Graduated Repayment Plan Review and Process

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Are you struggling to make the minimum monthly payments on your Federal student loans? Are you aware of all the repayment plan options available to you? Even if you don’t qualify for income-driven payment plans, there’s another plan that may help to make your payments more manageable: the Graduated Repayment Plan.

This plan and the Extended Repayment Plan aren’t based on your income, can be easier to qualify for, and both options lower your monthly payment. If you need a break from trying to make ends meet when it comes to your student loans, read on to find out how the Graduated Repayment Plan can help.

How Does the Graduated Repayment Plan Work?

If you’re familiar with the Extended Repayment Plan, it has a graduated payment option within it that works much the same as the Graduated Repayment Plan itself. Essentially, you pay your loan back on the same 10-year term as you would normally, but your payments initially start out lower, and then increase every two years.

You can also choose to pay your loans back under the Graduated Repayment Plan if you consolidate them (using a Direct Consolidation Loan). In this case, you have up to 30 years to pay back your loans. Curious to know what your repayment term might be under consolidation? Check here for a chart that details what terms you’re eligible for based on your total amount of Federal student loan debt.

According to studentaid.ed.gov, under the Graduated Repayment Plan, your monthly payment “will never be less than the amount of interest that accrues between payments,” and it also “won’t be more than three times greater than any other payment.”

That means your payments will be high enough that you won’t fall behind with interest accruing month after month. For example, if you were paying $10 per month, but $20 in interest was accruing between payments, that wouldn’t be good. The last part is assuring you this payment option will never exceed three times any other payment option available to you. The Graduated Repayment Plan might not offer you the lowest monthly payments, but it will be lower than what you’re paying under the standard 10-year plan.

Which Federal Student Loans Are Eligible?

Only Federal student loans are eligible for the Graduated Repayment Plan. If you have private loans, you’ll have to speak with your lender to see if any repayment assistance options are available to you. Each one offers different programs.

Studentaid.ed.gov provides the following list of loans that are eligible for the Graduated Repayment Plan:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • Subsidized and Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans

There are no additional eligibility requirements you need to meet to make payments under the Graduated Repayment Plan.

How Can I Change My Repayment Plan?

If you’d like to change your repayment plan from the standard 10-year plan to the Graduated Repayment plan, call your student loan servicer and ask if they can make the change for you. You might be able to find the option to change your repayment plan online on your account as well.

Before changing, make sure to ask your loan servicer if you’re eligible for any other repayment plan options that provide a lower monthly payment. You can also check out the U.S. Department of Education’s Repayment Estimator to see what options are available for you.

How Does the Graduated Repayment Plan Compare?

Even though there isn’t a laundry list of eligibility requirements for the Graduated Repayment Plan, that doesn’t mean it’s automatically the best one to choose. If you’ve taken a look at the Repayment Estimator and aren’t sure which plan to choose, here are a few things to consider.

The Graduated Repayment Plan can be compared with the Extended Repayment Plan, as the latter actually has a graduated payment option. The two are quite different, though. The Graduated Repayment Plan is on a term of 10 years – the same as the Standard Repayment Plan. The Extended Repayment Plan offers terms up to 25 years.

With both plans, you’ll pay more money overall throughout the life of your loan than you would under the Standard Repayment Plan. You’ll likely pay more with the Extended Repayment Plan, given the extra 15 years you have to make payments.

If you’re wondering why you’d pay more over the Graduated Repayment Plan when it’s on a 10-year term, it’s because your payments start off lower and increase every two years. When your payments are lower, less is going toward principal and more is going toward interest. Most of the time, initial payments on the Graduated Repayment Plan are interest-only. As a result, your balance isn’t going down very quickly.

Aside from that, to be eligible for the Extended Repayment Plan, you need $30,000 in Direct Loans or $30,000 in FFEL Loans. The Graduated Repayment Plan doesn’t require you to have a certain amount of debt to qualify.

Income-driven repayment plans require proof of financial hardship, and some are based off your annual income, making them harder to qualify for.

Who Benefits the Most from the Graduated Repayment Plan?

Recent graduates just starting out in their career benefit the most from the initial lower monthly payments the Graduated Repayment Plan provides. Depending on how much student loan debt you graduated with, it can be tough to afford your minimum payment under the standard 10-year plan when you’re earning an entry-level salary.

The Graduated Repayment Plan gives you a little breathing room and allows your salary time to grow with your increased monthly payments. However, once your salary catches up, you might want to consider paying extra each month so you’re not paying as much in interest over the life of the loan.

What if I Have Private Student Loans?

As we mentioned, private student loans don’t have access to any of the Federal repayment programs. However, it’s still worth talking to your lender about your options. Some private lenders are willing to work with borrowers, giving them access to forbearance or the option to undergo a loan modification.

Additionally, you can also apply to consolidate your loans, as many consolidations offer extended repayment terms with lower monthly payments. Only do this as a last resort – some lenders charge origination fees to consolidate, and you want to make sure the savings are worth it.

Evaluate All Your Options

There are many repayment plans available to Federal student loan borrowers. If you’re eligible for more than one plan, do your research to ensure you go with the one that will save you the most money every month.

Take a look at the Repayment Estimator before calling your student loan servicer so you’re informed about the different plans, and don’t be afraid to ask for their opinion. Their job is to help place borrowers in the plan that makes the most financial sense for them – for free.

Don’t forget, you can always increase your payments as you go along if you find you have the extra money. This will help you pay less in interest over the life of the loan.

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Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at [email protected]

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