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Before you or your parents borrow, make sure you
understand all the terms of the loan. The following
questions and answers will give you an additional
understanding of FFELs and Direct Loans.
Other than Interest, is There a Charge for
These Loans?
You or your parents will pay a fee of up to 4 percent,
deducted proportionately from each loan disbursement.
A portion of this fee goes to the federal government
to help reduce the cost of the loans. Because
of this deduction, you’ll receive slightly less than the
amount you’re borrowing. Also, if you or your parents
don’t make loan payments as scheduled, you or they
might be charged late fees and collection costs.
How are the Loans Repaid?
There are several ways to repay the loan. The choices are
- A 10-year plan with a minimum
monthly payment of $50;
- A graduated plan with a
monthly payment that starts out low and then increases
gradually during the repayment period;
- An extended plan that allows
you to repay your loan over a longer period; or
- A plan that bases the monthly payment amount
on how much money you make. (Direct PLUS Loan
borrowers are not eligible to repay their loans under
this plan.)
You’ll receive more information on these plans during
exit counseling, which your school will provide.
What if Someone Has Trouble Repaying?
Under certain circumstances, you can receive a deferment
or forbearance on your loan. During a deferment,
no payments are required. If you have a subsidized
loan, the federal government pays the interest that
accumulates during the deferment. If your loan is
unsubsidized, you’ll be responsible for the interest on
the loan during the deferment. Your parents will be
responsible for the interest on their PLUS Loan if they
have a deferment. No borrower can receive a deferment
if the loan is in default (that is, if he or she has
not repaid the loan according to its terms).
During forbearance, payments are postponed or
reduced. The government does not pay any interest
during forbearance; you’re responsible for paying it on
your student loan—whether it’s subsidized or unsubsidized—
and your parents are responsible for paying it
on their PLUS Loan.
Deferment and forbearance periods don’t count as
part of your repayment period. For more details
on deferment and forbearance, click here
or read our publication, The Student Guide (which also explains our loan
programs and the loan application process in
greater detail). You can also get a print
version; check with your college or career school or call
our Federal Student Aid Information Center at 1-800-4-
FED-AID (1-800-433-3243).
If you apply for a deferment or forbearance, you must
continue to make payments until you’re notified the
request has been granted. If you don’t, you might end
up in default. Defaulting on a student loan has very
serious consequences. Listed below are some of them:
- You will be ineligible for
deferments on your loans.
- You will be ineligible for
additional federal student aid.
- Your credit record will be
damaged, which can interfere with buying what you
need, like a car.
- Legal action can be taken against you.
Can the Loans Ever be Canceled?
A FFEL or Direct Loan can be canceled under the following
conditions:
- The borrower dies, or the
student dies on whose behalf a parent borrowed.
- The borrower becomes totally
and permanently disabled, based on a physician’s
certification.
- The student is a full-time
teacher for five consecutive years in a designated
elementary or secondary school serving students from
low-income families. (This cancellation does not apply
to PLUS Loan borrowers.)
- The loan is discharged in
bankruptcy (however, cancellation is possible only if
the bankruptcy court rules that repayment would cause
undue hardship).
- The student’s school closes
before the student completes the program.
- The school falsely certifies
the loan.
- The school does not make a required return of loan
funds to the lender. In this case, a portion of the
FFEL or Direct Loan—up to the amount the school
was required to return—can be canceled.
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NOTE: Even if you drop out of the program of study at the
school, don’t like the school or the program of study, or don’t
obtain employment after completing the program of study,
you must repay your loan(s). No cancellation is available for
these reasons.
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