Graduated Repayment - The Unknown Benefit
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Some helpful information about graduated payment plans - the pros and cons.
Most borrowers who consolidate their student loans, do so in order to get some amount of monthly payment relief. While consolidation alone can cut monthly student loan payments nearly in half, a graduated repayment plan can lower that monthly payment even further.
Most graduated payment plans introduce an interest only payment for the first 2 years, followed by standard level repayment for years 3 through end of term. The initial graduated payment can be up to 45% lower then a standard level consolidation repayment plan. Here is a brief example based on a total loan balance of $25,000 at an interest rate of 6.8%:
Monthly payment before consolidation: $287
Consolidated level (standard) repayment: $191
Graduated repayment: $143 (first 2 years) $202 (years 3 - 20)
In this example, the borrower went from paying $287 per month before consolidating, down to $143 after consolidating by utilizing graduated repayment. Keep in mind, the graduated payment plan will significantly lower the initial monthly payment for the first several years, but will increase the total cost of the loan. But for many borrowers who are having trouble making monthly payments, and are at risk of going into default, the graduated repayment plan is a life saver.
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