Ads 468x60px

Monday, May 10, 2010

School Loans Consolidation - What Forms to Expect

The term "school loans consolidation" refers to consolidating all your study loans into one single debt with a fixed rate of interest. Thus, in simple words, school loans consolidation makes life much easier for the borrower who otherwise needs to handle a complex network of credits with things getting more and more complex with further studies. The advantages of school loan consideration are:

Consolidation and streamlining of a number of loans into one single lump sum debt making the repayment process a hassle free one

• Transfer to a fixed rate of interest to one single creditor from a large and complex network of creditors with different due dates

• Reduction in the amount of total loan to be paid back

• Fixed rate of interest for the consolidated loan is smaller, hence reduction in the rate of interest

• Availability of various flexible schemes and consolidation plans for the borrowers to choose from

• Flexibility to the borrowers to switch from one plan to the other

The most common and popular types of School loans consolidation plans are:

• Standard Repayment Plan

• Graduated Repayment Plan

• Extended repayment Plan

• Contingent repayment Plan

The Standard Repayment Plan is the most economical and hence the most common. It is the plan that is assigned to the borrowers unless they ask for it to be changed. In this plan, a very low monthly minimum amount is fixed and thereafter the loan amount is divided into 120 installments to be paid each month for a period of ten years. In case there is no change in interest rates throughout this time, then your payment will be the same for these 10 years.

Graduated Repayment Plan is one in which you pay only the interest part in the beginning and thereafter go on to pay both the interest part as well as the principle part later on. Thus, this plan is very good if you are in current financial difficulty or earning less now but have a potential to increase your earnings later on. A point to note is the fact that this plan increases the total amount you have to pay.

In case you have a federal family education loan programmed and you still have unpaid principle and interest portions to the extent of $30,000, then you might as well go for the Extended Repayment Plan where you can extend the repayment time frame and pay lower fixed payments along with occasional higher payments as and when you can afford it. Thus the economies of the Standard plan get mixed with the advantages of an extended period from 10 to 25 years say. On the contrary, you might also pay the standard plan rate and finish it off in 10 years while paying lower amounts during times of financial crisis and emergency under this plan.

Lastly, the Income Contingent Plan available from the US Department of education is a variation of the above Extended repayment plan designed for students with a direct loan and based on their ability to pay annually. This plan is based on the amount of direct loan a student has, his/her gross income, no. of dependants, etc and offers a rate which is slightly lower than that of the Standard Plan with the period going up to 25 years at maximum.

Thus, the above are the most common and popular School loans consolidation Plans available to make your life simpler. Now that you know the details of each plan, you might as well get your loans consolidated according to the one that suits you the best.