A recent study has shown that about 50% college student have an average student loan debt of around $ 10,000. The average cost of college education has increased at almost twice the rate of inflation in the US. This has compelled the authorities to look for different ways for student loan debt relief.
Once you’ve graduated from your school, you’ll have to start paying back your student loan debt. There are various ways to pay off your debts. The most common of them is student loan consolidation. But it’s important to note that federally backed student loans have much lower interest rates than private student loans. So, always try to keep private and federal student loan consolidation programs separate.
Federal direct loan consolidation program
Federal Direct loan consolidation is an effective repayment tool that enables you to combine all your federal direct student loans into a single one. In addition to reducing your monthly payment, federal direct consolidation provides flexible repayment plans, interest rate reductions, and deferment and forbearance options.
The benefits of consolidating direct student loans are -
1. Reduced monthly payment by almost 53%.
2. Reduced interest rates.
3. Simplified payment option.
4. No credit checks, fees or application charges.
Private loan consolidation program
Private student loan consolidation is a great way to pay your student loan debt by lowering your monthly loan payments after combining all your private student loans into one manageable loan. Refinancing your private student loans will allow you to budget more effectively while lowering your interest rate.
The benefits of consolidating private student loans are –
1. Lower monthly payments.
2. Reduced interest rates.
3. Graduate students may get a repayment term of up to 30 years.
Income-based repayment plan
Income based repayment plan came into effect from July 1, 2009. It’s a new repayment plan for the major types of federal loans made to students. This program is best for students who will be pursuing public service careers and for borrowers with high debt and lower income.
Income-based repayment plan is considered as one of the best ways to pay off student loan debts. Let’s check out some of the benefits of income-based repayment plans –
1. Lower monthly payments: In this plan, you’ll enjoy lower monthly payments than most other loan repayment options.
2. Interest payment benefit: If your monthly payments don’t cover the accrued interest of the loans, the government will pay or waive the unpaid interest on subsidized Stafford loans for the initial 3 years of income-based repayment program.
3. Loan forgiveness: The income-based repayment plan will forgive all your outstanding debts after a period of 25 years. But the forgiven amount will be taxable.
4. 10 year public service: If you’ve worked full-time in public service for 10 years and have made 120 monthly payments under the direct loan program, your outstanding debt balance will be forgiven. Unlike the 25 year loan forgiveness, the 10 year forgiveness is tax-free.
Although these debt repayment options will help you pay off your student loan debts, it’s best to think ahead and plan while you’re still in college. To keep your loan balances low, you can ask your college to give you more financial aid.
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