What is a characteristic of a graduated repayment plan?

What is a characteristic of a graduated repayment plan?

• A. Payments remain constant throughout the term
• B. Payments start lower and end higher
• C. Only the final payment is higher
• D. Payments decrease over time

Answer: (B)

A graduated repayment plan is designed to accommodate borrowers who expect their income to increase over time. In this type of plan, monthly payments begin at a lower amount, making it easier for borrowers to manage their finances initially. As the plan progresses, the payments gradually increase at predetermined intervals, ultimately reaching a higher amount by the end of the term. This structure allows borrowers to ease into their financial obligations while anticipating higher income, making it a suitable option for recent graduates or those in the early stages of their careers. The other options do not accurately describe the characteristics of a graduated repayment plan. A repayment plan where payments remain constant throughout would be a standard repayment plan, not graduated. The final payment being higher alone does not encompass the gradual increase in installments typical of the graduated repayment model. Lastly, payments decreasing over time would suggest a different structure, like a declining repayment plan, which is contrary to the essence of how graduated repayment plans function.

A graduated repayment plan is designed to accommodate borrowers who expect their income to increase over time. In this type of plan, monthly payments begin at a lower amount, making it easier for borrowers to manage their finances initially. As the plan progresses, the payments gradually increase at predetermined intervals, ultimately reaching a higher amount by the end of the term. This structure allows borrowers to ease into their financial obligations while anticipating higher income, making it a suitable option for recent graduates or those in the early stages of their careers.

The other options do not accurately describe the characteristics of a graduated repayment plan. A repayment plan where payments remain constant throughout would be a standard repayment plan, not graduated. The final payment being higher alone does not encompass the gradual increase in installments typical of the graduated repayment model. Lastly, payments decreasing over time would suggest a different structure, like a declining repayment plan, which is contrary to the essence of how graduated repayment plans function.