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; your first payment is usually due within 60 days.
Your lender or loan 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 a fixed period time, usually up to 10 years.
Graduated Repayment Plan
A graduated repayment schedule provides for installments that are smaller at the beginning of the repayment period and that gradually increase over the fixed period, with up to 10 years to repay.
Income-Sensitive Repayment Plan
An 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 makes, 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 your 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 an 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 make sure that you will 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 most important thing to do is to contact your lender or loan servicer before any problems arise. This will allow you to work together to find a suitable solution.
Failure to repay your student loan for at least 270 days means that 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 of 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.
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 of your 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)
- Demonstrate other types of economic hardship (maximum three years)
If you received your loans 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 your lender or loan servicer if the condition under which the deferment was granted no longer exists.
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 the 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 your 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 service, teaching service, or for practicing medicine in designated communities.
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 eligibility 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 you become totally and permanently disabled or die.