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What’s the Graduated Repayment Plan for federal student loans?

    Suppose you took out a federal student loan to help pay for college and have recently graduated. Upon graduation, you were immediately placed in the Standard Repayment Plan, a ten-year plan to repay your loan, making the same monthly payment for those ten years.

    This Standard Repayment Plan just might not work for you, though, especially as you get on your feet as a new grad. This is where the Graduated Repayment Plan comes in — it's one of several options to lower your initial monthly payments.

    As time goes on with this plan, your monthly payments increase, with the idea being that if your income and finances improve as you progress in your career, you’ll be able to afford the payments more comfortably.

    In this article, we’ll cover the Graduated Repayment Plan and some of its pros and cons.

    What’s the Graduated Repayment Plan and how does it work?

    The Graduated Repayment Plan for student loans allows you to make income-based payments that steadily increase. The repayment plan is designed to help students who come out of school and enter into jobs with pay that might not be high enough to start repaying student loans based on the Standard Repayment Plan.

    Several federal student loans are eligible for the Graduated Repayment Plan. They 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

    What monthly payment amount should you expect (except for consolidated loans)?

    If you have a Graduated Repayment Plan, your monthly payment amount increases every two years. Payments are made for up to ten years unless you have a consolidation loan, which can extend monthly payments for up to 30 years, depending on the loan principal.

    Payments will never be less than the amount of interest that accrues between your payments and won’t be more than three times greater than any other payment.

    Pros and cons of the Graduated Repayment Plan

    When considering the Graduated Repayment Plan, it’s essential to look at your individual needs and compare the pros and cons of the plan.

    Pros of a Graduated Repayment Plan

    • Payments can be more manageable in the early years after graduation
    • All Direct and FFEL loans are eligible for the Graduated Repayment Plan
    • Your income doesn’t affect your eligibility for this plan
    • Your repayment terms are based on your total student loan debt

    Cons of a Graduated Repayment Plan

    • You end up paying more than you would under the ten-year Standard Repayment Plan
    • It can be hard to predict your future income accurately
    • The Graduated Repayment Plan usually doesn’t qualify for Public Student Loan Forgiveness
    • Other income-driven repayment plans may make more financial sense depending on your income and expected future earnings

    Final thoughts

    Before you decide on a loan repayment option, make sure you’re making the right choice for your financial situation. One step to consider taking is to reach out to your loan servicer — the company that handles your federal student loans — to help you choose a loan repayment plan.

    You can also use the loan simulator to look at what repayment plans you may be eligible for and to compare the estimated monthly payment amounts for those plans. Based on your circumstances, the Graduated Repayment Plan may not provide you with the lowest monthly payment, so it’s important to compare your options and find the best plan.