Government debt consolidation loans are loans extended to pay off certain debts except for personal use. This kind of loan is usually availed by students who have multiple student loans to pay off. A debt consolidation loan done by the government differed from a standard student consolidation in its repayment system. There are four types of repayment system in a government consolidation loan and these are the standard repayment option, graduated repayment option, extended repayment option and income based option. Understanding each type will give you a better understanding on how to handle your government consolidation loan.
A standard repayment option is applied to government debt consolidation loans automatically when an applicant does not request for any other kind of loan upon its approval. He is given 45 days from the day of the loan approval to select the type of loan he wants to apply. Under this kind of loan, you are required to pay off your debt consolidation loan within the span of 5 to 10 years and you will have to pay a fixed monthly payment. If you think you cannot get a stable job right after graduation, this type of loan will be difficult to pay off. A standard repayment option are best obtained by those who can secure high paying jobs after college or those who have trust funds and other financial resources waiting for them.
A graduated repayment option is a type of government debt consolidation loans where monthly payments vary with each passing year. At the start of the payment cycle, a borrower pays a lower monthly payment which will gradually increase every year or two depending on the terms of the contract. Under this type of loan, a student is given a chance to build-up his paying capability over the course of time. This is ideal for students whose job options after graduation are consist mainly of entry level positions. This, however, has a higher interest rate compared to the standard repayment option but the term of the loan still stands at 10 years.
For government debt consolidation loans which amount to thirty thousand dollars or more, the extended repayment option would be the perfect choice. This type of loan has a 25-year term which would prove beneficial if you want to pay a lower monthly fee. Because of the long term involved, s student borrower will have to face a higher interest rate. It is also important to note that you will have to pay for more because of its interest rate and other fees. But this could work to the advantage of those who have a high degree of debt and don’t want to be burdened by large monthly payments. You only have to be careful about its prepayment penalties. It is something that you have to consider if you want to pay off your loan before the term ends.
An income base option of government debt consolidation loans is applied according to your financial stability. The stability of your financial status is based on the income of your family and how many people are there in your family. With an income of lower than 150% of the poverty line, you are exempted from making any payment. When you’re able to secure a stable job in the future, a good 10% of your monthly check could end up as a loan payment. This kind of a loan option is convenient for students who are experiencing extreme financial difficulty right after college.