College Student Loan Consolidation Types
As worthwhile as getting an education can be the costs can add up and become quite a burden to college students and parents. The various loans taken to secure an education can be burdensome to repay and in some cases can even lead to financial ruin. With loan consolidation the various loans are paid off by the lender providing the service. The lender then rolls the loans into one new loan with a new interest rate and payment plan. This helps students to reduce the monthly payment and gives them more time to repay the loan. The longer repayment terms sometimes means that the loan amount could be more than the original loans combined.
Private Loan Consolidation
Private loans are good if the college does not accept federal funding. It is also useful when federal funding will not cover all your outstanding loans. Private loan consolidations services are offered through banks and the terms are very similar to car loans and mortgages. Private loan consolidation has the advantage over federal loan consolidation in that it will typically cover the full amount of all your loans.
Federal Loan Consolidation Services
Federal direct loan consolidation made available from the U.S government is an option for American students and even to qualified non Americans who studied at U.S. colleges. This option for student loan consolidation is available to current students, recent graduates and those who are about to embark on new careers. It will not take your credit score into consideration and is easier to secure than private loans.
There four types of federal student loan consolidation. They are:
Standard School Loan Consolidation
With standard loan consolidation the payment terms extend to a maximum of 10 years with a fixed amount to be paid every month. Students who can afford to pay a fixed monthly payment should choose standard loans. The interest rate is almost negligible especially if the consolidation amount is high.
Extended Payment Plan
Much like the standard student loan consolidation the extended payment plan demands a fixed monthly payment that is extended over a longer period, usually 15 to 30 years. The length of time given for repayment all depends on the size of the loan.
Graduated Payment Plan
Students who are still enrolled in college who can only afford to begin payments after graduation should choose the graduated payment plan. With a repayment period of 15 to 30 years the monthly payments typically starts of low and increases every 2 years. In an ideal world the graduate will see an increase in salary over time and should be able to accommodate the increasing monthly payments as time passes.
Income Contingent Repayment Plan
The Income Contingent Repayment (ICR) plan makes it easier for students who pursue lower paying jobs to repay their loans. The monthly payments are based on the present income, size of family and the total amount of the loan. The payments are reviewed and adjusted annually based on changes in the borrower’s annual income and family obligations.
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