Friday, June 29, 2012

Consolidation Programs For Federal Student Loans: Main Options To Consider

Students want to repay their debts, just like the rest of us. The only problem is they have little or no income to do so with. But with the availability of consolidation programs for federal student loans, even those students in dire financial situations have a route to better stability.

Private lenders already offer large consolidation loans but they do not allow federal aid to be included in the program. This can mean the task of clearing college debts is made harder rather than easier. However, federal programs can also be used to deal with that sector of the debt. In some cases, private loans are also acceptable, but this is not a recommended addition.

There is a choice of consolidation programs available, each of which has its own terms, conditions and advantages. They are all structured specifically to reduce the overall cost of repaying the federal student loans, but only the right program can provide the maximum benefits. There are 4 types:

1. Standard Consolidation Plan

When it comes to consolidation programs for federal student loans, the ability to make the agreed repayments remains key. Having a regular source of income certainly helps, though the type of work is typically low paid - like jobs in bars, restaurants or in local shopping malls.

Clearing college debts with this program is ideal because it limits the term of the agreement to 10 years, with monthly payments to be made according to a set schedule. Because the term is extended, the repayment due is lower and more affordable than the previous deal. A fixed interest rate also makes it easy to budget.

2. The Extended Payment Plan

Students who have a very low monthly income are set to struggle to meet even improved terms. The terms of the Extended Plan are the same as the Standard, but with the loan period extended to as much as 30 years. So, the repayments to clear the federal student loans are much lower.

Of course, this plan is ideal for graduates who have extremely high student debt on their plate. Even with a limited income, a long length of time can make a huge difference. For example a debt of 0,000 over 30 years may require repayments of just 0, as opposed to ,200 over 10 years. Clearly, in such cases, a consolidation program for federal student loans offers a major break.

3. Graduated Payment Plan

For those who are still deep in their studies, even thinking of clearing college debts can be a major distraction. This is not good for them or the lenders, who know failure to graduate means the loan is at risk.

A Graduated Payment Plans allows for a structured repayment schedule that starts very low and gradually gets bigger, as income and circumstance improves. The repayment sum increases every two years, so that over time the repaying the federal student loans is completed within a set time period.

The maximum term of this option is 30 years, but the key advantage is that the initial cost is extremely low, making it manageable for even the lowest paid student.

4. Income Contingent Payment Plan

The fourth available consolidation program for federal student loans is the Income Contingent Payment Plan, which takes into account a lot more than the other plans. But, complicated as it might be, this has an all-round benefit, with the student only part of the equation. Other factors considered are the financial status of the family, and the amount of debt they are already dealing with.

Clearing college debts is never easy, but with the right consolidation plan, the task can at least be made easier. And once the federal student loans are all repaid, these graduates can look forward to a better financial future.

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