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Here is a simplified summary of student loan consolidation repayment plans. We have put this list together to help you make sense of what options are available and what you should look for when deciding on the best option.
Whether you have one, two or several student loans, each one will either be a federal student loan or a private student loan. If you have federal direct student loans, there are 4 basic student loan consolidation repayment plans.
When you consolidate your federal direct student loans using an equal payment plan, you make equal monthly payments, which include both loan principal and interest. It works the same as a standard bank loan. You receive a fixed interest rate on your consolidation loan and then you make the same payment each month until the loan is paid off.
With a graduated repayment plan, you start the plan with lower monthly payments. Generally in this initial stage, monthly payments cover interest only. That allows you to keep your monthly payments low at a time when you need your money the most.
After a specified period of time, your monthly payments increase to include both interest and principal. This would be considered a two stage graduated repayment plan.
Some lenders offer two stage or three stage graduated student loan consolidation repayment plans. For three stage repayment plans, you start with the initial low monthly (interest only) payments. After a specified period of time, you begin paying slightly higher monthly payments that include interest and a small portion of principal. Then after another specified period of time, your monthly payments are adjusted upwards to include interest and the regular amount of principal.
This method is more expensive in the long run when compared to the equal payment plan. It allows you to delay payment on the principal so you get charged interest for a longer period of time than you would with the equal payment plan.
This option is only available to those with FFEL (Federal Family Education Loan) plans that were disbursed on or after October 7, 1998. The total FFEL debt amount must also be over $30,000 in order to qualify. If you have either an equal payment and graduated repayment plan you can choose to extend your repayment plan to 25 years.
The main benefit to you is lower monthly payments. But this option is more expensive in the long run than the equal payment or graduated repayment plans. It takes longer to repay so you will be charged interest for a longer period of time.
This option comes with a feature to help offset the extra expense. You can make extra lump sum payments or you can choose to pay more each month than the required monthly payment. The extra money gets applied directly toward the principal which means you pay off the loan faster. This applies to all of the student loan consolidation repayment plans.
This option of student loan consolidation repayment plans adjusts your monthly payment based on your ability to pay. Your monthly payment is calculated using your expected annual gross income and considers your total debts and the size of your family.
Each year your monthly payments are re-evaluated. You must provide the required documentation (income, outstanding debts, etc.) to your lender so they can determine an appropriate monthly payment level. One of the stipulations of this option is you must be able to make at least the minimum interest payment.
These are the 4 basic student loan consolidation repayment plans if you have federal direct student loans. These options have been created so that you can make federal direct student loan repayment more manageable. When you consolidate student loans , you lower your monthly payments to fit your budget and you make your student loans much more manageable.
A well established, nationally recognized lender provides can show you the best terms for you - simply apply. They will work with you to work out a suitable plan for your student loan consolidation.
There's no obligation for applying, just apply and find out what terms and benefits they can provide you.
