Leaving College/ Repaying Loans

• Accrue-The process where interest accumulates on a loan.
• Capitalization-The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.
• Consolidation-The process of combining one or more loans into a single new loan.
• Default- Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if you default..
• Deferment A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).
• Disbursement- Payment of loan proceeds by the lender. During consolidation, this term refers to sending payoffs to the loan holders of the underlying loans being consolidated.
• Forbearance- A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.
• Grace Period-A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on certain federal student loans. Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins. Borrowers get a one-time grace period on their federal student loans. During this time they are not required to make payments.
  • PLUS loans do not have grace periods
  • Nursing Student Loans have a nine month grace period

• Interest- A loan expense charged by the lender and paid by the borrower for the use of borrowed money. Interest is calculated as a percentage of the unpaid principal amount (loan amount) borrowed.
• Loan-Money borrowed from the U.S. Dept. of Education or another lender that must be repaid
• Loan Servicer-A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a federal student loan on behalf of a lender. Your Servicer information is available online at NSLDS.
• MPN (Master Promissory Note)- A promissory note is a binding legal document you sign when you get a student loan(s). It lists the conditions under which you’re borrowing and the terms under which you agree to pay back the loan(s).
• Principal- The amount of money borrowed by the student. Interest is charged on this amount.

Direct Loans-Loans from the William D. Ford Federal Direct Loan Program, are low-interest loans for eligible students to help cover the cost of higher education. Direct Loans include the following types of loans:

• Direct Subsidized Loans—Direct Subsidized Loans are loans for eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school. The U.S. Department of Education pays the interest on a Direct Subsidized Loan
  • While you’re in school at least half time
  • For the first 6 months after you leave school (during your grace period),and
  • During a period of deferment (a postponement of loan payments)
• Direct Unsubsidized Loans—Borrowers are not required to demonstrate financial need to receive a Direct Unsubsidized Loan. Interest accrues on Unsubsidized Loans from the time it is disbursed. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods, or you can allow interest to accrue and be capitalized. If you choose not to pay the interest as it accrues, this will increase the total amount you have to repay.

 
Parent PLUS Loans- Direct PLUS loans are credit-based, available to Parents of dependent, undergraduate students. The parent borrower will repay the servicer listed on the disclosure statement provided when they received the loan. The loan servicer also will be listed in the parent's account on studentaid.gov. The Direct PLUS Loan Program for parents offers three repayment plans-standard, extended, and graduated. The terms differ between the repayment programs, but generally borrowers will have 10 to 25 years to repay a loan. 

• A PLUS Loan made to the parent cannot be transferred to the student.
• The parent borrower is responsible for repaying the PLUS Loan.
   
  

Graduate PLUS Loans-GRAD PLUS loans are available to Graduate students. These loans require a separate credit application and MPN. There are several repayment plans that are designed to meet the different needs of individual borrowers. Generally, you'll have 10 to 25 years to repay your loan, depending on the repayment plan that you choose.
 
Private Loans-Funding through a private lending agency, these loans sometimes have a variable interest rate. Borrowers need to pass a credit application that often requires that students apply using a co-signer. Repayment options vary based on your loan terms. Check with your lender to see what your repayment options are. Private loans cannot be included with federal loans if pursuing federal loan consolidation. SFA encourages all students to pursue federal student loan options before borrowing private loans.
 
National Student Loan Data System (NSLDS)
The U.S. Department of Education's National Student Loan Data System (NSLDS) provides information on your federal loans including loan types, disbursed amounts, outstanding principal and interest, and the total amount of all your loans. If you're not sure who your loan servicer is, you can look it up or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913).

More information about repayment, payment plans, interest rates, and loan forgiveness can be found on the Federal Student Aid website.

 

 How do I know which repayment plan is best for me?  A description of repayment plan options and loan repayment estimator are can be found here Direct Loan repayment plans include:

• Standard - With the standard plan, you'll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you'll have up to 10 years to repay your loans. Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. For that reason, having a 10-year limit on repayment, you may pay the least interest.
• Graduated - With this plan, your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you.
• Extended - Under the extended plan, you'll pay a fixed annual or graduated repayment amount over a period not to exceed 25 years. You must have more than $30,000 in outstanding loans. Your fixed monthly payment is lower than it would be under the Standard Plan, but you'll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period. This is a good plan if you will need to make smaller monthly payments. Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan. However, you may pay more in interest because you're taking longer to repay the loans. Remember that the longer your loans are in repayment, the more interest you will pay.
• Income Based Repayment (IBR) - Under IBR, the required monthly payment is capped at an amount that is intended to be affordable based on income and family size. You are eligible for IBR if the monthly repayment amount under IBR will be less than the monthly amount calculated under a 10-year standard repayment plan. If you repay under the IBR plan for 25 years and meet other requirements you may have any remaining balance cancelled.
• Pay-As-You-Earn – Similar to Income Based Repayment, except that if you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven.
• Income Contingent Repayment (ICR) - This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of: The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or 20 percent of your monthly discretionary income.  The maximum repayment period is 25 years.

Federal Direct Loan Forgiveness Programs

• Public Service Loan Forgiveness -In 2007, Congress created the Public Service Loan Forgiveness Program to encourage individuals to enter and continue to work full time in public service jobs. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible federal student loans after you have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers. If you are seeking Public Service Loan Forgiveness you should repay your loans under an income-driven repayment plan. For more information visit the Federal Student Aid web page on Public Service Loan Forgiveness.
• Teacher Loan Forgiveness -The Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession. Under this program, individuals who teach full time for five consecutive, complete academic years in certain elementary and secondary schools that serve low-income families and meet other qualifications may be eligible for forgiveness of up to a combined total of $17,500 in principal and interest on their FFEL and/or Direct Loan program loans. (Note: As of August 14, 2008, an otherwise eligible borrower may qualify for forgiveness if the borrower has provided qualifying teaching services at one or more locations that are operated by an educational service agency.) For more information visit the Federal Student Aid web page on Teacher Loan Forgiveness.

You have options! Always be sure to communicate with your federal loan servicer to avoid getting into trouble! Some of your options can include:

• Deferment-a period in which payments of the principal balance are temporarily postponed if you meet certain requirements.
  • Government pays interest on Subsidized loans in deferment
  • Unsubsidized loans accrue interest which can be paid or capitalized
  • Types of Deferment
    • Enrolled at least half-time at eligible school
    • Study in approved graduate fellowship or in a rehabilitation program for the disabled.
    • Unable to find full-time employment (up to 3 years)
    • Economic Hardship (includes Peace Corps Service) (for up to 3 years)
    • Some Armed Services situations (see exit counseling guide for criteria)
• Forbearance- if you do not qualify for a deferment, it allows you to postpone or reduce monthly payment amount for a limited & specific period.
  • You are responsible for all interest that accrues and any unpaid interest is capitalized at the end of the forbearance.

These options are not automatic. You must contact your loan servicer and submit the appropriate documentation for consideration.

Although student loans are not initially based on your credit score, your repayment history will be reported to credit agencies and can affect your credit score once you begin repaying your loans. If you do default on your student loans you may face the following:

• The entire unpaid balance of your loan and any interest is immediately due and payable.
• You lose eligibility for deferment, forbearance, and repayment plans.
• You lose eligibility for additional federal student aid.
• Your loan account is assigned to a collection agency.
• The loan will be reported as delinquent to credit bureaus, damaging your credit rating. This will affect your ability to buy a car or house or to get a credit card. 
• Your federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take your federal and state tax refund to collect any of your defaulted student loan debt.
• Your student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process.
• Your employer (at the request of the federal government) can withhold money from your pay and send the money to the government. This process is called wage garnishment.
• The loan holder can take legal action against you, and you may not be able to purchase or sell assets such as real estate.
• Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset.
• It will take years to reestablish your credit and recover from default.

Don’t let this happen to you! Be sure to communicate with your loan servicer if you are having trouble or expect to have trouble making payments.

More information about avoiding default, and steps you can take if you have defaulted can be found on this Federal Student Aid page on default issues.

A Direct Consolidation Loan allows a borrower to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple monthly payments. More detailed information and advice is available on the Federal Student Aid website. Remember-this is an option, not a requirement. Always work with your federal loan servicer to determine the appropriate course of action that works for you.

The U.S. Department of Education's Federal Student Aid Ombudsman Group is available to assist federal student loan borrowers who have disputes or issues that they have not been able to resolve with by working with their loan servicer.  Students who have unresolved issues with private or alternative loans should contact the Consumer Financial Protection Bureau.