With direct student loan consolidation, a new loan with a lower, fixed interest rate can be used to pay off the old, high interest rate loans. A direct student loan consolidation may solve more problems by clearing your old loans and giving you a start with a new loan. Direct student loan consolidation lowers your interest rate, thereby, lower monthly payments, and making deferment and forbearance options available. When old loans are paid off using loan consolidation, they increase your credit score by showing up on your credit report as paid off.
There are four repayment options for a direct student loan consolidation:
Standard Repayment Plan - gives a fixed monthly payment amount for up to 10 years.
Extended Repayment Plan - gives a fixed monthly payment amount for 12 to 30 years. The monthly amount is lower because of the longer payment time.
Graduated Repayment Plan - the repayment period is between 12 to 30 years, but the monthly repayment amount will increase every two years.
Income Contingent Repayment Plan - monthly payment is revised based on gross income, family needs, total direct student loan debt, and the repayment is spread over 25 years.
If you can pay off your current loan, a direct student loan consolidation may not be worth in the long run to extend your payments. Otherwise, a direct student loan consolidation is strongly recommended. If you still go to school, and you apply for a loan consolidation, you may get a 6-month grace period before repayment.