How to Set Up Loan Repayment for Federal Consolidated Student Loans

Federal consolidated student loans are often the least expensive loan options available. After you have consolidated all of your federal student debt into one lump sum, you need to determine how to schedule repayment to your advantage. You will find the federal loans offer a number of repayment options. It is best to go with the most expensive option you can afford to pay your loan off the fastest. 

Consolidating Federal Student Loans

Consolidating federal student loans is easier than consolidating private loans. In fact, the federal government encourages consolidation of loans you have secured across semesters or years of undergraduate and graduate education. Consolidating locks in the current rates, which are often lower than interest rates will be in the future. There is no penalty for consolidating. You will be making only one payment per month once your loans have been effectively consolidated. 

Opting for Loan Forgiveness

Loan forgiveness allows a portion of your federal student loans to be completely dissolved. There is a common misunderstanding this is an option for all students who borrowed money. In fact, there is a narrow window of individuals who will be eligible for forgiveness. Loan forgiveness can be granted to persons who are choosing a low paying career in a public service field. Because the federal government will only forgive your loans if this is a career choice and not just a part-time job, you will have to work in the position for sometime before you are eligible. As a rule, you have to make about 6 years of payments on the loan before you are eligible. At that point, though, you may have your entire loan principal plus interest entirely forgiven. 

Deferment and Forbearance Options

Federal student loans offer the advantage of low cost options to delay your payments. With both deferment and forbearance, you will be able to put off paying your loans until you have the money to do so. Deferment is the first step to take if you cannot afford to make loan payments at the current time. Deferment allows you to wait until you have an income, for example when you are hired to your first job after graduation, to begin making the payments. If you have gotten behind on payments because of a financial emergency, forbearance is a way to stop your lender from acting to move your loans into default. The legal actions will be stopped until you can bring the loans current under a newly scheduled payment plan.

Choosing the Right Payment Plan

Federal loans offer the basic types of repayment plans: standard, extended, graduated and income based. Standard payment plans require installments starting the day you graduate in an even sum over the life of the loan. Extended plans last longer than standard options, taking up to 30 years to pay off, to lower monthly payments for lower wage earners. Graduated repayment plans offer the lost monthly requirements at the beginning of the loan. Finally, income based plans are the most common form elected for federal consolidated loans. They require a percentage of your income each year be paid toward the loan sum.


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