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. 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 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
With this plan, the maximum lifespan is ten years and borrowers are required to pay a fixed rate of minimum $50 monthly. 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 do a simple calculation. For example, a $15,000 loan with 8.25% interest rate for 10 years and the monthly repayment is $184, will equal to $22,077. That means borrowers have to pay $7,077 of interest, the lower of all the four plans.
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. 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 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 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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Source: http://www.articlealley.com/article_175442_19.html
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