As the economic climate shifts, so does the
strategy behind lending and borrowing. In recent years,
government lending for higher education has seen a drastic
increase while private loans have seen a slight decrease. This is
due in large part to recent legislation that the government
passed.
This legislation essentially allows the
government to take on loans with decreased risk, while also
limiting the number of incentives that private lenders can attach
to their loans. In some cases, it completely eradicates these
incentives. As a result, private loans seem much less enticing
and direct loans have boomed, nearly tripling the number of
colleges and universities that offer them in just a few years.
Government direct student loans can vary
slightly in their repayment, but generally they are known to be
fixed-rate loans. Certain repayment types take factors such as
income and family into account, which can alter the monthly
payment. And the direct loan extended repayment plan can be paid
in either fixed installments or graduated installments, but even
in graduated plans the payment does not change from one month to
the next.
In addition, borrowers can switch
between the five repayment types during the life of their loan.
In essence, then, these loans are fixed-rate loans that are not
completely locked in at those fixed rates. This is done to give
the borrower flexibility in determining the best way for them to
repay, while also giving them the option of changing that plan in
the future if their financial situation requires it.
As of today, the government direct loans
offer five different repayment plans. There is a standard
repayment plan, an extended repayment plan, a graduated repayment
plan (which follows similar rules to the extended repayment plan),
an income-contingent repayment plan and an income-based repayment
plan (the newest of the five). Each particular repayment plan has
certain benefits designed to help you decided the best repayment
plan for you.