Graduated Repayment Plan

By davidgaoUpdated April 17, 2018


Overview

The Graduated Plan entails initially making low monthly payments that gradually increase every two years over a 10-year repayment term (between 10 and 30 years for certain Consolidation Loans).

Eligibility

  • All federal loans qualify

Terms

Monthly Payment
Increases every two years over the life of the loan by a fixed percentage
Required Payment Minimum
Payment must cover interest
Required Payment Cap
Highest payment cannot exceed three times the lowest payment
Maximum Repayment Period
Up to 10 Years for all loans except Consolidation Loans over $7,500

For Consolidation Loans, the repayment period is (for debt balance between):

10 Years (<$7.5K)

12 Years ($7.5–$10K)

15 Years ($10–$20K)

20 Years ($20K–40K)

25 Years ($40K–60K)

30 Years ($60K+)

Loan Forgiveness
None
Interest Benefit
None
Interest Capitalization
Monthly payments always exceed interest under the Graduated Plan. However, if the borrower is unable to make payments, any unaccrued interest will be capitalized when:
  • The loan enters repayment (e.g. grace period ends, deferment ends)
  • The loan defaults
  • The borrower changes the repayment plan
  • The borrower consolidates the loan
Switching Plans
Borrowers can switch to any other plan for which they are eligible

Best For

  • Borrowers with highly-variable monthly incomes who need a low monthly minimum.
  • Borrowers with high debt and expenses relative to income.
  • Borrowers with high debt relative to income who do not qualify for an income-driven repayment plan.

Additional Notes

  • Total amount paid in interest under this plan will typically be greater than total interest paid under Standard Plan.
  • Since payments are initially low (and may just cover interest), interest accumulates more rapidly.
  • Because borrowers can always pay more than the minimum, borrowers with highly-variable monthly incomes can use this plan to secure a low monthly payment and make larger payments during months they have a higher income.

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