What is a Graduated Repayment Plan?

This is one of the federally sponsored repayment plans for student loans, which focuses on eliminating debt efficiently to help minimize total interest charges. With this plan, the monthly payments increase by 7% every 2 years. The idea is that you gradually increase the payment amount and accelerate repayment as you advance through your career.

Types of federal student loans you can include

A graduated repayment plan can be used to consolidate any combination of the following loans:

  • Direct student loans, subsidized and unsubsidized
  • Stafford loans, subsidized and unsubsidized
  • PLUS loans (Direct or FFEL) for parents and graduate students
  • Direct and FFEL Consolidation Loans

Perkins loans and any private student loan debt you hold cannot be included.

How does graduated repayment work?

  1. First you choose which debts you wish to include in the program
    1. You are not required to include all of your debts
    2. There can be strategic reasons not include some debt to that we discuss more in the Education Center.
  2. The term of the loan depends on whether your plan includes a consolidation loan and the total amount of debt you want (see table below)
    1. This lowers the monthly payments, but increases total interest charges.
  3. The interest rate is set using a weighted average of the rates applied to all debts included.
  4. The monthly payment starts low – up to half of what you would pay on a standard repayment plan – and remains fixed at that amount for 2 years.
  5. At the end of 2 years, the payment amount is increased by 7%; it increases by an additional 7% every 2 years until the debt is repaid.

Repayment plan terms – i.e. the length of your repayment plan

If you don’t include a Federal Direct or FFEL Consolidation Loan in your repayment plan, then the term is 10 years or less. There is an option to extend this term from 10 to 25 years if you need lower monthly payments.

If your repayment plan includes a Direct or FFEL Consolidation Loan, then the term depends on how much you owe:

Total education indebtedness Term
Less than $7,500 10 years
$7,501-$10,000 12 years
$10,001-$20,000 15 years
$20,001-$40,000 20 years
$40,001-$60,000 25 years
More than $60,000 30 years


Advantages of graduated repayment

The main benefit of a graduated repayment plan is that it allows you to start at a lower payment and then increase over time. In theory, as you’re starting a new career path you may have limited income due to entry-level salary caps. So graduated repayment starts low then grows as you advance in your career and earn promotions.

This plan also helps minimize total interest charges so you save money over the life of your loans.

Are there any downsides?

Graduated repayment becomes challenging if you don’t receive regular salary increases or promotions. If you don’t advance quickly in your career, the 7% increases will eat up more of your income and make it difficult to meet your obligations. This is especially true at the end of the program, when payments may be higher than what you’d pay on a standard repayment plan.

The good news is that you can switch repayment plans whenever you need to do so. So if you don’t advance in your career as fast as you’d like, you can always change over to the standard plan later.