Direct Consolidation Loans - From Standard Plan To Income Contingent Repayment Plan Article

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Direct Consolidation Loans - From Standard Plan To Income Contingent Repayment Plan

Direct Consolidation Loan - From Standard to Income Contingent Repayment Plan. Choose to pay it back strategically.

Author: James Ma

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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. You may consider Direct Consolidation loan as this option is available to you whether you are a student or already a working adult. The following paragraphs will review the different types of payment plans and benefits for Direct Consolidation Loan.

One of the advantages is the consolidation payment, as the name says it all. For people with several different loans and payments to make, this is the best option. 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 don't need to have graduated in order to take advantage of the 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

Borrowers who choose the Standard Repayment Plan must adhere to the requirement - at least pay a minimum of $50 per month. The maximum lifespan is ten years. 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

The same minimum payment of $50 is required in the case of the Extended Repayment Plan as well, but this plan allows you to extend the life of the loan over a period between 12 and 30 years. 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

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. 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

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.

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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