Consolidate with a graduated repayment program

Gradually increase your payments as you make more money to pay off your loans fast.

Graduated Loan Repayment

Not everyone who wants to consolidate student loan debt is struggling. In many cases, borrowers simply want to combine all of their federal student loans into one payment to simplify the payoff process and provide a way to eliminate the debt as quickly as possible. The faster you can eliminate student debt, the more money you’ll save on interest charges and the less likely you are to face debt problems in the future.

This is where a graduated repayment program really shines, because it gives you a way to increase your payments gradually over time. This means you can match your payments to your salary growth, so as you have more money available, you devote more money to paying off your student loans.

The information below can help you decide if a graduated repayment program is the right solution for you to consolidate your student loan debt. If you have questions, call us to connect with a consolidation specialist for free or complete the form to the right to request help now.

How a graduated repayment program works

To use a graduated repayment program effectively, you should have a job in your chosen career field. This is important because the idea is that your payment will fit your salary now and then gradually increase as your salary increases with your yearly career advancement.

Pop Quiz

What is the current average base pay increase for American workers?

a) 1%

b) 2%

c) 3%

d) 4%

Reveal Answer

Tip: Analysts estimate the base pay increase will remain at 3% in 2014 – this is roughly 1% lower than the yearly averages just prior to the recession in 2008.

c) 3%

Return to question

When you consolidate, all of your federal student loan debts are combined into one monthly payment. The starting payment amount is set based on the total amount of debt you owe – much like any other type of loan. So the more debt you have the high your starting payments will be when they’re set.

Depending on when you initially took out your loans and the rules in place for interest rates at the time, you may also qualify for reduced interest rates on your debt. The interest rate on the consolidated debt will be set according to the new rules established in 2013 that set interest according to the 10-year t-note index. If you took out your loans prior to 2013, then this may mean you qualify for lower interest.

Once your plan is set up, you make one payment every month that covers all of your federal student loan debts. Payment recalculation usually occurs after about 2 years, so for two years your payments will be fixed at that initial amount. Then the payment amount increases.

Fact: Studies show that workers who negotiate salary can earn $600,000 to $2MM more than workers who don’t negotiate at all.

Basically, the idea is that after two years, you should have received one to two pay increases from your employer so you can afford to pay more money on your student loan debts. Your payments are adjusted up and then fixed at the new amount for about 2 years. This continues until you pay off your balance in-full – usually in 10 years or less.

Types of loans that qualify for this type of consolidation

You can use graduated repayment with almost any type of federal student loan debt. That includes:

  • Direct loans (subsidized and unsubsidized)
  • Federal Stafford loans (subsidized and unsubsidized)
  • PLUS loans

These include loans that were cosigned, so even if your parents cosigned on your student loans, you can still use a consolidation program like the graduated repayment program. PLUS loans are also available to parents directly to finance their children’s education, and these loans can also be consolidated with this type of program.

Why is it beneficial to increase payments over time?

Simple – you get out of debt faster so you save money on added interest charges. Student loan interest rates are set according to regulations, so no matter which consolidation program you use, the interest rate applied will be the same. However, what you can change is the number of months where that interest rate gets applied.

Every month you can shave off your time to total payoff saves you one month of added interest charges on your debt. So the faster you can eliminate, the better it is for your overall financial outlook.

What happens if things take a turn for the worse?

The nice thing about consolidating debt with this program is that you have the ability to change gears if your outlook takes a turn for the worse. If you have to switch jobs, you don’t get the pay increases you’re expecting, or something unexpected happens that causes problems for your budget, you can always consolidate with a different program that works better for that kind of situation.

Basically, all three of the “hardship-based” programs (Income-Based Repayment, Income-Contingent Repayment, and Pay as You Earn) all allow you to re-consolidate loans that were already consolidated on this program. Note that Pay as You Earn can’t be used by parents or with loans cosigned by parents, but the other two can. So even if you’re a parent or cosigner and face financial distress, you can change to a different consolidation program that will focus on providing lower payments that you can afford.