A student borrower can start paying their Federal Student loan debt while actively attending school – in fact, it is encouraged that students start making some form of payment towards the interest on the unsubsidized portion of the loans to help keep the loan debt lower.
Upon graduating from the College, your loans go into a six month “Grace period.” This Grace period begins:
Unsubsidized loans may continue to accrue interest during the Grace period but again, you are not obligated to make payments during this period (but it is encouraged). Regular monthly payments begin after the Grace period ends, which is known as the repayment period.
If you have not made payments while in school or during your grace period, you may have capitalized interest when the loan enters into repayment. Capitalized Interest is accrued interest that is added to the principle amount of your loan balance. During repayment period, you are solely responsible for all of the interest accruing on your account. If you can afford more than the minimum monthly payment under any repayment plan, you are encouraged to make that higher payment and pay your loans off sooner.
Payment in Full
If you have the money to pay off your balance, then you are encouraged to do so in order to save on the interest and other fees. You can contact the Student Loan Management Team or your servicer to find out what your “pay off amount” is.
Another option is making the minimum payments that are due every month. There are not penalties if you pay more than the minimum amount. Some borrowers may have multiple lenders and multiple loans, and they may consider bundling up all of those Federal student loans through the Direct Loan Consolidation program.
If you have not chosen a repayment plan yourself, then your servicer will automatically place your account into the standard repayment plan. Although this is considered the highest monthly payment plan; normally, a borrower will pay off the total loan balance (minimum 5 years) in 10 years. This is the best choice and least expensive loan repayment option in terms of total interest costs you will repay.
If you are not able to meet the obligations under the standard repayment plan option, then consider the graduated repayment plan. This plan allows up to 10 years to repay your loans. For the first 2 years, you only pay the interest, then your monthly payments increase every 2 years. Consider this plan if you expect your income to increase in the future. Eligibility is based on adjusted income, family size, and total loan debt.
Specialized Repayment Plans
The following repayment plans are only available to certain borrowers, and eligibility is determined by specific borrower criteria, as outlined below. Please contact your loan servicer for additional information about these repayment plans.
** For Income-Based Repayment, Pay As You Earn, REPAYE and loan rehabilitation, discretionary income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.
***For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence.
Defaulting on student loan payments is a very serious matter. When you sign your Master Promissory Note, it is a legal contract to the terms and conditions of your loans, which include repayment. Here are some of the consequences:
Credit Rating Decline
Defaulted loans are reported to credit bureaus, causing you, the borrower, to sustain long-term damage to your credit score. This will likely make it difficult for you to obtain other types of consumer credit, such as a home mortgage or car loan.
Your loan servicer can notify your employer to withhold a portion of your pay, which will be applied to your unpaid loan balance. This also applies to Social Security benefits.
Outstanding interest is capitalized and collection fees may be added, resulting in a loan balance that is higher than the amount borrowed.
Income Tax Refund Seized
Your Federal income tax refunds and other Federal payments maybe seized to satisfy the outstanding loan balance you owe.
Federal Financial Aid Ineligibility
If you wish to return to school, you will not be eligible for any additional Federal student aid until you make arrangements to repay your defaulted loan.
Your servicer or the Federal Government may file a lawsuit seeking a civil judgement against you for the amount you owe.
If you’re applying for a professional license from your state, your servicer may be able to prevent that from happening until you start paying your loans.
Your unpaid loan will stay with you until you pay it back. Collections efforts continue until you resolve your defaulted account.
Although this option may result in monthly payments (and maybe a lower fixed interest rate), you are likely to pay more total interest because you lengthened your repayment period by making smaller payments over a longer term. The consolidation option allows you to bundle multiple Federal education loans into one new loan with the benefit of a convenient single monthly loan payment. Loan consolidation is not the best choice for every borrower – be sure to speak with your school’s specialist or servicer for more information.
You may qualify for deferment if you are unemployed, are working less than 30 hours a week, are actively seeking full-time employment (more than 30 hours a week), are registered with an employment agency, are facing certain economic hardships, are on active duty, are receiving payments under Federal or state public assistance program, or are returning to school. Proof of documentation is also required. There is unlimited usage on the In-school Deferment, and up to 3 years on the Unemployment and Economic Hardship Deferment forms.
If you can’t make your scheduled monthly loan payments, but don’t qualify for a deferment, your loan servicer may be able to grant you a forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payments for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans). There are two types of forbearances: Discretionary and Mandatory. For discretionary forbearances, your lender decides whether to grant forbearance or not. For mandatory forbearances, if you meet the eligibility criteria for the forbearance, your lender is required to grant the forbearance.
If you return to school and are actively enrolled at an eligible institution at least half time, then you may be qualified for the in-school deferment. The in-school deferment will postpone payment while you are attending school.
If you are in your grace period, this deferment can extend your grace period up to 3 years if you are serving on active duty in the U.S. Armed Forces. The deferment ends 180 days after you are demobilized from active duty service.