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Understanding Student Loan Repayment
Student Loans are a valuable resource for funding your education, so you need to be prepared to repay them when you have completed your degree, or are no longer enrolled at least half time in an accredited program. This webpage will provide you with information on the different types of loans, how to manage your loans, repaying your loans, loan consolidation & forgiveness, and other valuable resources to help make informed decisions for repaying your federal student loans. You can estimate what your loan repayment will look like by using the helpful calculator at studentloans.gov.
- Accrue-The process where interest accumulates on a loan. When "interest accrues on a loan," the interest due on the loan is accumulating.
- Capitalization-Occurs when interest accrues on an unsubsidized loan and is added to the principal balance 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 when you signed a promissory note.
- 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.
- Grace Period-The six months after graduation you are not required to make payments
- PLUS loans do not have grace periods
- Perkins 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. The expense is calculated as a percentage of the unpaid principal amount (loan amount) borrowed.
- Loan-Money borrowed from the Dept. of Education or lender that must be repaid
- Loan Servicer-Organization that handles billing and other loan servicing for the lender. Your Servicer information is available online at the National Student Loan Data System (see link by expanding NSLDS accordion below).
- 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 Stafford Loans-Loans from the William D. Ford Federal Direct Loan (Direct Loan) Program, are low-interest loans for eligible students to help cover the cost of higher education. Direct Stafford Loans include the following types of loans:
- Direct Subsidized Loans—Direct Subsidized Loans are for students with financial need. You are not charged interest while you’re in school at least half-time and during grace periods and deferment periods.
- Direct Unsubsidized Loans—You are not required to demonstrate financial need to receive a Direct Unsubsidized Loan. Interest accrues (accumulates) on an unsubsidized loan from the time it’s first paid out. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods, or you can allow it 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 because you will be charged interest on a higher principal amount.
Parent PLUS Loans- PLUS loans are credit-based, available to Parents of dependent, undergraduate students, and require a separate application and MPN. The parent will repay the servicer listed on the disclosure statement provided when he or she received the loan. The loan servicer will provide regular updates on the status of the PLUS Loan, and any additional PLUS Loans that a parent receives. The loan servicer also will be listed in the parent's account on the National Student Loan Data System (see link by expanding NSLDS accordion below). The Direct PLUS Loan Program for parents offers three repayment plans-standard, extended, and graduated-that are designed to meet the different needs of individual borrowers. 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 is responsible for repaying the PLUS Loan.
Graduate PLUS Loans-GRAD PLUS loans are credit-based, available to Graduate students, and require a separate 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. You will receive more detailed information on your repayment options during entrance and exit counseling sessions.
Private Loans-funding through a private lending agency, these loans have a variable interest rate, and a credit check must be done on all applicants. Repayment options vary based on your loan terms. Check with your lender to see what your repayment options are. These loans cannot be consolidated with your federal student loans.
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 at the link above or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913).
- Six monthsfor a Federal Stafford Loan (Direct Loan ProgramSM or Federal Family Education Loan (FFELSM) Program).
- Nine monthsfor Federal Perkins Loans. Perkins loans are serviced by the school that originated them. You will want to work with them directly for repayment, deferment or forbearance options. Contact information will be available through NSLDS.
Repayment PlansThere are multiple repayment plans to suite your needs. To help you choose the plan that is right for you, take the time to review your options. This sample loan repayment schedule can help you get started.
- 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 Driven Repayment (IDR)-Income Driven Repayment plans are designed to make your student loan debt more affordable by reducing your monthly payments. Your payments under an income-driven repayment plan are usually a percentage of your discretionary income. That percentage varies depending on the plan. More information about IDR plans may be found at the Federal Student Loans website.
- 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. Since you must make 120 monthly payments on your eligible federal student loans after October 1, 2007 before you qualify for the loan forgiveness, the first cancellations of loan balances will not be granted until October 2017. For more information on this program visit studentloans.gov. PHEAA is the only federal loan servicer designated for this program. More information may be found on the FSA website.
- 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 on this program visit Federal Student Loans Website.
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!
- Loan balance due in full immediately
- College records can be placed on hold
- No longer eligible for loan deferment
- No longer eligible for federal student aid
- Account goes to collections
- Your credit rating will be damaged
- Federal & State income tax refunds can be withheld and applied to your debt
- Your wages can be garnished
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.