Managing Student Loans
Unlike scholarships and grants, student loans require ongoing financial obligations even after the student is through with his or her studies. It is therefore important to thoroughly understand the loan process and how to properly manage student loans.
A student's total financial aid, including loans, may not exceed the calculated cost of attendance for the program of study. Students with unsubsidized loans may elect to make monthly interest payments to the lender, or allow the accumulated interest to accrue until repayment, which begins six months after the student ceases to be enrolled as at least a half-time student. Upon graduation or termination of studies, the student is given a six-month grace period during which no interest or principal payments are due on subsidized loans, and only interest continues to accrue on unsubsidized loans. The minimum monthly payment is $50, but the amount varies based on the total amount of outstanding loans upon which the student is paying. Students must complete an Entrance Counseling session when seeking a Federal Direct or Perkins Loan.
Loan Counseling Requirements
Federal regulations require schools to provide initial loan counseling for all Federal Direct Loan borrowers before the release of the first disbursement. Initial loan counseling covers:
- Considerations before incurring loan debt.
- The importance of repayment obligations.
- The consequences of default, including adverse credit reports and litigation.
- The obligation to repay the full amount of the loan even if the borrower withdraws, cannot find employment in the field of training, or is dissatisfied with the education received.
Regulations also require exit counseling for those graduating or ceasing at least half-time enrollment. Exit loan counseling covers:
- Deferments, consolidation, and other repayment options.
- Debt management strategies.
- Student responsibilities upon leaving school.
As a student borrower, you are entitled to:
- A repayment period of at least five years, as long as the monthly minimum payment of at least $50 is met.
- A copy of your repayment schedule and disclosure statement from your lender or guarantee agency.
- Have any questions about your Federal Stafford or Supplemental Loan answered by your lender or guarantor.
As a student borrower, you have the right to prepay all or any part of your loan at any time without penalty, have your loan obligation canceled if you die or become totally and permanently disabled, or defer payment for a specified period of time, if qualified.
Acceptance of an education loan requires:
- That you use the loan for educational expenses and repay your loan debt in full even if:
- You do not graduate or complete your program of study.
- You are unable to obtain employment on ending or completing your program.
- You are dissatisfied with the school or you did not receive the education or other services you purchased from the school.
- That if you fail to repay your loan according to its terms and conditions, your default will be reported to a national credit bureau and you may suffer any or all of the following consequences:
- Collection agency action.
- Withholding of federal income tax refunds.
- Garnishment of wages.
- Loss of eligibility for federal student aid.
- Difficulty in obtaining other credit.
- In most instances, student loans may not be discharged through bankruptcy.
- That you make payments at the end of your grace period (or immediately upon disbursement of the Supplemental Loan) whether you have received a repayment schedule or not. If your first payment due date is nearing and you have not received a repayment schedule, contact your lender/servicer.
- That you must notify your lender if you change:
- Your name or address.
- Your enrollment status (e.g., withdraw, graduate, or drop to less than half-time status).
- That upon leaving school, you notify your lender/servicer of your expected employer and permanent address, the address of your next of kin, and any changes to your Social Security or driver's license number.
- That if you receive notice that your loan is being serviced by an agency other than your lender, you must refer all further correspondence, inquiries and payments to the servicer.
You should keep copies of all your student loan papers, documents and correspondence.
The Federal Stafford Loan (formerly GSL) grace period begins the day after you leave school ("leaving school" means graduating, withdrawing, or dropping to less than half-time enrollment status). The grace period for most Federal Stafford Loans is six months; during this period, no payments are due and interest on the loan continues to be paid by the federal government. There is no grace period for the Supplemental Loan (SLS)/PLUS.
With a Subsidized Federal Direct Loan, interest begins to accrue on the day after your grace period ends. Approximately 30-45 days later, your first payment will be due. Thereafter, payments will be due once a month until the loan is paid. You will receive a repayment schedule and disclosure statement for each of your student loans from your lender/servicer. This schedule will tell you how much your payments will be, when they are due, and over what period of time you will be paying.
For Unsubsidized Federal Direct Loans, students are responsible for paying interest during the period of time that the principal is deferred. Because most lenders will permit students to defer interest repayment during school enrollment, the interest accrues during this deferment period. This is called capitalization.
Payments on the Federal Supplemental Loan (SLS) begin on the principal and interest approximately 60 days after the disbursement of funds unless a deferment is granted by the lender/servicer.
A deferment is a period of time (varying in length) when you will not be required to make payments on your loans because you temporarily cannot afford the scheduled payments. If you think you are eligible for a deferment, contact your servicer. A deferment is not in force and you are not excused from making loan payments until the documentation is complete.
For most loans, there are three main types of deferments:
- In school at least half time or in a graduate fellowship.
- Rehabilitative training for disablement or unemployment up to three years.
- Economic hardship.
The types of deferments for the Federal Direct and SLS programs are:
- Full-time enrollment at an eligible school.
- Half-time enrollment at an eligible school under the Federal Stafford or SLS programs during the enrollment period.
- Participation in a rehabilitation program.
- Study under an approved graduate fellowship program.
- Serving an internship necessary for professional practice or service.
- Temporary or total disability, or the inability to work because of caring for a temporarily or totally disabled spouse or dependent.
- Parental leave to care for a newborn, if you attend school in the six months prior to the leave.
- Mothers who have preschool-age children and are entering or re-entering the work force at less than $1 above minimum wage.
- Service in the National Oceanic and Atmospheric Administration Corps (NOAA).
- Active-duty service in the U.S. Armed Forces or service as an officer in the Commissioned Corps of the United States Public Health Service.
- Full-time teaching in a private, nonprofit, or public elementary or secondary school shortage area.
You should contact your servicer for details on deferment questions.
Should you become financially unable to make monthly payments, you may be able to suspend, lower payments, or make interest payments only for a short period of time (six-month periods) at the discretion of your lender/servicer.
If you have several education loans with different lenders and multiple monthly payments, you may request that your loans be consolidated to:
- Obtain one monthly payment.
- Extend the time for repayment (up to 30 years).
- Reduce the monthly payment amount.
- Pay in full one or more of your existing student loans.
The interest rate for the consolidation loan is the weighted average of the loans rounded upward to the nearest whole percent.
To apply for a consolidation loan, you must first contact the holders of your loans to see if any participate in the loan consolidation program. If so, they will provide you with the application and an explanation of the procedure. If your lenders do not offer consolidation, you may contact any other financial institution or secondary market that offers this service.