If you are a Direct Loans recipient, there are two key points to remember:*
- The interest you pay is lower than commercial rates because the federal government subsidizes the rate.
- If you are a student borrower, you don't have to begin repaying your Perkins or Stafford Loans until you leave school or become less than a half-time student.
As generous as these terms are, you shouldn't forget that you have to repay your loans. Failure to do so will result in your loans being declared delinquent or in default. This will have a negative impact on your financial status and creditworthiness in the future. The questions and answers below provide additional information.
When does repayment begin?
Federal Perkins Loans – The grace period on a Perkins Loan is nine months after you stop attending school (graduate or leave before graduation). During the grace period, you don't have to pay any principal, and you won't be charged interest.
Direct Subsidized Loans - The grace period is six months after you stop attending school (graduate or leave before graduation). During the grace period, you don't have to pay any principal, and you won't be charged interest.
Direct Unsubsidized Loans – The grace period is six months after you stop attending school (graduate or leave before graduation). You don't have to pay principal, but you will be charged interest. You can either pay the interest, or it will be capitalized (added to the principal balance) later.
Direct PLUS Loans – There is no grace period on PLUS loans, but there are ways to stop your payments while you're still in school at least half time. Interest is charged on PLUS loans during all periods, beginning on the date of the first loan disbursement. Repayment on a PLUS loan begins on the date that the loan is fully disbursed in the first academic year.
Your lender(s) will send you information about repayment, and you will be notified of the date repayment begins. However, you are responsible for beginning repayment on time even if you don't receive this information. Failing to make payments on your loan can lead to default. Default occurs when you fail to meet the terms and conditions of the promissory note, such as not making timely payments on the loan.
There are many ways to postpone and/or reduce your payments if you experience difficulty making your payments. We have a team of experts to assist you throughout the repayment of your federal loans.
What are my repayment options?
Standard Repayment Plan – This payment plan has a fixed annual repayment amount paid over a fixed period of time not to exceed ten years.
Graduated Repayment Plan – This payment plan is paid over a fixed period of time not to exceed ten years. With this plan, your payments start with a relatively low amount and then increase, generally every two years.
Extended Repayment Plan – This payment plan has a fixed annual or graduated payment amount to be paid over a period, not to exceed 25 years. You must have over $30,000 in outstanding federal loans, not including Perkins Loans. Your fixed monthly payment is lower than it would be under the Standard Repayment Plan, but you will ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.
Income Contingent Repayment (ICR) Plan (Direct Loans) – Your monthly payments will be based on your annual income (and that of your spouse, if married), your family size, and the total amount of your Direct Loans. Borrowers have 25 years to repay under this plan; the unpaid portion will be forgiven. You may have to pay income tax on the amount that is forgiven. This payment plan is not available to PLUS borrowers.
Income-Sensitive Repayment Plan (FFEL Loans) – With an income sensitive plan, your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years.
Income-Based Repayment (IBR) – This repayment plan is available to borrowers who have a partial financial hardship. This plan is not available to Direct PLUS Loan borrowers. Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period may exceed 10 years. If you repay under this plan and meet certain other requirements over a specified period of time, you may qualify for cancellation of any outstanding balance on your loans.
Key facts about repaying your federal loans:
- If you don't choose a repayment plan when you first begin repayment, you'll be placed under the Standard Repayment Plan
- You can change plans to suit your financial circumstances
Can I postpone my loan repayment?
Under certain circumstances, you can receive periods of deferment or forbearance that allow you to postpone loan repayment. These periods don't count toward the length of time you have to repay your loans. You can't get a deferment or forbearance for a loan that is already in default.
What is a deferment?
A deferment is a period of time during which no payments are required and interest does not accrue (accumulate), unless you have Direct Unsubsidized Loan or a Direct PLUS Loan. In those cases, you must pay interest. To qualify for a deferment, you must meet specific eligibility requirements.
What are the various types of deferments?
Active Duty Student Deferment
A borrower, who is a member of the National Guard or other reserve component of the U.S. Armed Forces (current or retired) and is called or ordered to active duty while enrolled at least halftime at an eligible school, or within six months of having been enrolled at least halftime, is eligible for a deferment during the 13 months following the conclusion of the active duty service, or until the borrower returns to enrolled student status on at least a half-time basis, whichever occurs first.
Economic Hardship Deferment
A borrower may qualify for an economic hardship deferment for a maximum of three years if the borrower is experiencing economic hardship according to federal regulations.
A borrower may qualify for an in-school deferment while attending at least halftime at an approved post-secondary school.
What is forbearance?
If you temporarily can't meet your repayment schedule, but you're not eligible for a deferment, your lender might grant you forbearance for a limited and specific period of time. Forbearance occurs when your lender or loan-servicing agency agrees to either temporarily reduce or postpone your student loan payments. Interest continues to accrue (accumulate), and you are responsible for paying it.
Generally, your lender can grant forbearance for periods up to 12 months at a time, for a maximum of three years. You'll have to provide documentation to the lender to show why you should be granted forbearance. The lender must send you a notice confirming the terms that were agreed to and record them in your file.
You must continue making payments on your student loan until you have been notified that your request for deferment or forbearance has been granted. If you don't, and your deferment or forbearance is not approved, you will become delinquent and may default on your loan.
If you don't repay your loan or seek assistance and follow through with paperwork to postpone your payments, you will end up in default. A defaulted federal loan is the worst status to have on your credit report, as it will never be deleted from your record.
We understand that it may become confusing and difficult to maintain all of your financial obligations. That's why we have a dedicated team in place to assist you throughout the repayment of your federal loans.
What are the consequences of default?
- Loss of ability to apply for deferments, forbearances and adjusted repayment plans
- Not able to receive future federal student aid including grants
- Unable to obtain certain employment
- Garnishment of wages
- Garnishment of federal income taxes
- Credit history destroyed for a lifetime
For assistance in avoiding the consequences of defaulting on a federal loan, contact Student Loan Solutions at 877-553-7010 or studentloansolutions.org
*Financial aid available to those who qualify