When it comes time to repay your student loans, do you know the best way to do it? If you borrowed federal student loans, a graduated repayment plan is an option worth exploring.
Here’s what you need to know about choosing a graduated student loan repayment plan and using it to help you manage your debt.
What is a graduated repayment plan?
The graduated loan repayment program is designed to help federal aid borrowers who currently have low incomes, but expect to see their earnings rise over time.
That perfectly describes many recent grads who are new to the workforce. You may be earning an entry-level salary today, but that income should rise over time as you gain more experience, get promoted or work your way into better-paying jobs.
A graduated payment plan will allow you to pay off your student loans within 10 years, and as the name suggests, the payments gradually rise over the life of the loan.
Specifically, you’ll see your monthly student loan payment increase every two years if you take advantage of graduated student loan repayment.
What loans qualify for graduated repayment?
Borrowers who took out the following federal student loans are eligible to opt for a graduated repayment plan:
- 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
While individual loans and consolidated loans both qualify for the program, note that graduated repayment plans treat each a little differently.
The difference between unconsolidated and consolidated loans
As mentioned, your graduated student loan repayment plan starts with low monthly payments that increase every two years for both unconsolidated and consolidated student debt. Your payments will never be less than the amount of interest that racks up over the month, and your payment amount maxes out at three times the amount of the payment you would get on other plans.
The major difference in how loans are treated in a graduated repayment plan is the term (or length) of the program: For unconsolidated loans, you’ll pay off your debt in 10 years, but with consolidated federal student loans, the term could span from 10 to 30 years.
The length of your repayment period for consolidated loans depends on your “total education loan indebtedness.” In layman’s terms, that’s the total amount of student loan debt you carry, including federal loans that are not part of your graduated repayment plan, as well as any private student loans.
Here’s how the terms break down:
- If you have $7,500 or less in debt, your repayment period is 10 years.
- If you have at least $7,500 but less than $10,000, your payment period is 12 years.
- If you have at least $10,000 but less than $20,000 in debt, the repayment period is 15 years.
- If you have at least $20,000 but less than $40,000 in loans, you’ll have 20 years to repay your debt.
- If you have at least $40,000 but less than $60,000, your payment period is 25 years.
- If you have $60,000 or more in debt, your repayment period is 30 years.
The pros and cons of graduated loan repayment
A graduated student repayment plan offers some benefits, including:
- All borrowers are eligible.
- Payments slowly rise over time, which allows new graduates to handle their student loans on lower, entry-level wages when they join the workforce. You can pay more when you start earning more.
But there are downsides, too:
- You might pay more over time using this plan than with another option (like the standard 10-year repayment plan), as interest accumulates due to smaller payments early on.
- You may still struggle with payments if your income does not rise like you expect it to.
Alternatives to the graduated repayment plan
The graduated student loan repayment plan is helpful for many borrowers — in fact, more than 3 million borrowers were enrolled in graduated repayment plans in 2018.
However, it may not for everyone. Be sure to check out other federal programs designed to help you pay back your student loans.
- Standard repayment plan: Get a set payment that you pay over 10 years (unless you consolidated your loans) and save the most money on interest with this plan.
- Extended repayment plan: Payments can be fixed or graduated, and the plan allows you up to 25 years to repay what you owe. You will pay more in interest if you choose this route than you would on the standard plan.
- “Pay As You Earn” (PAYE) and REPAYE: These two loan repayment plans are only open to borrowers who meet certain requirements. Payments are calculated based on your household income and family size, and are generally set at 10% of your discretionary income.
- Income-Based Repayment plan: You must have a high debt amount relative to your income. With this plan, your payments are set at 10% to 15% of your discretionary income.
- Income-Contingent Repayment plan: On this plan, your payments are either 20% of your discretionary income, or the amount you would pay on a repayment plan with a fixed payment over 12 years — you’ll pay whichever is less. That number is adjusted according to your income.
Make sure to explore all your options before choosing the student loan repayment plan that will benefit you the most.
Consider your projected career path and financial goals, and be sure to ask questions and do your research. In addition, keep in mind that you can change your repayment plan at any time, for free — so if a graduated student loan repayment plan turns out not to be the right choice for you, you’ll still have other options available.
Jamie Cattanach contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.47% APR (with Auto Pay) to 7.59% APR (with Auto Pay). Variable rate loan rates range from 2.27% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of August 15, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/15/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.37% effective July 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.27% – 6.89%1||Undergrad & Graduate|
|2.27% – 7.75%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.24% – 6.67%4||Undergrad & Graduate|
|2.37% – 7.95%5||Undergrad & Graduate|
|2.46% – 9.24%6||Undergrad & Graduate|