4 Types of Direct Student Loan Consolidation
As a student, do you find it difficult to pay back your student loans? While student loans are very good because you and I might not be able to get a higher education without it. On the other hand, it will be difficult to pay monthly payments on time due to high interest rates and other external factors that can challenge your wallet.
If you are having trouble paying back your student loans, you might want to consider consolidating student loans directly.
So what is meant by direct student loan consolidation?
Basically, it only exchanges or consolidates your existing student loan with a higher interest rate for one loan with a fixed interest rate that is easier to manage. The interest rate is determined by the average of your loan, rounded to the nearest 0.125 percent.
Direct student loan consolidation is very useful if you know you will default on your monthly student loan payment. Direct student loan consolidation can mean a new start because it is considered a new loan.
When you consolidate your student loan under a new loan, your existing loan will appear on your credit card as paid, thereby increasing your credit score.
Before getting a direct student loan consolidation, you need to know the type of payment plan. There are four main types. You might want to investigate more to consider what works best for your needs.
1. Standard Payment Plan
The Standard Repayment Package allows you to make fixed monthly payments for up to 10 years depending on the amount of your debt.
2. Extended Payment Plans
An extended payment plan allows you up to 30 years. Obviously, the longer the period, the less the amount you have to pay each month. Note, however, that you will pay more overall if you spread your payment over a longer period of time because of the interest rate.
3. Pass Repayment Plan
A Pass Payment Plan usually has a payment period of between 12 and 30 years. The main difference between a graduation and renewal payment plan is for graduation, your monthly payment amount will increase every two years.
4. Contingent Income Payment Plan
If you have a job, then this plan is probably what you are looking for. The contingent income payment plan sets monthly payments based on your gross annual income. Other factors include the size of your family and the amount of debt. The payment term is usually 25 years.
As a warning, if you almost pay off your student loans, then direct student loan consolidation may not be right for you because you will pay more because of long-term interest rates.
However, if you have difficulty repaying your student loans and there are still many years left to be paid off, then a straightforward student loan consolidation might be the answer. You not only pay less interest in the long run but can also improve your credit rating.