What Is the Graduated Repayment Plan?

Federal student loans offer various repayment options to help borrowers manage their debt effectively. One such option, designed to accommodate evolving financial situations, is the Graduated Repayment Plan. This article clarifies its structure and implications.

Defining the Graduated Repayment Plan

The Graduated Repayment Plan is a federal student loan option with monthly payments that start low and steadily increase over time. This provides immediate financial relief, especially for borrowers beginning their careers or with lower initial incomes. The underlying principle is that a borrower’s income is likely to grow over time, enabling them to comfortably manage larger payments later in their loan term. This plan is available for most federal loans, including Direct Subsidized, Unsubsidized, PLUS, and Consolidation Loans, as well as Federal Family Education Loan (FFEL) Program loans.

How Payments Change Over Time

Under the Graduated Repayment Plan, monthly payments typically increase every two years. This allows borrowers to anticipate future payment adjustments. For most non-consolidated federal student loans, the repayment period extends up to 10 years. For Direct Consolidation Loans or FFEL Consolidation Loans, the term can extend up to 30 years, depending on total loan indebtedness.

Payments always cover at least the interest that accrues, preventing the loan balance from growing due to unpaid interest. No monthly payment will be more than three times greater than any other payment made under the plan.

Considering the Plan’s Design

This repayment plan is generally suitable for borrowers who anticipate a steady income increase over their career. It offers lower initial payments, beneficial during periods of lower earning potential. However, it can lead to higher overall interest costs compared to a Standard Repayment Plan. Less principal is paid off early, allowing more interest to accrue over the loan’s life.

The Graduated Repayment Plan is not an income-driven plan; payment increases are on a fixed schedule and do not automatically adjust if income growth does not materialize. This could make escalating payments challenging to manage.

Choosing Your Repayment Path

When considering student loan repayment, compare the Graduated Repayment Plan with other federal options. The Standard Repayment Plan involves fixed monthly payments over 10 years, resulting in the lowest total interest paid. Extended Repayment Plans offer lower monthly payments by stretching the repayment period up to 25 years, often requiring a higher loan balance to qualify. Income-Driven Repayment (IDR) plans, such as Income-Based Repayment or Pay As You Earn, adjust monthly payments based on income and family size, potentially leading to payments as low as zero dollars.

The Graduated Repayment Plan will no longer be available for new borrowers or those seeking to switch plans after July 1, 2026. Current student loan borrowers interested in this plan should consider their options before this date.