Student Loan

A loan is money that you borrow and must pay back with interest. If you decide to get a loan, make sure you understand who is offering it and their terms and conditions. Student loans come from the federal government or private sources, such as banks or financial institutions. Loans provided by the federal government, called federal student loans, typically offer lower interest rates and more flexible repayment options than those from banks and other private sources.

Federal Stafford Direct Loan Program

These are low-interest loans intended to help eligible students cover the cost of college or career school. The U.S. Department of Education offers two types of Federal Stafford Direct Loan Program Loans:

• Subsidized Loans - They have somewhat better conditions to help students with financial need and are available to undergraduate students with financial need. The educational institution you attend determines the amount you can borrow, and the U.S. Department of Education pays the interest while you are enrolled at least half-time, during the first six months after you leave the educational institution (referred to as the grace period*) and during a forbearance period (a deferral of loan payments).
• Unsubsidized Loans – are available to undergraduate and graduate students and do not require proof of financial need. The educational institution you attend takes into account the cost of studying and other financial aid you receive in order to determine the amount you can borrow. It is your responsibility to pay the interest during all periods. If you choose not to pay interest while you are in school or during grace periods and forbearance periods, your interest will be accrued and capitalized (i.e., added to your loan principal amount).
• Federal Direct PLUS Loans are loans made to graduate and professional students, and to parents who have dependent undergraduate students, to help pay for school expenses not covered by the rest of the financial aid.
• Federal Direct Consolidation Loans allow you to combine all of the federal student loans you can apply for into a single loan with a single loan servicer.
• The FEDERAL PERKINS LOAN PROGRAM is a loan program offered by educational institutions to undergraduate and graduate students with exceptional financial need. Under this program, the lender is the educational institution.

The school you attend determines the total loan amount you are entitled to receive each academic year. However, there are limits on the maximum amount of subsidized and unsubsidized loans you are entitled to receive each academic year and throughout your college career. These limits depend on: what year you are studying at the school and whether you are a dependent or independent student.

Federal student loans are an investment in your future. You shouldn't be afraid of getting a federal student loan, but you need to be smart about it.

Federal student loans offer many benefits compared to other options you may want to consider when paying for college:

1. The interest rate is almost always lower than that of private loans.
2. No credit assessment or co-signer is necessary.
3. You don't have to make a monthly payment until you've left college or reduced your study to less than half-time.
4. If you can prove that you have financial need, you may be eligible for the government to pay your interest while you are in college.
5. They offer flexible repayment plans and options to postpone your loan payments if you have difficulty making them.
6. If you work in certain jobs, you may be eligible to have a portion of your federal student loans forgiven as long as you meet certain requirements.

Before you get a loan, it's important to understand that loans are legal obligations and that you'll be responsible for repaying them with interest. You may not have to start repaying your federal student loan right away, but you don't have to wait to understand your responsibilities as a borrower.

• Be a Responsible Debtor – Your Student Loan Repayments Should Only Be a Small Percentage of Your Salary After Graduation, So It Is Important Not to Borrow More Than You Need for Your University-Related Expenses.
• Research starting salaries in your area of interest. Inquire with your educational institution about the starting salaries of recent graduates in your field of study to gain an understanding of how much you are likely to earn after graduation.
• Understand the terms of your loan and keep copies of your loan documents – By signing the Promissory Note, you are agreeing to repay your loan according to the terms of that Promissory Note, even if you do not complete your education, cannot find employment after completing the program of study, or do not find the education you received satisfactory.
• Make Payments on Time - You must pay on time and the full amount specified by your payment plan.
• Stay in touch with your LOAN SERVICER - Notify the LOAN SERVICER of any changes to your STUDENT status or if your contact or personal information changes. You should also get in touch if you're having trouble meeting scheduled payments.

• Basic Payment Plan - This payment plan saves you money over time because, although your monthly payments may be slightly higher than those in other plans, you will be able to pay off your loan in a shorter period. For this reason, you will pay the least amount of interest over the life of the loan. It is for a term of 10 years.
• Graduated Repayment Plan – starts with lower payments that increase every two years, has a term of up to 10 years, will never be less than the amount of interest that accrues between installments, and will not exceed three times the amount of any other payment.
• Extended Repayment Plan - Your monthly payments are either a fixed amount or graduated, for a term of up to 25 years, usually less than the payments made under the BASIC and GRADUATED Repayment Plans.
• Income-Based Repayment Plan - Your monthly payments are based on your income and family size, and are limited by the amount under the Ten-Year Basic Payment Plan. They are adjusted every year, based on changes in your annual income and household size, are usually lower than with other plans, and are made over a 25-year period. The maximum of your monthly payments will equal 15% of your discretionary income, the difference between your adjusted gross income and 150% of the poverty parameter for your household size, and State of residence.
• Income-Based Repayment Plan - Your maximum monthly payment will equal 10% of your discretionary income, which is the difference between your adjusted gross income and 150% of the Poverty Guideline for your household size and state of residence. Your payments will change as your income changes and are for a term of 20 years.
• Income-Conditional Repayment Plan - Payments are calculated annually and are based on your annual income, household size, and the total amount of your Direct Loan Program loans. Your payment installments change as your income changes and are for a term of 25 years.
• The Income-Sensitive Repayment Plan – Your monthly payments increase or decrease based on your annual income and are made for a maximum period of 10 years.
• Consolidation Loan - If you have multiple Federal student loans, you can consolidate them into one and simplify repayment if you currently make separate payments to different loan servicers, as you will only need to make a single monthly payment.

If you are unable to meet your scheduled loan payments, contact your loan servicer immediately. Your loan servicer can help you understand your options for keeping up with your payment. For example, you may want to change your repayment plan to lower your monthly payments or request a deferment or extension that allows you to decrease the amount of your loan payments or stop paying them for a while.

Deferments are periods during which you delay paying the principal balance of your loan for a period of time. You do not need to make payments during the payment deferment. What's more, depending on the type of loan you have, the federal government may pay interest on your loan during a forbearance period. The government may pay interest on the following loans: Federal Perkins, subsidized by the Direct Loan Program, and/or subsidized Federal Stafford. If you don't pay the interest on your loan during forbearance, it can be compounded, and the amount you pay in the future will be higher.

Most payment deferrals are not automatic, and you will likely need to submit a request to your loan servicer, the organization that manages your loan account. If you are enrolled in at least part-time school and would like to apply for a deferment, in addition to contacting the lender that services your loans, you will need to contact the financial aid office of the school you attend.

You must apply for this by sending a request to the loan servicer. In some cases, you will need to provide documentation to support your request.

Interest will continue to accrue on all types of loans, including subsidized loans. You can pay interest during the temporary stop or let it accrue. If you don't pay the interest on your loan during the forbearance, it may be compounded and the amount you pay in the future will be higher.

Under certain conditions, all or part of your loan may be cancelled, forgiven, or discharged.

• Total and Permanent Disability Discharge - You may qualify for a total and permanent disability discharge of your federal student loans if you are unable to engage in any substantial gainful activity due to a physical or mental impairment that has been medically determined to be likely to cause your death, has lasted a continuous period of not less than 60 months, may be expected to last a continuous period of not less than 60 months, or has caused the Secretary of Veterans Affairs to declare you unable to work due to a service-connected disability.
• Discharge upon Death – If you, the borrower, pass away, your Federal student loans will be discharged. If you are a parent of a PLUS Loan borrower, then you may be able to discharge the loan if you die or if the student on whose behalf you obtained the loan dies.
• BANKRUPTCY DISCHARGE - This is not an automatic process; you must demonstrate to the Bankruptcy Court that paying your Student Loan would cause you excessive financial hardship. If you file for Chapter 7 or Chapter 13 bankruptcy, your bankruptcy loan will likely be discharged only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents. That must be decided in a litigation in bankruptcy court. Your creditors may be present to rectify the request. The court uses this three-part test to determine the difficulty.
• SCHOOL CLOSURE DISCHARGE - You may be entitled to a discharge of your Direct Loan Program or FFEL Program loans under any of the following circumstances: the SCHOOL you are attending closes while you are enrolled and you do not complete your program due to the closure, or the SCHOOL you are attending closes within 90 days after you withdraw.
• OVERRIDE FOR FALSE CERTIFICATION OF STUDENT PARTICIPATION REQUIREMENTS OR UNAUTHORIZED PAYMENT – The educational institution you attended made a false certification of your eligibility to receive the loan based on your ability to benefit from your training, and you did not meet the participation requirements. The institution signed your name on the application or promissory note without your authorization, or the institution endorsed the check of your loan or your electronic funds transfer authorization without your knowledge. A false certification of your loan was made because you were a victim of identity theft, or the educational institution certified your right to participate, but due to physical or mental illness, age, criminal record, or other reasons, you are disqualified from obtaining employment in the occupation for which you were being trained.
• Unpaid Refund Discharge - You withdrew from the educational institution, but the institution did not pay the refund due to the U.S. Department of Education or the lender, as applicable. You may be entitled to a discharge of your loans from the Direct Loan Program or the FFEL Program. Check with your school to see how reimbursement policies apply to federal financial aid at your school.
• Forgiveness of educational loans for teachers - If you are a teacher and also a new borrower (meaning you did not have an outstanding balance on a loan from the Direct Loan Program or the FFEL Program as of 1/10/1998 or on the date you obtained a loan from the Direct Loan Program or the FFEL Program after 1/10/1998) and have been teaching full-time at a low-income elementary or secondary school or an educational service agency for five consecutive years, you may be eligible for forgiveness of up to 17,500 $ of your subsidized or unsubsidized loans.
• Public Service Loan Forgiveness - If you are employed in certain public service positions and have made 120 payments on your Direct Loan Program loan (after 1th of October 2007), the remainder of the balance you owe may be forgiven. Only payments made with certain payment plans can be considered part of the 120 mandatory payments. You must not have defaulted on the loans that are forgiven.
• Perkins Loan Cancellation and Discharge - The following cancellations under the Federal Perkins Loan Program apply to individuals who provide certain types of public service or are employed in certain occupations. For each year of service completed, a percentage of the loan may be cancelled, partially or totally cancelled if you have served in one of the following capacities:

  • Volunteer in Peace Corps or ACTION program (including VISTA)
  • Teacher
  • Member of the U.S. Armed Forces (serving in an area of hostilities)
  • Nurse or medical technician
  • Corrections or law enforcement officer
  • Head Start Program Worker
  • Child or Family Services Worker
  • Professional provider of timely intervention services.

If you qualify for a full discharge on your loan, you're no longer obligated to repay it. Depending on the type of loan forgiveness program you are eligible for, the U.S. Department of Education may be required to repay you in whole or in part the money you paid for your loan.

CONSUMER has certified counselors who can guide you through student loan repayment issues. In the services section you can get information on how to make an appointment. You may call 787-722-8835 or 1-800-717-2227.