Understanding the repayment process for your federal student loans can go a long way toward building a solid financial foundation. Our office has brought together the information you need on the repayment process to help you make informed decisions.
Remember, federal student loans are real loans, just like car loans or mortgages. You must repay a student loan even if your financial circumstances becomes difficult. Your student loans cannot be canceled because you didn’t get the education or job you expected, or because you didn’t complete your education.
Know What You Owe.
The first and most important part of developing a successful repayment plan is knowing how much you have borrowed. For a list of all federal loans, which includes any Stafford, Perkins or PLUS loans that you have borrowed, please visit www.NSLDS.ed.gov. This web site will also inform you of who the loan servicers are for each of your loans. You will need to know your loan servicer information in order to set up repayment of your federal loans. Each servicer has its own payment process, so check with them if you are unsure how or when to make a payment. Even if you do not receive a bill, you are responsible for staying in touch with your servicer and making payments.
Choosing a Repayment plan
You have a choice of several repayment plans that are designed to meet your needs. The amount you pay and the length of time to repay your loans will vary depending on the repayment plan you choose. To explore the different repayment options offered, please visit http://studentaid.ed.gov/repay-loans/understand/plans.
Having trouble figuring out which plan will work best for you? Visit the repayment calculator at http://www.paybacksmarter.com/. This site will help you calculate monthly payments for each loan as well as show you how long and the total cost you will pay over the life of the loan. You will need to contact your loan servicer to change your repayment plan.
Loan consolidation can greatly simplify loan repayments by centralizing your loans to one bill and lowering monthly payments by giving you up to 30 years to repay your loans. You should carefully consider whether loan consolidation is the best option for you. Increasing the repayment period to 30 years, while lowering payment, will lead to paying back more money over the life of the loan. You will also lose any loan benefits offered with the original loan such as interest discounts, principal rebates, or some loan cancellation benefits.
A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated. The rate is rounded up to the nearest one-eighth of 1%, but will not exceed 8.25%. Private education loans are not eligible for consolidation nor can a PLUS loan borrowed by the parent of a dependent student be transferred to the student through consolidation. For more information about loan consolidation, please go to www.loanconsolidation.ed.gov.
Deferment and Forbearance
Deferment and forbearance offer a way for you to temporarily postpone or lower your loan payments while you are attending school, in the military, experiencing financial hardship or in certain other situations.
A deferment is a period during which repayment of the principal amountand interest of your loan is temporarily delayed. During a deferment, you do not need to make payments. Also, the federal government may pay the interest on your Subsidized Stafford loans or Perkins loans during a period of deferment. The interest on Unsubsidized Stafford loans as well as PLUS loans will continue to accrue while you are in school.
Situations in which you may apply for a deferent include military service, attending half time at a college or career school, unemployment or economic hardship.
If you are unable to make your scheduled loan payments, but do not qualify for a deferment, your loan servicer may be able to grantyou a forbearance. With forbearance you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans.
To request a deferment or forbearance, you must contact you loan servicer.
Failing to make your monthly loan payments will cause you to become delinquent on your student loan and you will risk going into default. There are many serious consequences to going into default on federal loans. Once your loan goes into default, not only will it affect your credit rating, you will also lose the ability to receive future federal aid until the loan is paid back. While the loan is in default you will lose repayment, deferment and forbearance options. Also, the federal government will be able to garnish your wages. Federal student loans cannot be cancelled in bankruptcy so this debt WILL NOT go away.
Contacting your loan servicer is the best way to prevent you from going into default or getting yourself out of default. Explain your situation and ask the lender what your options are.
For additional information about loan repayment, please visit http://studentaid.ed.gov/repay-loans.