Repay Without Consolidation
Interest rates have risen considerably since July1 and there is quite a bit of confusion among students. The main reason is that they don’t know how to pay off loans taken at such high rates of interest. A large number of students try to defer loan payments using the only means they know of — by consolidating their loans. Of course, consolidation is quite helpful. It helps you by creating a single fixed-rate loan plan. However, some experts believe that in the long run, consolidation may not be beneficial as the cost of doing it can be detrimental to the student.
One of the main problems is the stretched out repayment period — something that you can pay and finish off earlier is stretched for too long. This may result in an escalating interest rate stipulated by the loan holder. Whatever the reason if you do want to avoid consolidating your debts you could try these methods to reduce the pressure of your debt.
One method I recently discovered is the graduated plan. In this repayment method, payments begin at a lower rate and increase every few years opposed to a monthly payment at a fixed rate for a 10-year period. Of course, this method does have its drawbacks. If you opt for a graduated plan, at some point of time, you may be paying the highest monthly payment on a program like this. Then there is the Standard repayment plan wherein you have to make both principal and interest payments each month throughout the loan repayment period. Then there are income sensitive loans where in the amount due each month is based on a percentage of your monthly income. The catch here is that this applies for Stafford, PLUS, and SMART LOAN (federal consolidation) borrowers.
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