Loan Repayment Plans

When you leave school or drop below half-time enrollment, your grace period begins. This special feature of Federal Stafford loans gives you six months before you must start making monthly principal and interest payments on your loans. If you re-enter school at least half time during your grace period, it is renewed for another six months. So you have the full grace period available when you leave school again.

Before repayment starts, you will be provided with repayment options and a repayment schedule from your lender or servicer for each type of loan you have. If you do not receive these schedules toward the end of your grace period, contact your lender because repayment begins whether or not you're aware of it.

If you plan ahead, the repayment process will go smoothly. Start by knowing all your options. You will have a choice to make regarding the type of repayment plan you would like to use:

Standard Repayment:

Your monthly payment will remain the same over the entire repayment period.

Graduated Repayment:

This plan typically begins with smaller payments, followed by a gradual increase in payments at specified intervals.

Income-Sensitive Repayment:

This plan ties the size of your payment to your income level, with adjustments to your payment made annually.

Extended Repayment:

This option is available for those who first borrowed on or after October 7, 1998, and who then accumulated loans that totaled more than $30,000.

Loan Consolidation:

Repayment can become fairly complicated if you have to make different payments at different times of the month. Consolidation is a way to make repayment of multiple loans less complicated.

You can consolidate all your federal student loans into one loan with a fixed rate and a single, lower monthly payment. You pay no additional fees to consolidate your loans. More importantly, you may reduce the amount of each monthly payment by extending your repayment term. But remember that a longer repayment term increases the amount of interest you pay over the term of your loan.

Consolidation loans offer terms ranging from 10 to 30 years. Repayment options on consolidation loans include: Standard, Graduated and Income Sensitive repayment plans. To be eligible for a consolidation loan, you must be in a grace period, repayment, deferment, or forbearance.

It is important to research loan consolidation very carefully as you may lose some borrower-benefits offered by your original lender.

Deferment

To apply for a deferment, contact your lender or servicer directly.

Forbearance

Postponing payments when deferment is not an option.

If you find yourself in temporary financial difficulty and no deferment option applies to you, you can request forbearance from your lender or servicer. Forbearance is granted at the lender's discretion and allows you to have months added to the term of your loan, temporarily reduce the amount of your monthly payment or temporarily suspend monthly payments. There are several forbearance options available. The two most common types of forbearance are:

• Economic Hardship Forbearance:
  If your student loan payments exceed 20% of your total monthly income you can apply for this type of forbearance. It is given in 12- month increments for a maximum of three years.
• Administrative Forbearance:
  May be granted by your lender if you are delinquent on payments prior to entering a period of deferment.

Note that interest continues to accrue on your loan during forbearance. That interest must be repaid, which can result in higher monthly payments once the forbearance has ended. The federal government does not pay the interest on Subsidized Stafford loans while your loans are in forbearance. To apply for forbearance, contact your lender or servicer for information about their procedures.

Delinquency and Default

When your monthly payment is 30 days or more late, you are considered delinquent on your loan. Most lenders and servicers will contact you directly about delinquent payments and begin collection activity. Your delinquency may be reported to a credit bureau which could damage your credit rating.

If you expect to have a problem making a monthly payment, contact your lender immediately. It is always easier to discuss alternatives before the due date rather than after a payment is late.

If you fall 270 days behind on a scheduled payment, you are legally in default on your loan agreement. The lender can assume that you are not going to repay; and the lender may declare the entire amount you owe, including interest, as immediately due and payable.

Defaults are reported to credit bureaus and stay on your credit record, whether or not you eventually pay off the loan. The consequences of default are severe.

• You are liable for late charges which can be added to the principal of your loan, and on which you will then pay interest.
• When your loan is in default, your federal income tax refunds can be withheld to repay the loan.
• Your wages may be garnisheed (a portion withheld for repayment).
• You may have to pay attorney's fees and court costs.
• You lose eligibility for all federal and state financial aid until you have made satisfactory repayment arrangements on the defaulted loan.
• In a profession that requires a license to practice, that license can be denied renewal until you make satisfactory payment arrangements on your student loan.

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