4 Types Of Direct Consolidation Loan Repayment Plans You Must Know
Prepare for your studies, the most common and convenient way to get a loan is student loan. However, upon your graduate, its time to start paying it off and you must always be prepared for it. As a student, one of the best options is getting a Direct Consolidation Loan. This option not only benefits students but also available to working adults. 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. By combining all the loan repayments under one single account, it will become more easily to manage because you have only one payment to make instead of many. 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. Those people with higher income may choose the Standard Repayment Plan because borrowers pay the least interest compared to all the four plans with only ten years term. Lets take an example if a borrower loan $15,000 for his studies with 8.25% interest rate for ten years. The repayment is $184 for 120 months, that is equal to a total of $22,077. That means $7,077 of interest he has to pay for the whole term, and is considered the lowest interest as compared to all the other plans with longer 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. 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. 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 has the same repayment term as the Extended Repayment Plan but the payments will start low and increase 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 calculation under the Income Contingent Repayment Plan includes borrowers annual income and family size. Monthly payments are adjusted annually with a maximum lifetime of 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.
The above explanation will certainly helps borrowers make a better decision as to what type of repayment plans will benefit them most.
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