Federal Loan Consolidation Programs: The 4 Options Available to Students

College graduates do not have an easy time of it. Their college lives were spent with little money, and after graduation, they face a mountain of debt before even getting their careers off the ground. Even if their financial aid was provided by the government, managing that debt is no simple task. But a highly effective solution is a federal loan consolidation program.

The idea behind these programs is that the total debt a graduate might have accrued can be restructured into smaller monthly repayments. By consolidating college loans, this can be accomplished quickly and easily, and with the right program chosen, the maximum benefits can be enjoyed.

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In all, there are 4 federal programs to choose from, each one designed to help graduates of specific circumstance to clear their college loans as soon as possible. The selection of consolidation plans is as follows:

1. Standard Consolidation

Arguably the most common of the 4 federal loan consolidation programs, the Standard Plan is ideal for recent graduates who have secured their first paying job. With a source of income secured, repayments are certainly possible, though since the salary is likely to be low, there is a need to ease the burden.

This plan simply reduces the monthly repayments by extending the term of the loan to up to 10 years. For example, if the total loans add up to $25,000 then payments due on a 5-year term is likely to be $425. But consolidating college loans with a Standard Plan doubles the term and halves the monthly repayment to $215 or so. The interest is at a low fixed rate, making budgeting easy.

2. Extended Payment

The Extended Plan is basically the same as the Standard Plan, but the term is much longer - up to 30 years. This option is ideal for those students who have accrued very high debts from their college loans but have only a limited income. In some Ivy League colleges, for example, graduating with debts of $75,000 or $100,000 is not unusual.

The longer term means that the size of the monthly repayment is greatly reduced. For example, a $75,000 debt over 30 years requires payments of just $215 per month. This makes it one of the most effective federal loan consolidation programs on offer.

3. Graduated Payments

Of course, everyone would like to get rid of debt as quickly as possible, but without any of the penalties that can come with advanced repayment in full. For some, starting repayments as quickly as possible is preferable to waiting until graduation. Consolidating college loans through a Graduated Payment Plan allows small repayments to be made to begin with, gradually increasing at regular increments to reflect the greater ability to repay.

For example, with a debt of $30,000, monthly repayments over 10 years might normally be $250. This plan permits repayments to begin immediately, perhaps of as low as $50. Then, after 2 years, it increases to $75. From years 5 to 6, it increases to $100 per month, then to $125 for years 7-8, etc. The pattern continues for a maximum of 30 years, within which time the college loans will have been cleared.

4. Income Contingent Payment

The fourth option is easily the most complicated federal loan consolidation program of the lot. This is because the student is not the only person taken into account in the calculation. It is generally accepted that family plays a supporting role in the repayment of student loans. So their ability to contribute is also taken into account.

So, consolidating college loans through this option means the pressure on the student is lessened, but the aid is calculated based on what is necessary to see the college loans cleared.

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