Why would someone choose a graduated student loan repayment plan instead of the standard?
For entry-level workers, the graduated payment plan is a good option as you slowly start to earn more over the course of your career. You want to be out of debt quickly. With some alternative repayment plans like IDR, your student loan debt could be with you for up to 25 years.
Some reasons for switching from the standard repayment plan to a graduated, extended, or income-based plan is to pay less in the beginning and pay more as time progresses. The automatic standard repayment schedule for a loan establishes the fixed monthly payments for a set amount of time, frequently ten years.
A graduated payment mortgage (GPM) is a type of fixed-rate mortgage with an amortization schedule that provides lower payments early on that then increase over time. The purpose of a GPM is to allow homeowners to start off with lower monthly mortgage payments to help certain people qualify for their loans.
- Pro: Lower Payment After Graduation.
- Con: Your Income May Not Increase Much.
- Pro: May Be Able To Pay It Off in 10 Years.
- Con: Only For Federal Loans.
For entry-level workers, the graduated payment plan is a good option as you slowly start to earn more over the course of your career. You want to be out of debt quickly. With some alternative repayment plans like IDR, your student loan debt could be with you for up to 25 years.
A graduated student repayment plan offers the following benefits: All borrowers are eligible if they have a loan on the approved list. Payments slowly rise, allowing new graduates time to handle their student loans on lower, entry-level wages when they initially join the workforce.
The Graduated Repayment Plan
Like the standard plan, the graduated plan spans 10 years, except for consolidated loans, which can span between 10 and 30 years. With the graduated repayment plan, monthly payments function differently. Your initial monthly payments will be very low. Payments increase every two years.
A standard plan offers fixed monthly payments over 10 years. Using this plan, you'll pay less interest over time and get out of debt faster, but the monthly payments can be difficult for some borrowers.
The graduation factor for $30,000 in debt at a 5% interest rate and 20-year repayment term is 5.75%. The loan payments start at $159.10 and increase to $263.09 by the end of the repayment term, with total payments of $43,422.12.
One disadvantage of a Graduated Payment Mortgage is: The loan may negatively amortize in the first few years The loan will have a balloon payment at the end The payments get less and the interest increases over time There are even payments over the life of the loan.
Does graduated repayment plan qualify for loan forgiveness?
Some payments that don't count toward loan forgiveness under PSLF may count toward forgiveness under TEPSLF. The additional qualifying repayment plans include the Graduated Repayment Plan, Extended Repayment Plan, Consolidation Standard Repayment Plan, and Consolidation Graduated Repayment Plan.
Which is an example of a graduated repayment plan for student loans? Payments start lower and increase every 2 years.
If you need to make lower monthly payments over a longer period of time than under plans such as the Standard Repayment Plan, then the Extended Repayment Plan may be right for you.
If your income is low now, but you expect it to increase steadily over time, this plan may be right for you.
Standard repayment lasts 10 years and is the best one to stick with to pay less in interest over time. Income-driven repayment (IDR) options tie the amount you pay to a portion of your income and extend the length of time you're in repayment to 20 or 25 years.
Cons of the standard repayment plan include: Larger monthly payments. Since you're on track to pay off your loans sooner, you'll have higher monthly payments.
Income-driven repayment plans provide borrowers with more affordable student loan payments. The student loan payments are based on your discretionary income. These repayment plans usually provide borrowers with the lowest monthly loan payment among all repayment plans available to the borrower.
In graduated repayment, payments start off low and increase every two years. You can contact your loan servicer to enroll, and all federal student loan borrowers are eligible for this program. See more tips for repaying student loans, including income-driven repayment.
Generally, no. The Standard Repayment Plan for Direct Consolidation Loans is not the same repayment plan as the 10-year Standard Repayment Plan, and payments made under the Standard Repayment Plan for Direct Consolidation Loans do not usually qualify for PSLF purposes.
The benefit of an extended repayment plan is that it lowers your monthly payments. For example, if you have $35,000 in unsubsidized federal student loans with a 4.53% interest rate, you might struggle to keep up with the $363 monthly payment on the standard plan.
Can I switch to standard repayment plan?
The standard repayment plan is available to all federal loan borrowers, and you can even switch back to it if you've chosen a longer repayment plan in the past. Eligible loans include: Direct subsidized and unsubsidized loans.
When you leave school, you will be automatically enrolled in the Standard Repayment Plan unless you pick a different repayment plan. These loan types are eligible: Direct Subsidized and Unsubsidized Loans. Subsidized and Unsubsidized Federal Stafford Loans.
To maximize your PSLF benefit, repay your loans on the Income-Based Repayment (IBR) Plan, the Pay As You Earn Repayment Plan, or the Income Contingent Repayment (ICR) Plan, which are three repayment plans that qualify for PSLF. PSLF is best under IBR, Pay As You Earn, or ICR.
GRADUATED REPAYMENT PLAN
Under this plan, your payments start out low and then increase every two years. No single payment under this plan will be more than three times greater than any other payment.
Under extended graduated student loan repayment, your payments start small and then increase every two years. You can also choose a fixed version of the extended repayment plan, which splits payment amounts evenly over the 25 years.
