Repaying Your Student Loans

The Federal Stafford Loan is just like any other loan – it must be repaid. There is never any penalty for pre-paying your loan. You are required to repay the loan even if you do not complete your course of study, you are dissatisfied with your education, or if you are unable to find work in your field of study.

Whenever you encounter difficulties in making your loan payment, you must contact your lender or servicer immediately to discuss your options. You may request a deferment or forbearance. Each of these options is based on specific circumstances, and you may be eligible for either. You will still be required to continue making payments until you are granted a deferment or forbearance by your lender.

Loan deferment occurs when you are allowed to temporarily postpone repaying a loan. If you have a Federal Subsidized Stafford Loan, the federal government pays the interest charges during the deferment period. If you have a Federal Unsubsidized Stafford Loan, you are responsible for the interest that accrues during the deferment period. You can still postpone paying the interest charges by allowing the interest to capitalize, something that increases the size of the loan. Most federal loan programs allow students to defer their loans while they are in school at least half-time. If you do not qualify for a deferment, you may be able to get forbearance. You cannot get a deferment if your loan is in default. You may request a deferment if you are:

  • Re-enrolled in an eligible school at least half-time or
  • In a U.S. Department of Education approved graduate fellowship program or
  • In a U.S. Department of Education approved rehabilitation program for the disabled or
  • Actively seeking but unable to obtain full time employment (up to three years) or
  • Experiencing financial hardship (up to three years)

During forbearance, the lender allows you to temporarily postpone repaying the principal, but the interest charges continue to accrue, even on subsidized loans. You must continue paying the interest charges during the forbearance period. Forbearances are granted at the lender's discretion, usually in cases of extreme financial hardship or other unusual circumstances when you do not qualify for a deferment. You cannot receive forbearance if your loan is in default. If you don’t qualify for a deferment, you may still qualify for forbearance if you are:

  • In poor health or other acceptable conditions that do not meet deferment conditions or
  • Serving in a medical or dental internship or residency;
  • Serving in a position under the National and Community Service Trust Act of 1933 or
  • Making a monthly Federal student loan payment that is more than 20% of your monthly gross income (for up to three years)

To keep your student loan in good standing, you must notify your lender or servicer if you:

  • Change your enrollment below half time status or withdraw from the University
  • Change your anticipated graduation date
  • Change your name, local or permanent address
  • Transfer to another school

Your repayment period for your Federal Stafford Loans begins six months after you graduate from the University or drop below half time status. During this six month grace period, you are not required to make any payments, but you should keep in contact with your lender or servicer so that you know exactly when your first payment is due. Depending on the total amount you have borrowed through the Federal Stafford Loan program, you will have a choice of four repayment plans:

  • Standard Repayment - you pay the same amount for each installment payment throughout the entire repayment term or pay an amount that is adjusted to reflect annual changes in the loan’s variable interest rate. The Standard Repayment Schedule cannot exceed ten years, excluding in-school, grace, deferment, or forbearance periods.
     
  • Extended Repayment – this is like the standard plan in that your minimum monthly payment is still $50. But you can take 12 to 30 years to repay your loan. The longer repayment schedule allows you lower monthly payment at the expense of greater interest payments throughout the life of your loan.
     
  • Graduated Repayment - your payment amount changes, usually by increasing in two or more increments during the course of the repayment term. The Graduated Repayment Schedule cannot exceed ten years, excluding in-school, grace, deferment, or forbearance periods.
     
  • Income Sensitive Repayment - your monthly payment amount is adjusted annually, based solely on your expected total monthly gross income received from employment and other sources during the course of the repayment period.

If you allow your loan account to become delinquent for 270 days, you will be considered in default. Defaulting on a student loan can have severe consequences, including:

  • The entire unpaid balance and accrued interest will be immediately due and payable
  • You will lose all of your deferment privileges
  • You will be ineligible for any further Federal student financial assistance
  • The default will be reported to credit bureaus and your credit rating will be damaged
  • The Federal government may withhold your income tax refund
  • Your wages may be garnished by your employer
  • You may be sued and incur additional court and collection costs
   
       

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