If you consider student loan is a very convenient way of funding your studies, you must also consider how you are going to pay it back someday. Getting ready to pay it back strategically is important and you must be prepared for it. 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.
You dont require to have graduated to take advantage of Direct Consolidation Loan. In most cases, you can expect to grant up to 0.6% lower interest rate than people who choose to refinance their loans 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. Who prefer to choose this plan? For those people who want to pay lesser interest because of the shorter term. In general, the shorter the repayment period, the lower the total interest paid. For instance, 8.25% of interest for $15,000 of loan over 10 years will total $22,077 if you pay $184 per month. Total interest is only $7,077. This is considered the lowest interest of all the plans due to the short term.
Extended Repayment Plan
The Extended Repayment Plan can have loan repayment between 12 to 30 years with the same minimum monthly payment of $50. However, the period varies accordingly depending on the total amount of the debts the borrowers have. This plan benefits people with huge amount of debts and would like a lower monthly payment up to 30 years. Lets 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
The Graduate Repayment Plan, with a similar lifetime as that of the Extended Repayment Plan, the payments are low during the first period and they increase over time, usually every two years. Who will benefit in this plan? For borrowers who just start their career and expected their income to grow steadily over time. Of course, this plan also incurs more interest than the Extended Repayment Plan.
Income Contingent Repayment Plan
This plan takes into account the borrowers family size and annual Adjusted Gross Incomes (AGI) to decide the monthly payments with maximum of twenty five years. The flexibility of this plan enables borrowers to avoid any financial hardship by adjusting the payments accordingly to their income annually.
This article will provide a simple understanding of direct debt consolidation loan although there are more to know when it comes to complicated interest rates calculation.
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