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Student Loan Consolidation - The Long and Short of Consolidation Plans

With tuition increasing at a rate greater than the cost of living, college students are depending more and more on student loans to help with the costs of higher education. Over the course of four or five years or longer in the case of graduate students, this adds up to many loans. Whether the loans are from the same lender or program or from different lenders and programs, most student loans can be consolidated under the Federal Direct Consolidation Loan. Consolidating your student loans can occur at any time after you take out your first student loan. The benefits, at least at the moment, are that you only pay one lender and there are several repayment plans to accommodate your financial situation.

Federal Student Loan Consolidation Plans

There are 4 consolidation loan repayment plans with fixed interest rates to choose from:

* Standard Repayment Plan:

The Standard repayment plan takes the shortest amount of time to repay. The interest is fixed and the monthly payments are fixed at a minimum of $50 for a maximum of 10 years.

* Extended Repayment Plan:

Under this plan the borrower pays fixed monthly payments that are less than the Standard plan. The repayment period can range anywhere from 12 to 30 years depending on the total amount borrowed. While the monthly payments are less, the total amount repaid is greater than the Standard plan because more interest accrues.

* Graduated Repayment Plan:

Another option that might work well for those who expect their income to increase gradually over time is the Graduated Repayment Plan. Rather than a fixed monthly payment for the duration of repayment, monthly payments increase every two years. Similar to the Extended plan, the repayment period varies from 12 to 30 years depending on the total amount borrowed

* Income Contingent Repayment Plan (ICR):

The Income Contingent Plan is more flexible than the other 3 plans because it considers the borrower's adjusted gross income, family size and the total amount borrowed when calculating monthly payments. The repayment period is a maximum of 25 years. Any unpaid portion of the loan at that time is discharged, but taxes must be paid on the discharged amount.

When choosing a plan, consider your financial situation and what it might look like in the future. Paying off your student loans sooner may be the best option for you, but you may have other financial considerations to make and need to keep more of your hard earned money for your current living expenses. Whatever the case may be, look at each plan carefully and consider how it will affect you now and in the future.

The author of this article runs OpinedMind.com and is currently a Ph.D. student writing articles on the issues of financing college and debt management based on personal experience and many hours of research.

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