Student Loan Repayment Options
Loans unlike grants, scholarships or work-study are not free money offered to students. Federal student loans are real loans, just like car loans or mortgage loans. You must repay student loan, with interest, even if your financial circumstances become difficult. Federal student loans usually cannot be written off in bankruptcy. They cannot be canceled because you did not get the education or job you expected, and they cannot be canceled because you did not complete your education (unless you could not complete your education because your school closed). Do not ignore your student loan payments or you will risk going into default which can lead to serious legal consequences.
Learn about how, when, and to whom you make your federal loan payments.
Most loans have a grace period, but you will want to determine your repayment plan as early as possible. When it comes to repaying your federal student loan, there is a lot to consider. Understanding the details of repayment can save you time and money. Find out when repayment starts, how to make your payment, repayment plan options, what to do if you have trouble making payments, and more!
A loan servicer will help you manage the repayment of your federal student loans—at no cost.
A loan servicer is an organization that administers and collects education loans payments on behalf of the lender or U.S. Department of Education. The loan servicer will work with you on repayment plans and loan consolidation and will assist you with other tasks related to your federal student loan. It is important to maintain contact with your loan servicer. If your circumstances change at any time during your repayment period, your loan servicer will be able to help. You have a choice of several repayment plans that are designed to meet the different needs of individual borrowers. The amount and length of time to repay your loans will vary depending on the repayment plan you choose. If you have specific questions about repaying your Direct loan contact your loan servicer. For Federal Perkins loan you will need to contact the school that disbursed your Perkins loan.
The U.S. Department of Educations National Student Loan Data System (NSLDS) provides information on your federal student loan such as types, disbursed amounts, outstanding principal balance and interest, and the total amount of all your loans.
If you are not sure who your loan servicer/provider is, you can look it up at https://studentaid.gov/h/manage-loans
Borrower Grace Periods
A borrower’s grace period before repayment begins the day after the borrower has ceased to be enrolled as at least a half-time student at an eligible institution. This could be because of graduation, transfer, withdrawal or failure to attend classes.
The grace period for Federal Stafford Loan (Direct Loan Program) is six months and nine months for Federal Perkins Loans
PLUS loans have no grace period. They enter repayment once they are fully disbursed but may be eligible for a deferment. Contact your loan servicer for more information on deferment options.
To make your payments more affordable, repayment plans can give you more time to repay your loans or can be based on your income. Although you may select or be assigned a repayment plan when you first begin repaying your student loan, you can change repayment plans at any time —at no cost to you.
A deferment is a postponement of payment on a loan that is allowed under certain circumstances and during which interest does not accrue for subsidized loans. Forbearance is a period during which monthly loan payments are temporarily suspended or reduced. A borrower may qualify for forbearance if unable to make loan payments due to certain types of financial hardship. Stopping or reducing your payments may help you to avoid default.
You will need to work with your loan servicer to apply for deferment or forbearance; and be sure to keep making payments on your loan until the deferment or forbearance has been processed. Your loan servicer will notify you if further information is needed or if you do not qualify for a deferment.
A Direct Consolidation Loan allows the borrower to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments. Loan consolidation can also give you access to additional loan repayment plans and forgiveness programs.
Consolidating your federal student education loans can simplify your payments, but it also can result in the loss of some benefits. Learn about consolidation so you can weigh the pros and cons and decide whether a Direct Consolidation Loan is right for you
There is no application fee to consolidate your federal student education loans into a Direct Consolidation Loan. You may be contacted by private companies that offer to help you apply for Direct Consolidation Loan, for a fee. These companies have no affiliation with the U.S. Department of Education (ED) or ES’s consolidation loan servicers. There is no need to pay anyone for assistance in getting a Direct Loan Consolidation. The application process is easy and free.
How to apply for a consolidation
You or your parents can contact the Direct Loan Consolidation Department at 1-800-557-7392 or online at: https://studentaid.gov/loan-consolidation
Forgiveness, Cancellation and Discharge
In certain situations, you can have your federal student loan forgiven, canceled, or discharged.
Find out whether you qualify due to your job or other circumstances.
What are the differences between forgiveness, cancellation, and discharge?
The terms forgiveness, cancellation, and discharge mean the same thing, but they are used in different ways. If you are no longer required to make payments on your loans due to your job, this is generally called forgiveness or cancellation. If you are no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called discharge.
The list below is a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
Public Service Loan Forgiveness - If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness Program. You must have made 120 payments on your loan
Teacher Loan Forgiveness - Under the Teacher Loan Forgiveness Program, if you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.
Total and Permanent Disability Discharge (TPD) - A total and permanent disability (TPD) discharge relieves you from having to repay a William D. Ford Federal Direct Loan (Direct Loan) Program loan, a Federal Family Education Loan (FFEL) Program loan, and/or a Federal Perkins Loan.
To qualify for a TPD discharge, you must complete and submit a TPD discharge application, along with documentation showing that you meet the requirements for being considered totally and permanently disabled, to Nelnet, the servicer that assists the U.S. Department of Education with the TPD discharge process.
Death Discharge - Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
Defaulting on Student Loans
Defaulting on student loans is a serious matter that deserves a lot of consideration. Defaulting on your student loan means you failed to make your payment on your student loan as scheduled according to the terms of the promissory note you signed at the time you took out the loan.
Defaulting on your loan has serious consequences, which can be severe, include the following:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called "acceleration").
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
- You will lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
- Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
- Your loan holder can take you to court.
- You may not be able to purchase or sell assets such as real estate.
- You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
- It may take years to reestablish a good credit record.
- Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school's decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.
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