repayment Plan, which divides your payments evenly over 10 years, the Graduated Plan sets your monthly payments lower at the beginning before slowly adjusting upwards every two years. Ideally, your income will rise as you get established in your career, so you’ll be able to afford those higher payments.
For example, say you owe $25,000 in student loans with a 5.00% interest rate. Here’s how your monthly payments would compare for Graduated and Standard Repayment Plans over 10 years.
|Graduated Plan||Standard Plan|
While a graduated plan may make your monthly payments more manageable in the short term, you’ll pay more in interest over the life of your loan compared to the Standard Plan. That’s because, in the early years of repayment, you’re paying less toward the loan’s principal balance.
Still, if you’re struggling to make your loan payments, Graduated Repayment could be a good option to help you avoid default and stay on track with your loans.
Pros and cons of Graduated Repayment
The Graduated Repayment Plan can be a helpful option if you’re struggling to keep up with your student loan payments, but it’s important to understand the pros and cons before you change your existing plan.
- Won’t extend your repayment period (unless you have consolidated loans)
- Affordable monthly payments in the early years
- Ideal for those whose income is expected to increase over time
- Usually costs more in total interest
- Payments at the end of the term are considerably larger than early payments
- If your income doesn’t increase, it could be tough to afford later payments
- Plan is ineligible for Public Service Loan Forgiveness program
How to know if Graduated Repayment is right for you
A graduated repayment plan could be a good idea if your income is too high to qualify for an income-driven repayment plan but you struggle to make your loan payments. Since your payments will increase every two years, it might also suit your situation if you expect your income to increase in the future.
But keep in mind that a lower payment today usually leads to more interest in the long run. If you’re able to keep up with your payments under the Standard Plan, sticking with it typically means accruing less total interest than Graduated Repayment.
Alternative repayment plans
Apart from Graduated Repayment, there are other federal loan repayment options you can choose from to make your student loan payments more manageable, such as:
The Standard Plan is the default option for federal student loans, and you’ll be automatically enrolled unless you choose another plan. You’ll make fixed payments spread evenly over 10 years. Your monthly payments may be higher than other plans, but you’ll pay the least amount of interest with this option.
Note that consolidation loans enrolled in this plan may have terms up to 30 years.
Under an income-driven repayment (IDR) plan, your monthly payments are based on your income level and family size, with payments adjusted annually. There are four different IDR plans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Depending on the plan, the repayment period is set at 20 or 25 years. At the end of your repayment period, any remaining balance may be forgiven.
The Extended Repayment Plan gives you 25 years to repay your debt. Your payments can be fixed or graduated, and will generally be lower than what you would pay under the Standard and Graduated Plans. This option is only available if your federal loan balance is greater than $30,000.
|Repayment plan||Financial hardship required||Eligible student loans||Payment||Repayment terms|
|Graduated repayment plan||No||All federal student loans||Based on your loan amount|
(payments start low and increase every two years)
(up to 30 years if loan is consolidated)
|Standard repayment plan||No||All federal student loans||Based on your loan amount||10 years|
|Extended repayment plan||No||All federal student loans||Based on your loan amount||25 years|
|REPAYE||No||Federal Direct Loans|
(Parent PLUS Loans not eligible)
|10% of discretionary income||For undergrad loans: 20 years
For graduate loans: 25 years
|PAYE||Yes||Federal Direct Loans|
(Parent PLUS Loans not eligible)
|10% of discretionary income||20 years|
|IBR||Yes||Federal Direct Loans|
(Parent PLUS Loans not eligible)
|Loans taken out before July 1, 2014: 15% of discretionary income|
Loans taken out after July 1, 2014: 10% of discretionary income
|Loans taken out before July 1, 2014: 25 years
Loans taken out after July 1, 2014: 20 years
|ICR||No||Federal Direct Loans|
(Parent PLUS Loans eligible if consolidated)
|Lesser amount of either 20% of your discretionary income or what you'd pay on a 12-year fixed repayment plan||25 years|
Consider consolidating or refinancing your loans
Consolidation and refinancing are two additional options to simplify your student loan payments and potentially lower your monthly payment. While they may appear similar at first glance, there are important differences between the two.
Federal student loan consolidation involves combining multiple federal loans into a single loan with a fixed interest rate and a single monthly payment. This can make it easier to manage your loans, since you can combine several accounts into one. Consolidation may also extend your repayment period to up to 30 years, which can lower your monthly payment.
However, consolidation doesn’t significantly change your interest rate, and may actually increase the total interest paid over the life of the loan.
Private student loan refinancing replaces one or more existing college debts with a new private loan. Both federal and private loans are eligible, and you lock in a different interest rate, repayment term, and monthly payment.
Refinancing student loans can be a smart option if you have high-interest loans and good credit, as you may be able to qualify for a lower interest rate and potentially lower your monthly payment. This can help reduce the overall cost of the loan and make it easier to manage your payments.
However, refinancing federal student loans with a private lender means you’ll no longer have access to federal benefits, including income-driven repayment plans, loan forgiveness programs, and more flexible deferment and forbearance. Carefully consider these factors before deciding whether to refinance your loans.
|Lender||Variable rates from (APR)||Fixed rates from (APR)|
|7.12%+ - 11.19%+8||7.610%+ - 14.510%+8|
|Compare personalized rates from multiple lenders without affecting your credit score. 100% free!
All APRs reflect autopay and loyalty discounts where available | 1Citizens Disclosures | 2College Ave Disclosures | 5EDvestinU Disclosures | 3 ELFI Disclosures | 4INvestEd Disclosures | 7ISL Education Lending Disclosures | 8Nelnet Bank Disclosures
Eric Rosenberg has contributed to the reporting of this article.