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If you’re a federal student loan recipient, there are two key points to remember. First, the interest rate you pay is lower than commercial rates because the federal government subsidizes the rate. Second, if you are a student borrower, you don’t have to begin to repay your Perkins or Stafford Loans until you leave school or drop below half-time.
As generous as these terms are, you shouldn’t forget that you do have to repay your loan. Failure to do so could result in your loan(s) being declared delinquent or in default. This could have a negative impact on your financial status and creditworthiness in the future. This section outlines repayment requirements and describes the rare circumstances under which your obligation to repay can be reduced or forgiven.
When you obtain a federal student loan you have certain responsibilities. Here are some important ones:
- Think about what your repayment obligation means before you take out a student loan.
- If you don’t repay your student loan on time or according to the terms in your promissory note, you could default on this legal obligation, which has serious consequences and will adversely affect your credit rating.
- When you sign a promissory note, you’re agreeing to repay the loan according to the terms of the note.
- The note states that unless you meet the requirements for loan discharge (cancellation), you must repay the loan, even if you don’t complete your education.
- Also, you must repay your loan even if you can’t get a job after you complete the program or you didn’t like the education you received. The U.S. Department of Education does not guarantee the quality of education you receive or that you will find a job in your field of study.
- You must make payments on your loan even if you don’t receive a bill or repayment notice.
- Billing statements (or coupon books) are sent to you as a convenience. You’re obligated to make payments even if you don’t receive any reminders.
- You must also make monthly payments in the full amount required by your repayment plan. Partial payments do not fulfill your obligation to repay your student loan on time.
- If you apply for a deferment or forbearance, you must continue to make payments until you have been notified that your request has been approved.
- If you don’t, you might end up in default.
- Keep a copy of any request form you submit, and document all contact you have with the holder of your loan.
- graduate;
- withdraw from school;
- drop below half-time status;
- change your name, address or Social Security number†; or
- transfer to another school.
† NOTE: New Social Security numbers are issued only in very rare circumstances. See www.ssa.gov/ssnumber/ for rules on changing them.
If you are a first-time borrower you must complete an entrance counseling session before you’re given your first loan disbursement. This session provides you with useful tips and tools to help you develop a budget for managing your educational expenses and helps you to understand your loan responsibilities. Parent PLUS Loan borrowers do not participate in entrance counseling.
You must receive exit counseling before you leave school to make sure you understand your rights and responsibilities as a borrower. You will receive information about repayment and your loan provider will notify you of the date loan repayment begins (usually six months after you graduate, leave school or drop below half-time enrollment). Parent PLUS Loan borrowers do not participate in entrance counseling.
You have a right to know the details of your loan (depending on your loan, some of the following might be included as part of your entrance counseling). Below is what you need to know and must receive from your school, lender or the Direct Loan Servicing Center:
- The full amount of the loan and the current interest rate;
- The date you must start repayment;
- A complete list of any charges you must pay (loan fees) and information on how those charges are collected;
- Information about the yearly and total amounts you can borrow;
- Information about the maximum repayment periods and the minimum repayment amount;
- An explanation of default and its consequences; and
- An explanation of available options for consolidating your loans and a statement that you can prepay your student loan(s) at any time without a penalty.
Before you leave school, you will receive the following information about your loan (as part of exit counseling) from your school, lender or the Direct Loan Servicing Center:
- A current description of your loans, including average anticipated monthly payments.
- The amount of your total debt (principal and estimated interest), your current interest rate and the total interest charges on your loan;
- If you have FFELSM Loans, the name of the lender or agency that holds your loans, where to send your payments and where to write or call if you have questions;
- If you have Direct Loans, the address and telephone number of the U.S. Department of Education’s Direct Loan Servicing Center;
- An explanation of the fees you might be charged during the repayment period, such as late charges and collection or litigation costs if you’re delinquent or in default;
- A reminder of available options for loan consolidation and a reminder that you can prepay your loan without penalty at any time.
- A description of applicable deferment, forbearance and discharge (cancellation) provisions;
- Repayment options and advice about debt management that will help you in making your payments;
- Notification that you must provide your expected permanent address and the name and address of your expected employer; and
- Notification that you must also provide any corrections to your school’s records concerning your name, Social Security number, references and driver’s license number (if you have one).
If you are attending school at least half-time, you have a set period of time after you graduate, leave school or drop below half-time status before you must begin repayment on a Stafford or Perkins Loan. This period of time is called a grace period.
Your school, lender or the Direct Loan Servicing Center, as appropriate, must give you a loan repayment schedule that states:
- when your first payment is due;
- the number and frequency of payments; and
- the amount of each payment.
If you or your parents borrow under the FFEL Program, you (or your parents, or graduate and professional degree students for PLUS Loans) must be notified when the loan is sold if the sale results in making payments to a new lender or agency. Both the old and new lender must provide this notification. You must be given:
- the identity of the new lender or agency holding the loan; and
- the address where you or your parents must send payments, and the telephone numbers of both the old and new lender or agency.
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