Loan consolidation for students

Knowing the 4 types of direct student loan consolidation

If you find it difficult to repay multiple students loans, you may be able to benefit with one of the direct student loan consolidation types. College education can be an extreme financial burden, especially if you have had to take out many loans to pay for it. As a newcomer to the work force, your income may be insufficient to handle your monthly payments, especially if some of the interest rates are very high.

One of the types of direct student loan consolidation may be the answer to your problem and give you some relief from demanding loan obligations.

These types of loan are granted to consolidate multiple high-interest loans into one obligation with a fixed interest rate. Your loans’ various interest rate are averaged, and then rounded off to the nearest 0.125 percent.

This can be a tremendous advantage for those who might otherwise be at-risk for defaulting on their obligations. They can make the difference by giving you a more affordable monthly payment and help you avoid the serious financial consequences of defaulting or falling behind in payments.

You will also gain the added benefit that the old loans will be retired and considered satisfied in full. This will immediately impact your credit and improve your overall score.

First you should understand some of the direct student loan consolidation types. There are four different kinds that are available. You will want to investigate further to find the best solution for your own needs. A brief overview follows.

1. Standard Repayment Plan

This loan offers a fixed monthly payment, and can be financed for up to ten years, depending on the total amount of the outstanding loans.

2. The Extended Plan

With this plan, your monthly payments can be dramatically reduced, since the principal can be financed over a 30-year period. Be aware that you will be accepting a long-term commitment, and will end up paying much more over the entire period due to interest compounding.

3. Graduated Plan

This plan can be repaid in periods of between 12 and 30 years. In graduated repayment, your monthly payments will be increased every two years. Since you will probably be earning more each year, this may be an attractive option for you.

4. Income Contingent Plan

This plan figures your monthly payment as a percentage of your gross income. Family size and the amount of the principal are also factors in establishing your payments. These can be financed up to 25 years.

Loan consolidation may not be the best option if you are close to repaying your loans at their current level. By extending your obligation, you will be paying out more money over the life of the loan, in addition to extending your obligation for a much longer period of time.

But if you still have many years to go before your loans are satisfied, and are having trouble making your payments, the direct loan consolidation may be the right answer for you. You will be repaying less interest if you finance for a similar length of time and enjoy a boost to your credit rating as well.