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. 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. In this article, we will discuss the different types of payment plans and its benefits regarding Federal Direct Consolidation Loan.

One of the benefits is simplification of payment. If you have a few different student loans, you will find it a time saving for you. 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. Borrowers can opt to choose any one out of four different payment plans, half of which will take into consideration your actual or expected income.

You dont require to have graduated to take advantage of Direct 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. 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. Assuming the same example from the Standard Plan but over a period of 15 years with $146 monthly payment. The total amount the borrowers have to pay is $26,196. The interest is $11,196, which is much higher than the Standard Plan.

Graduate Repayment Plan

The third plan is Graduate Repayment. This plan has similar lifetime as the Extended Repayment Plan but the payments are not fixed throughout. It usually starts with low payments and increases over time, every two years. This plan fits in between Standard and Extended Repayment Plan with lower payments initially and will adjust higher every two years to allow borrowers sufficient time to build their income steadily.

Income Contingent Repayment Plan

Under the Income Contingent Repayment Plan, monthly payments are adjusted accordingly to borrowers annual income and family size. This plan is the most complicated of the four but it provides the flexibility to meet borrowers obligation without causing them 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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