The Benefits Of Direct Consolidation Loans and Its Repayment Plans

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. As a student, one of the best options is getting a Direct Consolidation Loan. This option not only benefits students but also available to working adults. The following paragraphs will review the different types of payment plans and benefits for Direct Consolidation Loan.

Simplification is the obvious advantage for consolidation loans for those people who have several different student loans. Convenience is the key pointer to people with many different student loans. By uniting them under a single Direct Consolidation Loan, repaying the loan becomes more easily manageable, because you only have to make one payment instead of several different ones. You will have four different types of payment plans to choose, two of which will take into account your income.

You dont require to have graduated to take advantage of Direct Consolidation Loan. Under such loan, it is common to have granted a lower interest rate than those people who refinance after they have graduated. Maybe up to 0.6% lower.

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. People who are interested in this plan are the ones who prefer to pay lesser interest due to the shorter term. This is the simplest and straightforward plan because the shorter the repayment term the lesser interest borrowers have to pay back. 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 is slightly flexible than the Standard Plan. With the same minimum payment of at least $50 per month, the repayment can be extended between 12 to 30 years. The period varies according to the total amount of the debt. This plan benefits borrowers for larger amount of debts with lower fixed payment and up to 30 years of repayment term. 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 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 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 Income Contingent Repayment Plan, which takes into account the borrower's gross income and number of family members, as well as the maximum total sum to which the direct loans may rise. Maximum term is twenty five years. The flexibility of this plan enables borrowers to avoid any financial hardship by adjusting the payments accordingly to their income annually.

Its up to the borrowers decision to choose the type of plans, I hope the above explanation will provide a better understanding on direct debt consolidation loan.