Federal Student Loans Holders have a choice of repayment options, including standard repayment plans and graduation repayment plans. Unlike standard repayment plans with fixed payments, graduation repayment plans start with low monthly payments that increase every two years.
If you are a recent graduate, a graduated repayment plan is beneficial if you have a lower starting salary that lowers your initial monthly payments. Before you use this plan to repay Student loancontradict the pros and cons, and see if it suits you.
How a graduation repayment plan works
A graduated repayment plan will lower monthly payments and gradually increase every two years. The repayment period is usually 10 years, but a consolidated loan costs up to 30 years. Planned payments will not be less than the interest that increases between payments.
Non-integrated loans
If you choose a graduated repayment plan and have a non-integrated loan, the US Department of Education will decide on your payment. In general, payments start at about 50% of what you pay with a standard repayment plan and end at about 150% of what you pay with a standard repayment plan.
- I’ll pay off my loan in 10 years
- Monthly payments increase every two years
- Do not pay less than the interest accrues during payments
- Monthly payments will not be tripled as much as other plans
Integrated loan
If you have a consolidated loan, your payment timeline looks slightly different. If your consolidated loan is under $7,500, the repayment period is still 10 years. If you borrow between $7,500 and $10,000, you can pay it back for more than 12 years. The repayment period increases as the total loan balance increases.
| Student loan debt | Repayment period |
|---|---|
| 0-7,500 dollars | 10 years |
| $7,500-10,000 | 12 years |
| $10,000-$20,000 | 15 years |
| $20,000-40,000 | 20 years |
| $40,000-60,000 | 25 years |
| Over $60,000 | 30 years |
| sauce: StudentAid.gov |
Ministry of Education Loan Simulator It will help you determine whether a graduated repayment plan is a good option for your student loan. Before registering, consider your career and long-term income trajectory before you have control over your monthly payments.
- Pay off your loan in 10-30 years
- Monthly payments increase every two years
- Do not pay less than the interest accrues during payments
- Monthly payments will not be tripled as much as other plans
Graduated repayment plans: pros and cons
Graduated repayment plans do not work like that Income-led repayment (IDR) plans. Even if your income does not increase over time, you will still be on the hook for an increase in payments near the end of your plan.
Conclusion
Registering with a graduate repayment plan is meaningful if you want to take advantage of the low payments for the first few years. But before using it to pay off federal student loans, consider the major drawbacks of this plan first, such as an increase in total borrowing costs over a standard repayment plan.
If you need to determine which repayment plan is best, use a federal student aid loan estimator or use a student loan calculator to assist with your repayment strategy.
