Curious if the Graduated Repayment Plan is right for you?
The graduated repayment plan is a repayment plan for borrowers who are starting out with low incomes but expect to see an increase in their incomes over time. This makes sense for a lot of recent grads who take entry level jobs but who will see pay increases as they get promoted, gain experience, and or get better paying jobs over time. The program is beneficial in the sense that borrowers start out making low student loan payments and gradually start paying more (in theory, as their incomes rise).
Figuring out how to navigate your student loan debt is like trying to figure out what to eat for lunch when you’re already hangry. (anger induced by hunger).
There are so many different options, that it leaves you (or at least, me) feeling like sticking my head under a rug and sobbing. (I get dramatic when I’m hungry). And to make matters worse, each student loan option is needlessly complicated. Its like trying to order a basic meal (a #1– a plain hamburger with fries and a Diet Coke) and then having your waiter assault you with sundry of questions. Well do you want special sauce with that? Do you want onions? What about grilled onions? Lettuce? Tomato? What about trying something crazy on it, like pineapple? Jalapeno? And before you know it, you’ve collapsed on the ground, too hungry to make any decisions. In each of the federal student loan forgiveness options, you have to follow the rules with precision in order to have your loans forgiven. So, first, you have to know what those rules are before you can make a decision. But the rules can be hard to understand. And your hungry. And understanding things when your hungry is hard. So, in our student loans simplified series, we are breaking down each of the federal student loan repayment options in bite sized pieces to help you understand and make the best decision for you.
Who’s hungry?
The graduated repayment plan is a repayment plan for borrowers who are starting out with low incomes but expect to see an increase in their incomes over time. This makes sense for a lot of recent grads who take entry level jobs but who will see pay increases as they get promoted, gain experience, and or get better paying jobs over time. The program is beneficial in the sense that borrowers start out making low student loan payments and gradually start paying more (in theory, as their incomes rise).
Here is everything you need to know about the graduated repayment plan, simplified.
Elibility is easy.
- All federal loans are eligible. This includes the various forms of Direct loans, Stafford loans, and FFEL loans.
- Unlike many of the other federal repayment plans, you don’t have to jump through any hoops to qualify for the graduated repayment plan. (Contrast that to PAYE where you have to prove “partial financial hardship” each year). As long as you have federal student loans, you can sign up for graduated repayment.
You’re payments start out low and increase every two years.
When you sign up for graduated repayment, your payments will start out low. After two years, they will increase. Two years later, they’ll increase again and this process repeats until you hit your 10 or 30 year mark. (Keep reading if that didn’t make sense).
You will pay off your loans within 10 or 30 years.
If you have Consolidated or FFEL loans, then you will have 30 years to pay back the balance of your loans. For all other federal loans, the repayment period is 10 years. Keep in mind that having more time is not necessarily a good thing. Interest will accrue and the longer it takes you to pay off your loan, the higher the principal balance of your loan(s) will be.
The Graduated Repayment Plan is more expensive than a standard repayment plan.
If you choose the Graduated Repayment Plan, keep in mind that you will pay much more over the life of the loan than you would under the Standard Repayment Plan. This is because while you are making low payments during the initial repayment period, more interest on the balance of your loan(s) will be accruing than would accrue if you were making normal payments under the Standard Repayment plan.
You may struggle with your student loan payments if your income does not increase like you expect it to.
Obviously none of us have crystal balls that will accurately show us our futures, so none of us can say when exactly our incomes will increase. This makes the Graduated Repayment plan a little bit scary. It is very possible that your payments will increase on the plan before you receive an increase in income to match your increasing student loan payments. If this concerns you, consider an income-driven repayment plan like PAYE or REPAYE. If your income increases and you do not wish to have the balance of your loan(s) forgiven, you can always switch to a standard repayment plan or refinance with a private lender for a better interest rate later.
Who should choose a graduated repayment plan:
- a professional starting out with an entry level salary that will increase according to set schedule (i.e. an accountant starting at a big firm where raises and promotions occur very predictably, every 2-3 years).
- someone who is generally opposed to income-driven repayment
Do you know someone with student loans? Make their lives better by sharing our student loans simplified series with them!
OTHER POSTS IN OUR STUDENT LOANS SIMPLIFIED SERIES:
EVERYTHING YOU NEED TO KNOW ABOUT PUBLIC SERVICE LOAN FORGIVENESS
EVERYTHING YOU NEED TO KNOW ABOUT THE EXTENDED REPAYMENT PLAN
Hi there! I’m Amber! And welcome to the Deeply in Debt blog where we’re offering simple solutions for big debt.