Repayment of Student Loans
Repayment Options. Specific guidelines apply depending on the loan program and when you borrowed. Options for deferment, forbearance, graduated repayment, income contingent repayment, income based repayment (including Pay as You Earn), loan consolidation, and cancellation of a debt will vary by program. Student borrowers interested in more details should contact Student Financial Services and the lender or servicer of their loans.
Most students enter repayment six to nine months after graduation or last half-time attendance. In some instances repayment can begin immediately. A lender or its servicer will usually remind you of your debt and arrange a repayment plan. Even if your lender does not contact you, you must contact your lender no later than 90 days before repayment as part of your responsibility to the loan program.
Promptly paying a student loan payment monthly will help you establish a good credit record. Good credit is an asset when applying for other credit, such as a home mortgage or car loan. Frequent late payments constitute delinquency and may harm your credit history.
Following are tips on avoiding delinquency:
- Notify your lender of name or address changes.
- Send the payment due each month, even if a bill is not sent.
- Call the lender immediately if making a payment on time is impossible, and work out a way to catch up in future months.
- Know about borrowers’ deferment rights. Request and complete all necessary forms. Follow up to be sure that loan payments are deferred properly.
- Keep copies of student loan records, letters, and all payments.
- Always call to clarify a problem. Never ignore correspondence or requests for payment.
The Grace Period. The interval between graduation (or termination of at least half-time enrollment) and the beginning of repayment is called the “grace period.” The purpose of the grace period is to give students time to establish themselves financially. During the grace period, repayment is not required and interest does not accrue on Subsidized Stafford/GSLs and NDSL/Perkins Loans. Repayment of principal and interest may be deferred on Unsubsidized Stafford/SLS, consolidated loans, and HEALs, but interest continues to accrue and, in some cases, to be capitalized. There is no grace period for Graduate PLUS Loans and repayment begins immediately upon graduation or being enrolled less than half-time.
A grace period is six or nine months long, depending on when you received your first loan. The length of the grace period is disclosed to the you at the time you receive the loan.
During your grace period, you should expect to receive a repayment schedule and disclosure statement from the lender or its servicer. This schedule gives specific information about the terms of repayment, such as the amount of monthly principal and interest payments, the first due date, and subsequent monthly due dates. Coupons or statements, which are to accompany monthly payments, are forwarded at a later date. If the payments are too low or high, you should contact your lender or servicer immediately to discuss other payment amounts. You should not wait until the first payment becomes due.
If you can make payments on the loan during your grace period, you should do so. All payments made during the grace period are interest-free and will greatly reduce the amount of interest you will pay on the loan. You should contact your lenders for more information about prepayment.
How and Why to Avoid Default. A default on an educational loan is a claim paid by the guarantee agency to a lender of that loan. It occurs when borrowers fail to repay within the repayment guidelines.
Some consequences of defaulting on educational loans are listed below.
- Defaults are reported to local credit bureaus as derogatory credit.
- The record will remain on the bureau for as long as seven years.
- A poor payment record may delay or prevent you from obtaining other types of credit, such as credit cards, mortgages, auto loans, etc.
- You will be unable to obtain future educational loans as well as other types of government loans that may provide future assistance, such as small business loans or federally subsidized mortgages.
- You may be taken to court or your wages may be attached by the guarantee agency.
- Involuntary deductions from salary to repay educational debts are authorized if you work for a federal agency.
- Federal and some state income tax refunds may be attached and applied to the balance of the defaulted loan.
- Increased interest amounts, late charges, and court and attorney fees may be added to the amount you must repay.
- You will be ineligible for deferments or cancellation benefits once your loan is in default.
- Federal student loans cannot be discharged through bankruptcy except in extreme cases as approved by the bankruptcy court.
Default is avoidable. It requires careful planning when you make the decision to borrow, and when you make choices about your lifestyle and throughout the entire repayment period. Your choices about student loan debt will enable you to finance your educational investment and to make repayment comfortable.