Grace Period
After you graduate, leave school or drop below half-time enrollment, you are entitled to one grace period. During this time — which is typically six or nine months, depending on the type of student loan you receive — you are not expected to make payments.
The interest on subsidized loans is paid by the federal government during your grace period. On unsubsidized loans, you are responsible for the interest. The unpaid interest is capitalized — added to the loan principal — at the time of repayment.
Monthly payments begin the day after your grace period ends; you first payment is usually due within 60 days.
Repayment Options
Your lender or servicer will automatically set up your loan under the standard repayment plan, with fixed minimum payments of at least $50 per month over a 10-year repayment period, unless you indicate otherwise. You may change your payment plan at least once a year, or at your lender's discretion and are welcome to pay off all or part of your loan ahead of schedule - without paying a penalty or fee.
Standard Repayment Plan:
A standard repayment schedule lets you pay the same amount each month over fixed period time, with up to 10 years to repay.
Graduated Repayment Plan:
A graduate repayment schedule provides for installments that are smaller at the beginning of the repayment period and gradually increase over time, with up to 10 years to repay.
Income-Sensitive (Income-Contingent for Direct loan borrowers):
A income-sensitive repayment schedule provides for installments that are adjusted annually based on your yearly income and the amount you borrowed.
Extended Repayment Plan:
The extended repayment schedule is only offered for new borrowers who took loans on or after October 7, 1998, and have a Stafford loan balance of more than $30,000. With this option, the payments can be fixed or graduated, with a maximum repayment term of 25 years.
While a lender can keep the loans it make, it is important to know that lenders also have the option of selling their loans to a secondary marketer or using a loan service company to collect and track loan payments. Knowing who holds your loan will help you keep in touch with the right people. Good communication is the key to successful loan repayment and a clean future credit record. Always open and read you mail and notify your loan holder of any changes in your name, address, telephone number and graduation date.
Loan consolidation allows you to refinance any or all of your outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate, new terms and may have extended payment period of up to 30 years.
Both the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan Program offer Consolidation loans. However, each program has its own requirements and application procedures, and may offer different benefits or repayment options.
Consolidation loans are not for everyone. Before choosing loan consolidation, be sure to review all your options.
Before you decide to consolidate your loans, take time to see if you would benefit. Check out EdWise®, the on-line financial planning calculator at EdFund, to evaluate your repayment options. Ask your lender about the benefits of a Consolidation loan - what would your new interest rate, monthly payment and terms be? Would you still have the same deferment and forbearance options?
The Advantages:
The benefits of loan consolidation include:
» With only one lender, you will always know whom to contact
» Just one monthly bill and payment
» An extended repayment period - from 10 to 30 years, depending on your total debt. This usually means lower monthly payment
» Any subsidized Stafford loans you consolidate will keep their interest subsidy benefits during deferment
» If you consolidate during your grace period (or in school, for Direct Consolidation loans), your interest rate could be lower. That is because the interest rates that apply to your loans are the "in-school" rates, which are lower than the rates you pay after entering repayment
» Depending on the interest rates of your existing loans and how long you take to repay, you could save money if interest rates increase in the future
The Disadvantages:
But there are also drawbacks:
» Typically, a significantly higher payback. An extended repayment period usually means you pay more interest over the life of the loan. However, this may be offset if you have a low fixed interest rate on your Consolidation loan
» Possible loss or change in benefits. Your old loans will be combined into one new loan with a new set of benefits that may include different deferment and forbearance options. Be sure to check with your lender first
» Unlike Stafford and Perkins loan debt, Consolidation loan debt cannot be forgiven for teaching, public or military service if the loans being consolidated were made before October 1, 1998
» You will lose the interest subsidy benefit on your Perkins loans
Default
The most important thing to do is to contact your lender or servicer before any problems arise. This will allow you to work together to find a suitable solution.
Failure to repay you student loan for at least 270 days means the loan is in default and the entire amount of the loan becomes due. In addition, the guarantor may purchase the loan from the lender and capitalize all outstanding interest. Defaulted loans are reported to national credit bureaus and will significantly and adversely affect your credit history. Failure to repay may result in any or all the the following: loss of federal and state income tax refunds, legal action, assessment of collection charges including attorney fees, loss of professional license, loss of eligibility for other student aid and assistance under most federal benefit programs, loss of eligibility for deferments, negative credit reports, and garnishment of your wages.
Deferment
If you anticipate or are having difficulty making your payments, you can apply for a student loan deferment. A deferment is a temporary period during which no loan payment is due. During a deferment, interest payments on Unsubsidized Stafford Loans can be made or postponed; if postponed, the interest is capitalized and added to the principal. Interest on Subsidized Stafford Loans and Perkins Loans will be paid by the government during a deferment period.
If all you loans were disbursed after July 1, 1993 you may be eligible for a student loan deferment if you:
» Remain in or return to school at least half time;
» Study in a approved graduate fellowship program or in rehabilitation training for the disabled;
» Are seeking but unable to find full-time employment (maximum three years); or
» Demonstrate other types of economic hardship (maximum three years).
If you received before July 1, 1993 and still owe on them, you may be eligible for additional deferment provisions; check with your lender.
You must request a deferment, and, in some cases, document your eligibility for the deferment, by contacting your lender. If you borrowed student loans through several lenders, you must apply for a deferment from each lender. More importantly, you must continue to make your monthly student loan payments until the deferment(s) has been granted. You must also notify you lender or servicer if the condition under which the deferment was granted no longer exists.
Forbearance
If you are not eligible under any of the deferment categories, then you may apply for a forbearance if you are having problems repaying your loan(s). A forbearance is a period of time (generally granted in 12-month intervals for up to three years) during which no loan payments of principal are required. Interest payments can be made or postponed; if postponed, the interest is capitalized and added to the principal. Lenders also may grant a 60-day forbearance for processing a borrower's request for deferment, forbearance, change in repayment plan, or loan consolidation. Interest is not capitalized during the 60-day period.
A forbearance is temporary and you must prove to your lender through an application process that you are willing but unable to make payments during a time of financial hardship. In some cases, the lender may agree to accept smaller payments than originally outlined in the disclosure statement instead of no payments at all. As with deferment, you must continue to make you monthly student loan payments until the forbearance has been granted.
Loan Forgiveness Programs
The federal government can cancel all or part of the education loans of qualified borrowers. A number of states, also offer loan forgiveness or assumption programs. These programs are used to promote careers in fields that are underserved or in fields that meet particular community needs. Borrowers may have their federal student loan debt forgiven or assumed for volunteer work, military or teaching service, or practicing medicine in designated communities.
In addition, AmeriCorps participants can use their educational awards to repay their student loans and Peace Corps volunteers may receive financial assistance to pursue their graduate study.
Loan Cancellation
A federal loan may be cancelled or discharged if any of the following circumstances occurs: your college closes and you are unable to complete your studies; your college falsely certifies your eligiblity for a loan; your college fails to make a refund to the lender when one is due (the amount kept by the college does not need to be repaid); or your become totally and permanently disabled or die.
Credit Reports and Credit Counseling
A credit report contains a snapshot of your current personal financial information, including outstanding debt, any past due debt, the number of inquiries on your credit history, the number of open accounts and more. There are three major credit reporting agencies — Equifax, Experian and Trans Union — and two have websites where you can order a copy of your credit report. Everyone should review his or her credit report annually to ensure its accuracy. And lender you approach for a loan will likely request a credit report from a national credit bureau.
The National Foundation for Credit Counseling (NFCC) can help you understand how to read your credit report. The NFCC is a nonprofit network of Consumer Credit Counseling Service centers dedicated to educating consumers on personal money management and using credit wisely.
Tax Benefits
There are a number of tax benefits for families who are saving for, or already paying for, higher education and for people repaying student loans. Taxpayers may be eligible to claim a Hope or a Lifetime Learning credit against their federal income taxes or deduct up to $2,500 of the interest they pay on their education loans each year. Other benefits include the higher education tax deduction and tax-free IRA, 529 or Coverdall account withdrawals for college expenses. Please talk with a tax advisor to learn more about these benefits, including income limitations or other restrictions.
Do I have to pay back my student loans even I drop out school?
Yes. You are legally and financially responsible for completely repaying your student loan whether or not you complete your education, obtain employment or are satisfied with your education.
Am I required to attend student loan exit counseling before I leave school?
Yes. Because exit counseling helps you manage your debt, it is required when you end an academic program for any reason.
When do I have to start making payments on my student loans?
You must start making monthly loan payments when your grace period expires after you graduate or drop below half-time enrollment.
As a student borrower, what kind of written documentation must be made available to me?
You have the right to receive a copy of your promissory note either before or at the time the loan is disbursed, a disclosure statement before the loan repayment terms begin, written notice if your loan is sold to a new holder and proof of discharge when your loan is paid in full.
What kind of information must be reported to my lender?
If you change your name, address or telephone number; drop below half-time status; withdraw from school; transfer to another institution; move your graduation date; or experience any other change that might impact your eligibility for an existing deferment, you must report the specifics to your lender.
What is a promissory note?
A promissory note is a signed legal document that indicates your promise to repay your student loan and formalizes your agreement to abide by its terms and conditions. The Stafford Loan Master Promissory Note (MPN) is a contract between you and your lender and is good for either a single or multiple academic years.
What is a disclosure statement?
A disclosure statement is an estimate of the actual cost of your loan and includes interest rates, fees, loan balance and the size and number of payments. Due to the variable nature interest rates and your individual circumstances, the actual cost of the loan may change.
Can I prepay my student loan?
Yes. You have the freedom to prepay all or part of you loans without penalty.
Can I change my repayment plan?
Once a year, you may contact your lender to change your repayment plan. If you like to change your plan or if you need additional details, contact your lender.
