Managing multiple student loans together is tough on your pocket and ability to manage. Fortunately, there is help at hand in the form of The Student Loan Debt Consolidation program. This is a good way to handle this issue.
We need to understand what exactly is student loan debt consolidation?
In this you are able to combine all such loans into a single entity and you fulfill your debt obligation to only one creditor. You get the benefit of lower interest rates as well as a longer tenure. The longer tenure part is important because as a student, your earning ability is limited and increasing the tenure gives you some breathing space in the form of reduced monthly payments.
A number of monetary bodies present this opportunity wherein they settle your outstanding to the creditors, combine the different loans into one and charge you an interest derived out of the mean interest rates of all your loans. That is the reason why they are able to offer you a lower rate of interest. You may discover that some loans come with a fixed interest rate plan also.
There are 4 types of student loan debt consolidation programs on offer:
1. Standard Repayment Plan
This plan allows you to settle your debt over a period of 10 years at a fixed rate of interest. The payment amount is derived by dividing the full amount over 10 years at the fixed rate.
2. Extended Repayment Plan
The only change is that the tenure can be stretched to as long as
30 years at the maximum. Though your monthly payment is lesser, you end up paying far more overall if you stretch it for such a long period due to the fixed interest rate. You need to decide based on your repayment capacity whether a lower monthly payment is preferable to a higher one where the settlement is quicker and you do not end up paying far more by way of interest.
3. Graduated Repayment Plan
This is the same as the Extended Repayment Plan with your monthly payment increasing once in 2 years.
4. Income Repayment Plan
In this, the repayment amount depends on a variety of issues like the total debt, family size, the earning capacity. You can opt for a maximum repayment tenure of 25 years under this plan.
The question is which is the one for you? If you are currently comfortable with your obligation and see no immediate cash flow problems, you need to do nothing.
However, if you foresee problems, depending on your capacity to make monthly payments, you may choose one of the above. One other advantage is that by opting for one of these options, you improve your credit rating as you would have settled your old debt.
