The Benefits Of Direct Consolidation Loans and Its Repayment Plans

A very common and convenient way to fund your studies is by taking a student loan. With student loan, you have peace of mind throughout your studies. Still, there will always be a time you have to pay it back including the interest. You should always be prepared for it upon your graduate. One of the options you can consider is getting a Federal Direct Consolidation Loan. This option is available to you irrespective of your current status - still a student or already building your career. There are several different types of payment plans for Direct Consolidation Loan that will benefit different types of people. In this article, we will review all of them.

Simplification is the obvious advantage for consolidation loans for those people who have several different student loans. Convenience is the key pointer to people with many different student loans. By uniting them under a single Direct Consolidation Loan, repaying the loan becomes more easily manageable, because you only have to make one payment instead of several different ones. There are four different payment plans for you to consider which will benefit you most. But two types will take into account of your income.

It does not matter whether you have graduated or not, students can still take advantage of Consolidation Loan. In actual fact, you will grant more attractive terms such as lower interest rate of up to 0.6% lower than those people who choose to refinance after they have graduated.

Standard Repayment Plan

The Standard Repayment Plan has a maximum lifetime of ten years and borrowers are required to pay a fixed rate of at least $50 per month. People who are interested in this plan are the ones who prefer to pay lesser interest due to the shorter term. This is the simplest and straightforward plan because the shorter the repayment term the lesser interest borrowers have to pay back. For example, if the loan is $15,000, interest rate is 8.25%, and monthly repayment is $184 for ten years, the total amount is equal to $22,077. The interest is $7,077 for the whole term and this is supposed to be the lowest interest borrowers have to pay of all the plans.

Extended Repayment Plan

Under this plan, borrowers are allowed to extend the term between 12 to 30 years with the same minimum payment of at least $50 per month. Depending on the amount of debts, the repayment term varies accordingly. This plan benefits peoples who have just started building their career, thus reflects a lower fixed payment and don’t mind the higher interest paid over a longer period. Let’s take the same example of $15,000 loan with 8.25% interest rate over 15 years of $146 monthly payment. That will be equal to $26,196. Sure, under the Extended Repayment Plan the interest borrowers have to pay will be higher than the Standard Plan.

Graduate Repayment Plan

Apart from Extended Repayment Plan, the Graduate Repayment Plan has a similar lifetime and it starts with low payments in the beginning but usually increases over time, probably every two years. This plan benefits borrowers with lower income and increases payments over time to avoid financial difficulties when they are just started building their career. Under this plan, borrowers are expect to pay more interest than the Extended Repayment Plan but may seem to be a good option for some people.

Income Contingent Repayment Plan

The Income Contingent Repayment Plan, which takes into account the borrower's gross income and number of family members, as well as the maximum total sum to which the direct loans may rise. Maximum term is twenty five years. The flexibility of this plan enables borrower’s to avoid any financial hardship by adjusting the payments accordingly to their income annually.

It’s up to the borrower’s decision to choose the type of plans, I hope the above explanation will provide a better understanding on direct debt consolidation loan.

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