The Four Types of Direct Consolidation Loan Repayment Plans For Student and Working Adults
Taking a student loan is a very common and convenient way to fund your studies. Still, there comes a time when you have to start paying it off, and it's a good thing to be prepared for it. Whether you are already a student or building your career, getting a Federal Direct Consolidation Loan may be a good choice as this option also benefits working adults as well. The following paragraphs will review the different types of payment plans and benefits for Direct Consolidation Loan.
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. Every month all the repayments can be made under one single payment by uniting them together. This provides the borrowers an easy and convenience way to clear their debts on time without worrying to schedule different payments at different time. You will have four different types of payment plans to choose, two of which will take into account your income.
You dont require to have graduated to take advantage of Direct Consolidation Loan. Under such loan, it is common to have granted a lower interest rate than those people who refinance after they have graduated. Maybe up to 0.6% lower.
Standard Repayment Plan
With this plan, the maximum lifespan is ten years and borrowers are required to pay a fixed rate of minimum $50 monthly. 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 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 dont mind the higher interest paid over a longer period. Assuming the same amount of $15,000 loan with the same 8.25% interest rate over 15 years will have a total of $26,196 if the borrower chooses to pay $146 per month. This shows the interest is higher as compared to 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. This plan provides the flexibility to make payments according to borrowers annual income and thus enable them to avoid any financial hardship.
Its up to the borrowers 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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