After studying

Repayment plans

• When you leave university or drop below part-time enrolment, your grace period begins. This special feature of Federal Stafford loans gives you six months before you must start making monthly principal and interest payments of your loans. If you re-enter university at least part time during your grace period, it is renewed for another six months. So you have the full grace period available when you leave university again.
  
• Before repayment starts, you will be provided with repayment options and a Repayment Schedule from your lender or servicer for each type of loan you have.
  
• If you do not receive these schedules towards the end of your grace period, contract your lender because repayment begins whether or not you’re aware of it. Also, all of the borrower benefits will only apply if you make your first payment on time.

If you plan ahead, the repayment process will go smoothly. Start by knowing all your options. You will have a choice to make regarding the type of repayment plan you would like to use:

• Standard Repayment – under this plan, your monthly will remain the same over the entire repayment period. This repayment plan is the most economical. The term is for a maximum of ten years.
  
• Graduate Repayment – as the name suggests, this plan typically begins with smaller payments, followed by a gradual increase in payments at specific intervals. Under this plan you will probably pay more interest over the term of the loan. The term is for a maximum of ten years.
  
• Income-Sensitive Repayment – this plan ties the size of your payment to your income level, with adjustments to your payment made annually. The monthly payment must be large enough to cover accrued interest charges. This plan also may increase the amount of interest you pay over the term of your loan. The term is up to ten years. However, your lender can use forbearance to lengthen the term for up to five additional years (15 years total).
  
• Extended Repayment – this option is available for those who first borrowed on or after October 7, 1998, and who then accumulated loans that totalled more than $30,000. If you’re one of these borrowers, you may extend your standard or Graduated Repayment plan for up to a total of 25 years.

If at any time you need to change repayment plan, contact your lender or servicer immediately. You may be required to provide documentation.

Loan consolidation

By the time you finish university, you may have a number of loans. These loans may be with more than one lender and may have different terms. Repayment can become fairly complication if you have to make different payments at different times of the month. Consolidation is a way to make repayment of multiple loans less complicated.

You can consolidate all your federal student loans into one loan with a fixed rate and a single, lower monthly payment. You pay no additional fees to consolidate your loans. More importantly, you may reduce the amount of each monthly payment by extending your repayment term. But remember that a longer repayment term increases the amount of interest you pay over the term of your loan.

Consolidation loans offer terms ranging from ten to 30 years. Repayment options on consolidation loans include: Standard, Graduated and Income Sensitive repayment plans. To be eligible for a consolidation loan, you must be in a grace period, repayment, deferment, or forbearance.

It is important to research loan consolidation very carefully as you may lose some borrower-benefits offered by your original lender.

The interest rate on a consolidation loan is determined by taking the weighted average of your current loans' interest rates and rounding up to the nearest 1/8 % (this means that the interest rate on a $10,000 loan ‘counts’ more towards the bottom line than a $5,000 loan’s interest rate). This interest rate is fixed, which means is will not change throughout the life of the loan, whereas your current loans are variable and can either increase or decrease on an annual basis.

You should first discuss consolidation with your existing lenders. If your lender does not consolidate, they will most likely be able to recommend another lender.

While interest rates and length of repayment will not vary between lenders, some may offer incentives (such as interest rate reductions for on-time repayments) to their customers that others do not. It is highly recommended that you shop around for those incentives before deciding on a consolidation lender.

As of 16th May 2005 new information has been released by the US Department of Education in how lenders are required to deal with you the borrower in relation to lenders options for determining Federal Consolidation Loan Interest Rates and Permitting Borrower to Enter Repayment Early.

The complete information is available at http://ifap.ed.gov/dpcletters/GEN0508.html

Consolidation loan terms

Deferment

Postponing payment with deferment

One major advantage of borrowing through the Federal Family Education Loan Programme (FFELP) is the option you have to postpone repayment for a period of time under certain conditions. However, it is important to note how interest must be paid or not paid on various loans:

• Federal Subsidised Stafford Loans: interest is paid by the federal government during in-university, grace, and authorised deferment periods
• Federal Unsubsidised Stafford Loans: the borrower is responsible for paying the interest that accrues during in-university, grace, and authorised deferment periods

Some common deferment options

To apply for a deferment, contact your lender or servicer. And apply in time to have your deferment in place when you need it because processing can take several weeks.

You may renew a deferment, up to the maximum time allowed.

You may need to complete and submit deferment forms for different types of loans. With FFELP loans, one deferment form is usually all that is necessary.

You should continue making loan payments until you have been notified that the deferment is granted.

Keep copies of all forms and correspondence related to your deferment. If you do not receive written confirmation of your deferment, be sure to request it.

Forbearance

Postponing payments when deferment is not an option

If you find yourself in temporary financial difficulty and no deferment option applies to you, you can request forbearance from your lender or servicer. Forbearance is granted at the lender’s discretion and allows you to have months added to the term of your loan, temporarily reduce the amount of your monthly payment, or temporarily suspend monthly payments.

There are several forbearance options available. The two most common types of forbearance are:

• Economic Hardship Forbearance: If your student loan payments exceed 20% of your total monthly income you can apply for this type of forbearance. It is given in 12-month increments for a maximum of three years
  
• Administrative Forbearance: May be granted by your lender if you are delinquent on payments prior to entering a period of deferment

Note that interest continues to accrue on your loan during forbearance. That interest must be repaid, which can result in higher monthly payments once the forbearance has ended. The federal government does not pay the interest on Subsidised Stafford loans while your loans are in forbearance. To apply for forbearance, contact your lender or servicer for information about their procedures.

Delinquency and default

When your monthly payment is late by 30 days or more, you are considered delinquent on your loan. Most lenders and servicers will contact you directly about delinquent payments and begin collection activity. Your delinquency may be reported to a credit bureau which could damage your credit rating.

If you expect to have a problem making a monthly payment, contact your lender immediately. It is always easier to discuss alternative before the due date rather than after a payment is late.

If you fall 270 days behind on a scheduled payment, you are legally in default on your loan agreement. The lender can assume that you are not going to repay; and the lender may declare the entire amount you owe, including interest, as immediately due and payable.

Defaults are reported to credit bureaus and stay on your credit record, whether or not you eventually pay off the loan. The consequences of default are severe.

• You are liable for late charges which can be added to the principal of your loan, and on which you will then pay interest
• When your loan is in default, your US federal income tax refunds can be withheld to repay the loan
• Your wages may be garnished (a portion withheld for repayment)
• You may have to pay attorney’s fees and court costs
• You lose eligibility for all federal and state financial aid until you have made satisfactory repayment arrangements on the defaulted loan
• In a profession that requires licence to practice, that licence can be denied renewal until you make satisfactory payment arrangements on your student loan