Federal Loan Repayment
After you graduate or drop below ½ time enrollment you will start your grace period. For Stafford loans you will have 6 months to find a job and prepare for repayment before loan payments become due. Parents carrying PLUS loans can apply for a deferment (definition) for up to 6 months after the student leaves school.
When your grace period is over your loan(s) will enter repayment. At this time the loan servicer will add any unpaid interest to your loan balance. This process also occurs at the end of periods of deferment (definition) and forbearance.
Federal loans come with many flexible repayment options. They are designed to meet the needs of a variety of student's situations.You can change repayment plans as your situation changes to fit the monthly payment into your budget. There is never a repayment penalty if you choose to pay off a large sum early. You can learn all the details about these specific plans at www.direct.ed.gov/RepayCalc/dlindex2.html or see below for a high-level overview below.
- Standard – This is the plan that you will start out on if you do not request a different plan. It has the highest monthly payment, and pays the loan off the quickest so you pay the least in overall interest.
- Graduated – This plan allows the monthly payment to start off low and gradually increase over the ten year term. This would be the second least expensive plan overall, paying slightly more than on the standard plan.
- Income Contingent – Payment amount is determined by your income, family size and the amount of your loan balance. This plan offers certain types of forgiveness after 10 and 25 years of repayment.
- Income Based – Monthly payment is based on your income and family size, not your loan balance. The minimum monthly payment can be less than interest accruing and sometime can be zero. This plan has other subsidies for students paying less than interest accruing, and loan forgiveness after 25 years of repayment.
- Extended – For balances over $30,000, this plan repays the loan streached out over 25 years. You can choose between fixed equal monthly payments or payments that gradually increase every two years.
Loan Forgiveness programs are available through certain volunteer work, military service, teaching or practicing medicine in certain types of communities. You must meet the criteria specified by the particular forgiveness program. Visit www.studentaid.ed.gov to determine if you qualify.
A federal loan may be cancelled under extreme circumstances:
- Permanent and total disability
- School Closure
- Eligibility was falsely certified by the school
- Your identity was stolen and used to obtain the loan
Deferments are not applied to your loan accounts automatically, you must apply and receive approval. When subsidized loans are deferred the government will pay the interest that accrues.
Forbearance is also a temporary postponement in paying your student loan, but is given out at the loan servicer's discression. Subsidized loans will continue to accrue interest that your are responsible for (unlike a deferment). Common reasons for a forbearance include:
- Health problems
- Family problems
- Financial hardship