Repaying Student Loans
Almost 60% of students today have borrowed an education loan to help pay for college. Currently, there is between $902 billion and $1 trillion in outstanding education loan debt among American students. If you or someone you know has participated in the Federal education loan program(s), you’ve come to the right place to learn about responsible loan repayment. Here we’ll answer some top questions.
Federal vs. Private Loans
First, a little disclaimer. It’s important to note the difference between Federal and Private loan programs.
- Federal loans are through our government and include programs such as the Stafford, Perkins, and PLUS loans. The vast majority of student loans are borrowed through the Federal Direct Stafford Loan, which is what I’m about to dive into.
- Private loans include lending programs through your local Credit Union for example, which have different regulations, such as eligibility and interest rates. Learn more about these differences.
When do payments begin?
Every loan is entitled to a 6 month grace period which starts when a student either:
- Withdraws completely from school (regardless of earning a degree or not)
- Drops below half-time enrollment (typically less than 6 credits)
Once the 6 month grace period is over, the loan enters repayment assuming that borrower does not enroll again at least half-time.
What is a Loan Servicer?
The Department of Education (DOE) administers the Stafford loan program, therefore students technically owe the money to them. However, the DOE utilizes Loan Servicers to serve as the student’s point of contact. The Servicer will mail bills/collect payments, facilitate repayment options such as deferment. Most importantly, they are available to answer any questions students have about their loan. So ask them anything!
Servicers send a letter when the loan is originated, but it can be easy to misplace this when you’re in school and not repaying yet. To find out who your assigned servicer is, visit www.nslds.ed.gov, click ‘Financial Aid Review’ and enter your information. It’s important to note that you may have more than one Servicer.
What are the payments like?
When a Stafford loan enters repayment, it’s financed on a 120 month (10 year) schedule by default. If you have 5 separate loans, then you will have 5 separate payments. But don’t fret – if you cannot afford the payments, contact your servicer to see about consolidating multiple loans into one. This can significantly lower your payment amount (depending on how much debt you have), making your monthly payments more affordable. There are also other long-term options your servicer can discuss with you depending on your debt load, occupation, income, and so on.
How can I see what I owe so far?
This is easy! Simply visit www.studentloans.gov and log in with your demographic information as prompted. When you’re logged in, click “Repayment Estimator” at the bottom left. Your current balance(s) will populate along with estimated payment amounts. Please note the balance(s) are updated here about once per month, and may not be accurate “to-the-penny.”
What happens if I temporarily can’t make my payments?
Let’s say you are moving, find yourself between jobs, have an unexpected vet bill, or something of that nature and you realize you won’t be able to pay your loan payments for a few months. There are options available – do not ignore your servicer or skip payments! By applying for deferments and forbearances, your servicer may be able to temporarily suspend your payments and keep your loan current as a result. It’s important you contact your servicer so they can facilitate these applications and help you determine what you may be eligible for based on your circumstances.
What is default?
Put simply, default occurs when approximately eleven months of payments are missed (note that if a loan is in deferment for example, delinquency does not occur). A loan going into default or collection can be avoided by being proactive about your repayment options and always staying in contact with your servicer about your current contact information.
Default on Federal debt is serious, and some of the consequences you might experience are:
- Garnishment of your wages and/or tax refunds
- Collection fee of up to 18.5% of the defaulted balance
- Poor credit score ratings
- Legal action against you and your assets
- Loss of eligibility for more federal financial aid
There are ways to resolve default if it has already occurred, although credit reports remain negatively impacted for up to seven years even once it is resolved. Contact your servicer if you believe you are in danger of defaulting, or have already. Once again, they are there to assist you with your options.
What’s the bottom line?
Ask questions! The world of student loan repayment can be confusing, but it doesn’t have to be. That’s why schools and servicers are here to help you every step of the way!