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102 Student Loans Questions and Answers

Are there any student loan breaks for public service?

If you have federal Direct Loans (including Direct Consolidation Loans), you may be eligible for Public Service Loan Forgiveness (PSLF). If you make 10 years of qualified monthly payments while serving in the military or employed at a government or non-profit entity, you may be able to get the balance of your loans forgiven.

If you have older federal loans originated under the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to consolidate those loans into a new Direct Loan to qualify for Public Service Loan Forgiveness.  

There are other benefits available to servicemembers, teachers, Perkins loan borrowers and others. The U.S. Department of Education offers more information for borrowers working in public service.

Can a creditor ask me about the alimony, child support, or separate maintenance payments that I or my co-signer receive?

A creditor may ask whether income stated in your application comes from alimony, child support, or separate maintenance payments. However, the creditor must tell you that you do not have to reveal such income if you do not want it considered.

Can I make additional payments on my student loan?

If you are financially able to do so, it may make sense for you to pay down your student loan more quickly than your schedule requires. Lenders typically call this “prepayment.” In general, you are entitled to make a payment to your account at any time, without penalty. Check with your loan servicer first to see how additional payments are applied.

WARNING: Sometimes when you pay more than your monthly payment, your lender will “credit” the amount against a future payment rather than apply it toward your loan balance. For example, say you had a loan with a monthly payment of $115, and one month you decide to pay $300. If your lender is crediting your payments forward, the next month you would get a statement that showed no payment due; you would get your next actual bill the month after.

Even though you don’t have a payment due, you should continue making payments each month if you can afford it. You won’t actually be paying your loan back any faster unless you keep making payments each month.

TIP: If you plan to pay more than your minimum monthly payment, you can instruct your lender or servicer to credit the payment against the principal.

Can I obtain a deferment for my private student loan?

Private student loans may or may not have a deferment option, and the rules vary among lenders. Contact your loan servicer as early as possible if you want to explore this option.

Can I pay my student loan in full at any time?

If you are financially able to do so, it may make sense for you to pay off your student loans early. Lenders typically call this “prepayment in full.” Generally there are no penalties involved in paying off your student loans early. However, you should make sure you know how much you currently owe. Check with your loan servicer to get a “payoff quote” – an estimate of how much you need to pay in order to pay the loan in full. Generally, your payoff quote is good for several days.

Can a student lender ask me about my race, color, religion, national origin, or sex?

Generally a creditor cannot ask applicants for a student loan about their race, color, religion, national origin, or sex (or that of a co-signer). 

Can a student lender consider the fact that I am not a citizen of the United States?

A creditor cannot discriminate on the basis of national origin. However, a creditor may ask about your permanent residency and immigration status or the residency or immigration status of any co-signer. A creditor may consider this information or any additional information that may affect its rights and remedies regarding repayment.

A creditor may also take into account any law, regulation, or executive order that limits dealings with citizens of certain countries.

Can a student lender consider my age when deciding whether to give me credit?

Generally, a creditor cannot use your age to make credit decisions.  However, there are exceptions to this rule. For example, age can be considered in a valid credit scoring system.  A creditor may also relate your age to other information about you that the creditor considers in evaluating creditworthiness. For example, a creditor may take into account your age in evaluating your lack of job history.

Can a student lender consider my sex or marital status when deciding whether to give me a student loan?

A creditor cannot discriminate on the basis of sex or marital status.

A creditor generally may not ask applicants for student loans about their sex or the sex of a co-signer on an application form.  However, a creditor may ask applicants to select a title (Mr., Miss, Mrs., or Ms.) on the application form, if the form states this is optional.   

A creditor generally may not ask about your marital status or the marital status of a co-signer if you are applying for a student loan.

Can a student lender consider whether I receive income from a public assistance program when deciding whether to give me a student loan?

A creditor cannot discriminate against you because you (or your co-signers) receive or have received public assistance income. Like any other income, a creditor may consider whether you or your co-signer’s’ public assistance income is likely to continue.  If that income is not likely to continue, that fact can be considered in determining creditworthiness.

Do federal student loans affect my taxes?

At the end of each year, your servicer will send you Form 1098-E by mail or through its website. This form details how much interest you have paid on your student loan during the year. In general, up to $2,500 in annual interest may be deductible on your tax return, subject to income limitations and other restrictions. However, you should consult the Internal Revenue Service (IRS) website or a tax adviser for details.

Do I need to pay my student loans if I lose my job?

Yes. If you’re worried you won’t be able to make payments, you may qualify for a deferment or forbearance. You may also be eligible for a monthly payment as low as $0 through the Income Based Repayment (IBR) program. Contact your loan servicer for more details.

TIP:  If you are having trouble repaying your federal student loans, you should contact your servicer about IBR before you enroll in an alternative payment plan that spreads your payments out over a greater period of time. Payments made through the IBR program are eligible for loan forgiveness after 25 years and may be eligible for forgiveness after 10 years if you work in public service.

Do private student loans affect my taxes?

There may be a tax deduction available for interest paid on qualifying private student loans. Check with your loan servicer to see if your loan meets the qualifications.

At the end of each year, your servicer will send you by mail or through its website Form 1098-E, which details how much interest you have paid on your student loan. In general, up to $2,500 in annual interest may be deductible on your tax return, subject to income limitations and other restrictions. However, you should consult the IRS website or a tax professional for details.

Do student loans affect my credit score?

Yes, having a student loan will affect your credit score. Your student loan amounts and payment history will go on your credit report. If you make your payments on time, your credit score will be helped. In contrast, failure to make payments will hurt your score. Establishing a good credit history and credit score now can help you get credit at lower interest rates in the future.

Does a creditor have to consider my part-time or retirement income?

A creditor cannot discount or refuse to consider your (or your co-signer’s) income because it comes from part-time employment. A creditor also cannot discount or refuse to consider income that is an annuity, pension, or other retirement benefit.  Like all other forms of income, however, a creditor can consider the amount of the income and likelihood that it will continue.

Is forbearance available for private student loans?

Private student loans may or may not have a forbearance option, and the rules vary among lenders. Under forbearance you will eventually owe the new interest charges even if you’re not making payments. You have to apply to your loan servicer for forbearance, and you must continue to make payments until you've been notified your forbearance has been granted. The terms and fees associated with private student loan forbearance vary and may be less borrower-friendly terms than the federal forbearance option.

Contact your loan servicer as early as possible if you want to explore this option.

How can I enroll in Income-Based Repayment online?

Borrowers with federal Direct Loans can enroll in Income-Based Repayment (IBR) online. Borrowers with older federal loans may have to contact their servicer directly in order to enroll. 

The U.S. Department of Education's online IBR enrollment website will also allow you to determine what type of loan you have. It is the best place to start if you need to enroll in IBR.

How can I reduce my student loan interest rate under the Servicemembers Civil Relief Act (SCRA)?

If you are currently serving on active duty, you are eligible to have your interest rate lowered to 6% on all student loans taken out prior to your active duty military service. This benefit applies to both your federal and non-federal (private) student loans and is available for all active duty servicemembers, regardless of where you serve.

To obtain an interest rate reduction under the Servicemembers Civil Relief Act (SCRA), contact your servicer and ask about this option directly. You will need to send a written request to your servicer, and will also need to provide your servicer with a copy of your orders calling you on to active duty. You can submit your request anytime during your active duty service and up to 180 days after leaving service.

Contact your Judge Advocate General for assistance. A JAG can help you properly word your request and make sure you meet the technical requirements set forth in the Act. To find the JAG attorney nearest to you, use the Armed Forces Legal Assistance Locator.

How can I use my Post 9/11 GI Bill benefits to pay for my spouse's or my child's college expenses?

Servicemembers currently serving who have at least six years in the military (active and/or reserve) and agree to serve four more years may qualify to transfer their Post-9/11 GI Bill benefits to their spouse and/or dependent. Other eligibility criteria apply.

More information:

How do I apply for student loans?

All loans made by the U.S. Department of Education require you to complete the Free Application for Federal Student Aid (FAFSA). Schools that receive information from your FAFSA will be able to tell you if you qualify for federal student loans. Almost every American family qualifies for federal student loans.

For private student loans, you might first consult your local credit union or bank, if you or your family holds an account there. You should also consult your school’s financial aid office to see if they have any lenders who offer special rates to their students.

How do I create an extended repayment plan for my student loans?

If you have more than $30,000 in federal student loans, you are generally able to extend your repayment term from 10 years to 25 years. If you extend the term of your loan, you will pay substantially more interest over time, but your payments will be significantly smaller. Remember, you can always add more to your payment than what is required, and you should if you can afford to do so, because it will reduce the total interest you pay over the life of the loan.

There are some restrictions with the extended term, so contact your servicer for more details about converting to the extended plan.

TIP: If you are having trouble repaying your loans, you should contact your servicer about Income-Based Repayment (IBR) before you enroll in an alternative payment plan that spreads your payments out over a greater period of time. Payments made through the Income-Based Repayment program are eligible for loan forgiveness after 25 years and may be eligible for forgiveness after 10 years if you work in public service. You don’t get those same benefits if you simply extend the loan term.

How do I determine who to pay and when to pay my private student loans?

For private student loans, your lender or servicer should provide you with information on how, when, and to whom to pay your loan. This can come in the form of a monthly email or a billing statement that is sent to you by U.S. mail each month. Some lenders provide a “welcome kit” or phone call when a borrower enters repayment. Contact your loan servicer for more information.

Your servicer should be listed on your original loan paperwork (such as a promissory note or disbursement notice). If you can’t find those papers, your school’s financial aid office may be able to assist you in locating your lender or servicer.

How do I find out the balance of all of my federal student loans?

The definitive source for your current loan balances of all of your federal student loans is the National Student Loan Data System (NSLDS).

How do I find out the total balance of all of my private student loans?

You’ll need to contact each of your private student loan servicers to determine your total loan balance. Unlike federal student loans, there is not a single website that contains information about all of your private student loans. If you do not know about private student loans you might have, request a free credit report at annualcreditreport.com. Private student lenders may report your loans to credit reporting agencies even while you’re still in school or in deferment.

How do I know who to pay and when to pay my federal student loans?

The definitive source for your current loan balances of all of your federal student loans, including information about whom to pay and when to pay, is the National Student Loan Data System (NSLDS).

How does interest accrue while I am in school?

For subsidized federal student loans, interest is paid on your behalf by the U.S. government while you’re in school. For most other loans, interest accrues on a monthly or quarterly basis. That interest is then “capitalized,” meaning that it is added to your unpaid loan principal balance on a schedule. Consult your lender for details about interest on your student loans.

How long does it take to pay off federal student loans?

Unless you arrange for a different repayment schedule with your loan servicer, the standard repayment schedule is 120 months (10 years). Your servicer can tell you about programs that allow you to extend your repayment term. Extending the term of your loan means that you will pay more in interest over the life of the loan.

TIP: If you are having trouble repaying your loans, you should contact your servicer about Income-Based Repayment before you enroll in an alternative payment plan that spreads your payments out over a greater period of time. Loans paid through the Income-Based Repayment program are eligible for loan forgiveness after 25 years and may be eligible for forgiveness after 10 years, if you work in public service.

How long does it take to pay off a private student loan?

Unlike federal student loans, there is no standard repayment schedule for private student loans. Generally speaking, many private student loans model the federal program and give you 120 months (10 years) to repay. However, some private student loan terms have you repay over 25 years. Check the terms and conditions of your loan, or contact your servicer for more details to find out how long it will take you to repay your private student loans

How might a private student lender collect payments from me?

Unlike federal student loans, a private student lender will generally need to go to court in order to collect payments from you. Your rights may vary based on the state you live in.

However, even without a court order, your lender can still contact you to seek payment, and may provide negative information about your default to a credit reporting agency that will adversely impact your credit report.

How might the U. S. Department of Education collect payments from me?

While other lenders typically have to take you to court to collect, the Department of Education has many more ways to collect payment of your student loans. These ways include garnishing your wages, your tax refund, and your Social Security.

How much should I borrow?

When deciding how much you should borrow in student loans, it helps to start with a budget for not only the school year but for your total expected time in school. For each additional year that you are in school and take out student loans, your total debt will continue to increase.

You should borrow only what your future earnings will allow you to repay. As a rough estimate, try not to accumulate more total student debt than you expect to earn as a starting annual salary when you leave school.

If your total student loan debt when you graduate were equal to your starting annual salary, at a current interest rate for federal student loans, your payment would be nearly 14 percent of your gross monthly income. 

Contact your college’s career center to find resources to determine the salary you might be able to expect when graduating in your field. 

Tip: Don’t borrow the maximum just because you are able to obtain the loans. Borrow just enough to make sure your tuition, housing, and other expenses are fully paid after accounting for work earnings and any other sources of income.

Tip: As you continue to borrow additional student loans each year you are in school, you should keep track of your total student debt. The definitive source for your current loan balances of all of your federal student loans is the National Student Loan Data System (NSLDS). Your college financial aid office or your lender will have more information about your private student loan balances.

Of course, you should consider many other factors specific to your individual circumstances when determining how much debt you can handle. This is a personal decision that only you can make. You may also want to consider discussing it with your family and other trusted advisors.

How is my student loan payment applied to my account?

Generally, any payment made on a student loan will be applied first to any fees that are due (late fees, phone payment fees, etc.). Next, remaining money from your payment will be applied to any interest due, including past due interest, if applicable. Lastly, any remaining payment will be applied to the principal balance of your loan. Contact your loan servicer to verify their policies and procedures.

WARNING: Sometimes when you pay more than your monthly payment, your lender will “credit” the amount against a future payment rather than apply it toward your loan balance. For example, say you had a loan with a monthly payment of $115, and one month you decide to pay $300. If your lender is crediting your payments forward, the next month you would get a statement that showed no payment due; you would get your next actual bill the month after.

Even though you don’t have a payment due, you should continue making payments each month if you can afford it. You won’t actually be paying your loan back any faster unless you keep making payments each month.

TIP: If you plan to pay more than your minimum monthly payment, you can instruct your lender or servicer to credit the payment against the principal.

I am having a hard time receiving the appropriate amount of money I am entitled to under Tuition Assistance/GI Bill - who should I contact?

The GI Bill and Tuition Assistance Program are administered by different branches of the federal government. 

For questions about your GI Bill benefits, please call the Department of Veteran Affairs at 1-888-GIBILL-1 (1-888-442-4551). Be advised this line only accepts calls from 7:00 AM - 7:00 PM central time Monday - Friday and you may experience long hold times. If your hearing is impaired, call 1-800-829-4833. Read more on the GI Bill.

For questions about your Tuition Assistance benefits, please contact your individual service branch. The Department of Defense Voluntary Education Program website has more information on using Tuition Assistance and the points of contact for each military Service. 

Your installation’s education and legal assistance offices are great resources for more personalized assistance. 

I am married or was previously married, and I am applying for my own student loan. Can a creditor ask me about my spouse or former spouse?

Generally, a creditor may request information about your spouse or former spouse only in the following cases:

  • Your spouse or former spouse will be allowed to use the account.
  • Your spouse or former spouse will be responsible for paying debts on the account.
  • You are relying on your spouse’s income or former spouse’s income to repay the credit requested.
  • You are relying on alimony, child support, or separate maintenance payments from a spouse or former spouse to repay the credit requested.

I am a member of the military on active duty (or about to go on active duty). What options exist to help me deal with my student loans?

There are several forms of loan relief available to active-duty servicemembers and National Guard members activated under federal orders, and they vary based on military status and circumstance. The good news is that some of these benefits are retroactive.

If you are currently serving on active duty you are eligible to have the interest rate lowered to 6% on all student loans taken out prior to your military service. This benefit applies to both your federal and private (non-federal) student loans and is available for all active duty servicemembers, regardless of where you serve. Most borrowers on active duty will qualify for this benefit, so it makes sense to start here.

To obtain an interest rate reduction under the Servicemembers Civil Relief Act (SCRA), contact your servicer and ask about this option directly. You will need to send a written request to your servicer, and will also need to provide your servicer with a copy of your orders calling you on to active duty. You can submit your request anytime during your active duty service and up to 180 days after leaving service.

For borrowers with federal student loans Income-Based Repayment (IBR) is one of the best options to staying on the road of repayment. IBR ties your payment to your income and family size. If you plan to work in the military or another area of public service for ten year and make the necessary monthly payments, you can have your remaining loan debt forgiven. It is important to enter into IBR as soon as possible; each qualifying monthly payment gets you closer to Public Service Loan Forgiveness (PSLF).

You may also qualify for loan deferment, forbearance, cancellation, suspension of interest accrual, or other relief on federal student loans during active-duty military service. Whether such relief is available to you will depend on the nature of your service and the type of loan you have.

Contact your Judge Advocate General (JAG) for assistance. A JAG can help you properly word your request and make sure you meet the technical requirements set forth in the Act. To find the JAG attorney nearest to you, use the Armed Forces Legal Assistance Locator.

I applied for a student loan but my lender denied my application. I think that the lender discriminated against me. What are my rights under the law?

Under the Equal Credit Opportunity Act, it is illegal for a creditor (lender) to discriminate in any credit transaction against any applicant because of:

  • Race
  • Color
  • Religion
  • National origin
  • Sex (Gender)
  • Marital status
  • Age (if the applicant is old enough to enter into a contract)
  • Receipt of income from any public assistance program
  • Exercising in good faith a right under the Consumer Credit Protection Act, which includes consumer protection statutes relating to credit.

State or local law may prohibit discrimination on additional grounds.

This means that a creditor may not use any of the above grounds as a reason to:

  • Refuse you credit if you qualify for it
  • Discourage you from applying for credit
  • Provide you credit on terms that are different from the terms given to someone else who is similarly situated to you, such as having similar creditworthiness
  • Close your existing account.

I understand that there may be other student loan benefits for certain teachers. Is Public Service Loan Forgiveness always the best choice?

Highly-qualified teachers in certain low-income schools may be eligible for a different loan forgiveness program that provides $5,000 in loan forgiveness after the completion of five academic years as an elementary or secondary school teacher. Highly-qualified math, science or special education teachers may be eligible for up to $17,500 in loan forgiveness after the completion of five academic years as a teacher in an eligible school.

You cannot obtain a benefit under both the teacher loan forgiveness program and Public Service Loan Forgiveness (PSLF). For borrowers with low- to-moderate student loan debt who meet other program criteria, Public Service Loan Forgiveness may not be the best choice. For borrowers with high student loan debt, it may still make sense to pursue Public Service Loan Forgiveness. The U.S. Department of Education offers more information about loan forgiveness for teachers.

I want to apply for a student loan. Can a creditor ask me about my children or dependents or about the children or dependents of my co-signer?

A creditor may ask about the number and ages of your dependents. A creditor may also ask about dependent-related financial obligations or expenses. However, a creditor may do so only if the creditor asks for this information without regard to sex or marital status (or any other prohibited basis).

A creditor cannot ask you about your birth control practices. A creditor also cannot ask about your intentions concerning having or raising children or your capability to have children. 

I want to certify that I work for a qualified employer in order to qualify for Public Service Loan Forgiveness. What do I do?

You should complete the Employment Certification for Public Service Loan Forgiveness to keep track of your eligible employment and qualifying loan payments under the Public Service Loan Forgiveness program.

You can download a blank form directly from the U.S. Department of Education.

You will need your employer’s help to complete the certification form. Complete sections one and two on your own, then ask your employer to complete and sign section three before you submit the form. Some employers may already have an established process for submitting this form. You should check with your employer for more information.

I was told that I was too young to get credit. Is this possible?

A creditor cannot discriminate against a credit applicant because of age unless the applicant is too young to legally enter into a contract. State law governs the age at which an individual can enter into a legally binding contract. 

If I am married, can a creditor turn down my application for a student loan in my own name?

If you are applying for a student loan in your own name, a creditor may not deny you credit because of your marital status. If you are creditworthy, you may get your own credit, and a creditor generally may not require that your spouse co-sign your account.

If I co-sign for my grandchild's student loan, can the lender garnish my Social Security check if my grandchild can't or won't repay the loan?

Support from parents and grandparents can be critical to college success and there’s some confusion around this topic. Federal student loans do not require a co-signer. A parent or legal guardian can borrow a Direct PLUS loan to help a student pay for college. Generally, PLUS loans are not extended to grandparents on behalf of a grandchild.    

You may have been asked to co-sign for a private student loan for your grandchild. Private companies that offer private student loans are not allowed to garnish Social Security checks of co-signers if the borrower can’t or won’t repay the loan.  But, the lender can still pursue you and even take you to court to try to collect the amount due because you co-signed the loan. Keep in mind that these loans do not carry the same consumer protections as federal student loans.

Encourage your grandchild to explore all federal student aid options before taking out a private loan.

If I co-signed for a private student loan, can I be released from the loan?

Generally speaking, you cannot be released from your obligation to repay the loan. In some cases, private student loans do have co-signer release options; you would find this information in the terms and conditions of the loan and on the lender’s or servicer’s website. Contact your lender or servicer for more details.

If I co-signed for a student loan and it has gone into default, what happens?

The student is the primary borrower with the responsibility to pay back his or her loan, but as a co-signer you have equal responsibility for repaying the loan if the student doesn’t. Additionally, any late or missed payments are reflected on both your credit history and the student’s. Private lenders will often hire collection agencies to get you to repay, and they may also sue you in court.

Remember that you have rights when dealing with debt collectors, and it is against the law for a collector to harass you or make false statements to you.

If I have a Perkins loan and I am interested in Public Service Loan Forgiveness, what do I need to know?

Before you enroll in Public Service Loan Forgiveness, you should know that if you have a Perkins loan, you may be eligible for a different benefit if you work in certain public service professions. This benefit is known as Perkins loan cancellation. For each complete year of service, a percentage of the loan may be canceled. The total percentage of the loan that can be canceled depends on the type of public service performed.

If you choose to consolidate a Perkins loan into a federal Direct Consolidation Loan to become eligible for Public Service Loan Forgiveness, you will no longer be eligible for Perkins loan cancellation. You should understand your options before you choose to consolidate. More information about Perkins loan cancellation is available on the Federal Student Aid website.

If I have used all of my months of benefits under the Montgomery GI Bill (MGIB), am I still eligible for benefits under the Post-9/11 GI Bill?

The Department of Veterans Affairs administers a variety of education benefit programs and determining what benefit you are eligible for is important. In some cases Veterans and active duty personnel can qualify for more than one education benefits program.

If you used all of your months of benefits under MGIB, you may still be eligible for benefits under the Post-9/11 GI Bill if you have qualifying active duty service after September 10, 2001, and meet all of the eligibility requirements for the Post-9/11 GI Bill.

For example, if you used 36 months of benefits under MGIB and you are eligible for the Post-9/11 GI Bill, you may receive up to 12 months of benefits under the Post-9/11 GI Bill.

Warning: If you have any amount MIGB eligibility left when you transfer over to the Post-9/11 GI Bill you will not get the 12 additional months, only what you have left in eligibility. For example, if you have 5 days left of MGIB eligibility when you transfer over to the Post-9/11 GI Bill you will only get 5 days of Post-9/11 GI Bill eligibility not the full 12 months. So if you are close to finishing your MGIB, it pays to use it all before transferring over. You cannot receive more than a maximum of 48 months of benefits under any combination of VA education programs.

If I need to have a co-signer on my student loan, can a creditor require that it be my spouse?

No. If you do not individually qualify, the creditor may request a co-signer, guarantor, endorser, or similar party. Your spouse may function as this additional party. But a creditor cannot require that it be your spouse. 

If I want to rely on the alimony or child support that I or my co-signer receive in my application for a student loan, does a creditor have to consider that income?

Yes, if the payments are likely to be consistently made. A creditor can consider the amount of such income and likelihood that it will continue, as with all other forms of income. In determining this, a creditor may consider factors such as whether there is a written agreement or court decree, how long and how regularly you or your co-signer have been receiving payments, and the creditworthiness of the payor when that information is available. 

I’m a servicemember and I’m thinking about consolidating my student loans. What do I need to know?

Loan consolidation can be used to simplify monthly payments by rolling multiple loans into one new loan. While you generally won’t get an interest rate break, you will have a single monthly payment for your new loan, called a federal Direct Consolidation Loan.

If you have federal loans originated under the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to consolidate those loans into a new Direct Loan to qualify for Public Service Loan Forgiveness (PSLF).

WARNING: If you are on active duty, you are eligible for an interest rate reduction under the Servicemembers Civil Relief Act (SCRA) for all federal and private student loans taken out prior to the start of your service. If you consolidate your loans while serving in the military, you will lose the ability to qualify for this benefit. 

My creditor said that my spouse had to co-sign my student loan agreement. Is this right?

In general, a creditor cannot require your spouse’s (or another person’s) signature for individual credit if you qualify on your own for the amount and terms requested. If you do not qualify for individual credit, however, a creditor may require a co-signer but that person does not have to be your spouse. 

My Tuition Assistance benefits won't cover the entire cost of my education. Can I use my GI Bill benefits while on active duty?

The “Tuition Assistance Top-Up” program allows you to use your MGIB-Active Duty benefits or the Post-9/11 GI Bill to cover the full cost of tuition and fees.

However, using the Tuition Assistance Top-Up should be explored very carefully. Take a careful look and decide if it is in your best interest. If used separately from your Tuition Assistance benefit, your GI Bill benefits may be worth substantially more. Consult with your installation education center professionals when making this decision. Find out more about Tuition Assistance Top Up.

Public Service Loan Forgiveness requires ten years of monthly payments to qualify for loan forgiveness. Do I get any benefit if I fall short?

The path toward Public Service Loan Forgiveness (PSLF) presents some risks for borrowers. Because this program is an “all-or-nothing” benefit, it is important for you to understand that you must make 120 on-time, qualifying monthly payments in order to obtain loan forgiveness.

If you leave public service even one monthly payment short of the required 120, you will not be eligible for loan forgiveness and will be required to repay in full.

It is also important to know that these payments do not have to be consecutive. If you make a late payment or leave public service for a brief period, you will still be able to pick up where you left off and continue down the path to loan forgiveness. However, to obtain the biggest benefit under PSLF, you should strive to make your 120 on-time, monthly payments in 120 months.

Should I choose federal student loans or private student loans?

If you must take out student loans, federal student loans are the best option for the vast majority of borrowers. It is best to max out your federal student loan options before you borrow any private student loans. Federal student loans usually carry more flexible protection if you run into difficulty in repaying your loans, and all new federal student loans have fixed interest rates, meaning the rate does not change over the life of your loan. Private student loans generally have variable interest rates, which can reset every month or quarter, causing your monthly payments to change.

However, there are rare cases where a private loan could be a viable alternative to a Federal Grad PLUS loan. This may occur if you:

  • Are a graduate or professional school student with a high certainty of job placement
  • Have a very high credit score
  • Can borrow at interest rates substantially lower than 6.41 percent
  • Are completely committed to finishing the degree program on time
  • Have a specific plan to repay your loans within a few years of graduation (rather than repaying over 10 or more years, increasing the risk  of the rate increasing)
  • Have already borrowed as much as you can under the Direct and Perkins Loan programs

If you have ALL of the above characteristics, you may want to consider private student loan options instead of Federal Direct Grad PLUS loans. A private loan may be better for a student with ALL of these characteristics for a number of reasons: a private loan may have a lower initial interest rate; as a graduate or professional student, you may be more certain of your job prospects and earning potential; and rate changes may have less impact if you expect to quickly repay the loan.

Every student’s situation is different. Consult with your school’s financial aid office for additional information.

Should I consolidate my federal loans?

Loan consolidation can be used to simplify monthly payments by rolling multiple loans into one loan. While you generally won’t get an interest rate break, you will have a single monthly payment for your new federal direct consolidation loan. If you have federal loans originated under the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to consolidate those loans into a new Direct Loan to qualify for Public Service Loan Forgiveness (PSLF).

You can learn more about what type of loan you have through the National Student Loan Data System (NSLDS), available at www.nslds.ed.gov. This database only contains information about federal student loans.

Tip: Consolidating federal loans may cause you to forfeit other benefits. Employees with Perkins loans or those serving in the military should talk to their servicers about the risks associated with consolidation.

Consolidation loans provide access to several alternative repayment plans besides the 10-year repayment that is standard for federal loans. These include extended repayment, graduated repayment, and Income-Based Repayment (IBR).

If you’re enrolled in IBR, it might be simpler to have a consolidation loan, since you won’t need to submit documents about your income to multiple servicers.

Federal loan consolidation will not lower your interest rate. In fact, for some borrowers, your interest rate might go up slightly, since your weighted-average interest rate gets rounded up to the nearest eighth of a percent.

Should I consolidate my private student loans?

Consolidating private loans into a private consolidation loan may be a good idea if you get a better deal. Like federal consolidation loans, private consolidation loans combine your existing private student loans into one larger loan – you are replacing your original private student loans with this new loan. You will have a single monthly payment for your new private consolidation loan, which may be simpler. Private student lenders may offer an interest rate reduction for creditworthy borrowers seeking to consolidate their private student loans. This can save you money over the lifetime of your loan.

Just like private education loans, private consolidation loans often have variable interest rates – meaning your interest rate can change over the life of the loan – the interest rate you are offered depends on your credit score. The amount of time you have to repay the loan can vary from 10 to 25 years depending on the lender and the amount of the loans being consolidated. Read the fine print – your consolidated loan may not have the same terms as your original loans.

Should I refinance my federal student loan into a private student loan with a lower rate?

It depends. While today’s interest rate environment is at historical lows, federal student loan interest rates set by Congress have not gone down on the most common type of loan, the Unsubsidized Stafford Loan. Some borrowers in repayment with excellent credit may be able to qualify to refinance their existing federal student loans with a new loan at a lower rate.  Borrowers considering this option should also be aware of the risks:

  • Look closely if you’re switching from a fixed to a variable rate loan. Interest rates for most outstanding federal loans have fixed rates, which means that you never have to worry about your monthly payment going up when interest rates rise in the future. If you switch to a variable rate loan, know that your interest rate could rise higher than the original fixed rate loan over time. 
  • You’ll probably sign away certain benefits if you refinance. Federal student loans feature a number of options for borrowers that run into trouble, including Income-Based Repayment (IBR). Borrowers working in certain professions—like those employed in public service   or as teachers  may be eligible for loan forgiveness for certain federal loans. If you refinance a federal loan with a new private student loan, you will no longer be eligible to participate in these federal loan forgiveness programs. There are also loan discharge benefits in the case of death or permanent disability on certain federal student loans. Active-duty servicemembers might also lose benefits on pre-service obligations if they refinance.

If you are considering refinancing your federal student loans with a new private student loan, be sure you understand what you’re giving up before making this choice.  In general, honest lenders will warn you about the benefits you are giving up when refinancing out of a federal student loan.  If you have a secure job, emergency savings, strong credit, and are unlikely to benefit from forgiveness options, it may be a choice worth considering if you’re looking to lower your payments.

 

 

Should I refinance my private student loan into one with a lower rate?

Private student loans generally feature variable interest rates determined based on a borrower’s credit history. When borrowers first take out private student loans, many have a limited credit profile and are treated as credit risks by lenders. This means that, for many borrowers, private student loan interest rates can be quite high.

Some borrowers who have graduated, obtained a job, and have excellent credit may be able to qualify to refinance their existing private student loans with a new private loan at a lower rate.

Unfortunately for many borrowers in this situation, there aren’t very many financial institutions that offer this financial product, but if you are able to find one, here are some things to consider:

  • Look closely at the APR. The monthly payment on your new loan might be lower, but the interest rate could be higher. This can occur because the loan term might be spread out over more years. Active-duty servicemembers should remember that they might also lose rate benefits on pre-service obligations if they refinance.
  • Consider the tax consequences. Your new refinanced loan may not be considered a student loan for the purposes of the student loan interest tax deduction. If you regularly claim this deduction, be sure to consider whether the new loan will allow you to continue to do so.

Should I use a home equity loan to refinance my student loans at a lower interest rate?

This can be risky.  Student loan borrowers who have built equity in their homes may find that paying back outstanding student debt with a new home equity loan looks appealing, given today’s historically low interest rates, but putting more debt on your home can lead to problems down the road.  

Before you take out a home equity loan to pay off a student loan, you should try to look for a student loan refinance product first and see what rate you can get.  You may be able to lower your interest rate without some of the risks that come with a decision to tap the equity in your home.  Here are a few things to remember:

  • Your rate may be lower, but your home is at risk. Interest rates for home equity loans are generally lower than interest rates for student loans.  (Lenders are willing to offer a lower interest rate because they know that if you don’t pay, they have a legal claim on your home.)  If you can’t pay, you could end up in foreclosure.
  • On your federal loans, you are giving up repayment options and forgiveness benefits. Federal student loans feature a number of protections for borrowers that run into trouble, including Income-Based Repayment (IBR). These benefits no longer exist when you pay off a federal student loan with a home equity loan.
  • This may impact your taxes. The interest you pay on a home equity loan could equate to a greater tax benefit for some borrowers, when compared to the student loan interest tax deduction, especially if you have high income and itemize deductions. You may wish to consult with a tax advisor when considering your options.

For student borrowers with plenty of savings for a rainy day, a good job, and a solid understanding of the tax benefits, a home equity loan may offer an opportunity to pay off your student loans at a lower interest rate.  But again, there is always a risk of losing your home if you don’t make your payments.

Is there a minimum payment required for rehabilitation?

No. If the collection agency tells you there is a minimum, this is false. The law states that you must pay what is reasonable and affordable. The collection agency may ask you to provide documentation to demonstrate that you need a lower payment than they are suggesting.

For more information about how to address your defaulted federal student loan, please view this fact sheet from the U.S. Department of Education.

What are the interest rates on my loans?

All federal student loans borrowed after July 1, 2010 have fixed interest rates. For federal loans disbursed between July 1, 2012 and June 30, 2013 , the rates are:

  • 3.86 percent for undergraduate subsidized and unsubsidized Direct loans.
  • 5.41 percent for graduate and professional Direct loans
  • 6.41 percent for Grad and Parent PLUS loans
  • 5 percent for Perkins loans

For federal student loans disbursed before July 1, 2012, contact your loan servicer or log in to the National Student Loan Data System  for more information. For more information on student loan interest rates, visit the U.S. Department of Education’s website.

For private student loans, there are no set interest rates. The interest rate is determined by a number of factors established by the lender, which may include your credit history, the school you are attending, and your course of study. However, your lender must clearly tell you about your rates. If you already have a loan, log in to your student loan account on your lender’s website or call your loan servicer to find out your rate information.

What are the main advantages of the federal loan consolidation option when dealing with a collection agency?

If you are behind on your federal student loan payments and debt collectors are contacting you, consolidation may have some advantages. You will be able to get out of default quicker than through rehabilitation, and if you cannot afford to rehabilitate multiple loans you can consolidate them.

If you can afford to rehabilitate multiple loans, you can rehabilitate them and then consolidate them – this way you get the benefit of having the default notation removed, which will have a positive impact on your credit report, and the convenience of only having one loan to pay.

You will also be able to take advantage of income-based repayment plans on a consolidation loan. 

What are the main advantages of the rehabilitation option when dealing with a collection agency?

If you are behind on your federal student loan payments and being contacted by a debt collector, you may be able to arrange for rehabilitation of your loan. Rehabilitation lets you remove your loan from a defaulted status after making a series of consecutive on-time payments (generally, nine payments). If you make the required series of on-time payments, the lender should remove the default notation from your credit report, which will have a positive impact on your credit report. In addition, you only need to make a payment that is reasonable and affordable for your financial situation.

What are the main differences between federal student loans and private student loans?

While both federal student loans and private student loans allow you to borrow money to pay for education expenses, there are some distinct differences. 

Federal student loans can be better for students in several important ways:

  • In some cases, the federal government will subsidize - pay the interest on - your federal student loan while you are in school.
  • Your interest rate for a federal student loan is generally fixed, not variable; most private student loans carry variable interest rates.
  • Federal student loans allow you to limit the amount you must repay each month based on your income.
  • For borrowers pursuing careers in public service, loan forgiveness on federal student loans may be available after 10 years.

Federal student loans also feature other important borrower protections, including:

  • Options to delay or temporarily forgo payments (like deferment and forbearance)
  • Discharge upon a borrower’s death
  • Discharge upon permanent disability (with certain limitations)

But the consequences for defaulting on a federal student loan are pretty serious:

  • Your wages may be garnished without a court order; and
  • You can lose out on your tax refund or Social Security check (funds would be applied toward your defaulted student loan).

Private student loans are any student loans that are not federal student loans. These loans do not offer the flexible repayment terms or borrower protections featured by federal student loans. Private student loans are not funded or subsidized by the federal government;  instead, they are funded by banks, credit unions, or other types of lenders.

The bank or lender – not the federal government – sets interest rates, loan limits, terms, and conditions of private student loans. Your ability to qualify for and borrow a private student loan may be based on numerous factors that can include your credit history, whether or not you choose to have a co-signer, your co-signer’s credit history, your choice of school, and your course of study.

While private student loans are all structured differently, they are generally different from federal student loans in several ways and may include:

  • Variable interest rates that can rise when interest rates rise during the life of the loan — which can substantially increase your payment
  • Fewer options to reduce or postpone payments
  • Less flexible repayment options

What are my options if I am worried about not being able to make payments on my Federal student loans?

You may be able to enroll in a payment plan that sets your monthly payment based on your income. This is one of the best options to staying on the road of repayment for federal loan borrowers. For most borrowers, Income-Based Repayment (IBR) provides the security of knowing that you can afford your payments.

You may also be able to postpone your payments under deferment or forbearance.

If you are looking to reduce your payments, there are several tools available, including:

  • Income-Based Repayment (IBR)
  • Graduated repayment
  • Extended repayment

Click here to visit the full list of options.

WARNING: Most borrowers will pay more in interest over the life of the loan through all of these options.

TIP: If you are having trouble repaying your loans, you should contact your servicer about IBR before you enroll in an alternative payment plan that spreads your payments out over a greater period of time. Payments made through the IBR program are eligible for loan forgiveness after 25 years and may be eligible for forgiveness after 10 years if you work in public service.

What are my options for lowering my monthly payments on my private student loans?

Unlike federal student loans, there are no standard options to lower your monthly payments on a private student loan. Every lender is different. Some lenders will offer modified repayment plans that are similar to the federal programs, particularly graduated repayment.

If you are worried about missing payments, the most important thing to do is to contact your servicer or visit the servicer’s website to see if you have any options. If you definitely will be missing a payment, call the loan servicer as soon as possible to discuss the situation. Servicers usually train staff specifically to answer these questions.

What are my options when dealing with a collection agency working for the U.S. Department of Education?

If you default on a federal student loan, a third-party collection agency may attempt to locate you and collect payments from you.

Generally speaking, you have three options when dealing with the collector on a federal student loan:

1. Rehabilitation. Rehabilitation means that your loan will be taken out of default status after you make a series of consecutive (generally, nine) on-time, reasonable, and affordable, payments. You can typically only rehabilitate a loan once. This is the only way to remove the default notation from your credit history. If you chose to go back to school, you will also restore your eligibility for federal student aid after you make the sixth of nine monthly payments.

2. Consolidation. Through consolidation, your defaulted loans are paid off by a new loan with new repayment terms. If you cannot afford to repay your loan in full, this is the fastest way to get out of default and enroll in one of the U.S. Department of Education’s alternative payment plans. If you cannot afford to pay off your loan in full, it is also the fastest way to get out of default and restore your eligibility for federal student aid. Borrowers should also be aware that consolidation will not undo the negative effect on your credit report caused by your default.

3. Repayment. If you can afford to pay off your defaulted federal loan, this is the fastest way to settle your debt. Under certain circumstances, your debt collector may be authorized to waive some of your outstanding fees and other collection costs. For some borrowers, this can be the cheapest way to bring a federal student loan out of default. Your defaulted debt will be gone afterward, but it will continue to appear on your credit report as a defaulted loan that was repaid. You will also restore your eligibility for federal student aid, if you chose to go back to school.

When speaking with a collector, be sure that you have written documentation about what federal student debt you owe. If you are concerned that you never borrowed these loans, check the National Student Loan Data System. If the loan does not appear there, contact the collector and inform them of the problem. Remember, that system shows only your federal student loans, not your private student loans.

We have prepared sample letters that a consumer could use to respond to a debt collector who is trying to collect a debt along with tips on how to use them.  The sample letters may help you to get information, set ground rules about any further communication, or protect some of your rights. 

Remember that you have rights when dealing with debt collectors, and it is against the law for a collector to harass you or make false statements to you.

What are my options when dealing with my private student lender's collection agency?

Unlike federal student loans, there are no standard options for dealing with a collection agency on a private student loan, other than paying what is owed. However, you may be able to negotiate or set up a payment plan.

We have prepared sample letters that a consumer could use to respond to a debt collector who is trying to collect a debt along with tips on how to use them.  The sample letters may help you to get information, set ground rules about any further communication, or protect some of your rights. 

Remember that you have rights when dealing with debt collectors, and it is against the law for a collector to harass you or make false statements to you.

What are private consolidation loans?

Like federal consolidation loans, private consolidation loans combine your existing private student loans into one larger loan. You are replacing your original private student loans with this new loan. You will have a single monthly payment for your new private consolidation loan, making repaying your loan simpler.

Just like other private education loans, private consolidation loans have variable interest rates – meaning your interest rate can change over the life of the loan. The interest rate you are offered is dependent upon your credit score.

Pay attention to the fine print when consolidating. Your new consolidated loan may not have the same terms as your old loans.

What are private or alternative education loans?

Private student loans – also known as alternative loans – are offered by private lenders to provide funds to pay for educational expenses. They are not part of the federal student loan program and generally do not feature the flexible repayment terms or the borrower protections offered by federal student loans.

While current federal loans have a fixed interest rate, private student loans typically have variable interest rates, meaning that your interest rate may change over time. The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your co-signer, if you choose to have one.

You may want to apply for a private student loan with a co-signer even if you could qualify for the loan on your own. In evaluating a loan application, lenders will look at your co-signer’s credit history. So, if your co-signer has a better credit score than you do, it could result in a lower interest rate and lower fees for your loan.

What is a co-signer? Should I have one? Should I be one?

Private student loans frequently require borrowers to get a co-signer. Having a co-signer may allow you to borrow at a lower interest rate since your co-signer may have a better credit record than you. A co-signer is legally obligated to repay the loan if the student cannot or does not repay.

The student is the primary borrower with the responsibility to pay back his or her loan, but a co-signer has equal responsibility for repaying the loan if the student doesn’t. Additionally, any late or missed payments are reflected on both the co-signer’s and the student’s credit history. Private lenders will often hire collection agencies to get a co-signer to repay, and they may also sue a co-signer in court.

What is deferment?

A deferment is a temporary pause to your student loan payments for specific situations such as active duty military service and reenrollment in school. You can receive a deferment on Federal student loans for certain defined periods. The U.S. Department of Education (ED) has published a list of the reasons qualifying for a deferment.

You don’t have to pay interest on the loan during deferment if you have a subsidized loan. If you have an unsubsidized loan, you’re responsible for the interest during deferment. If you don’t pay the interest as it accumulates, it will be added to your loan balance, and the amount you have to pay in the future will be higher. You have to apply for a deferment with your loan servicer, and you must continue to make payments until you’ve been notified your deferment has been granted.

Private student loans may or may not have a deferment option, and the rules vary among lenders. Contact your loan servicer as early as possible if you want to explore this option.

What does the financial aid office do?

A school’s financial aid office assists you and your family by providing information on ways to pay for education. The financial aid office is usually involved with you after the school has made you an offer of admission. You can typically go to the financial aid office to:

  • Learn about both federal and private student aid options, including aid programs for that specific school
  • Find out about deadlines for student aid applications
  • Obtain forms and money management guidance

TIP: If you choose to take out a private student loan in order to pay for college, your college financial aid office may provide you with a list of possible lenders. Remember, you have the right to shop around for a private student loan. There may be other loans or products available to you that are not on the list provided by your financial aid office. For example, your local bank or credit union may offer a loan with a lower interest rate or more favorable terms.

What does it mean to consolidate my federal student loans?

When you consolidate your federal student loans, you are actually taking a new loan called a federal direct consolidation loan. This new loan combines several federal student or parent loans into one larger loan, which replaces your original federal student loans. You usually won’t get a lower interest rate, but you will have a single monthly payment for your new federal direct consolidation loan, rather than making multiple monthly payments. Consolidation loans are available for most federal loans.

Consolidation loans provide access to several alternative repayment plans besides the 10-year repayment that is standard for federal loans. The most popular options include extended repayment, graduated repayment, and income-based repayment. 

Choosing to extend your repayment with your consolidation loan can reduce the size of your monthly payment. The reduced monthly payment may make the loan easier to repay for some borrowers. However, by extending the term of a loan, you will pay more in interest over the lifetime of the loan.

TIP:  If you are having trouble repaying your loans, you should contact your servicer about Income-Based Repayment (IBR) before you enroll in an alternative payment plan that spreads your payments out over a greater period of time. Loans in the Income-Based Repayment program are eligible for loan forgiveness after 25 years and may be eligible for forgiveness after 10 years if you work in public service.

What does it mean to "default" on my federal student loans?

If you haven’t made a payment on your federal student loan for 270 days (nine months), and have not made arrangements with your lender or servicer that do not obligate you to make those payments, like deferment or forbearance, you are probably in default. During the months in which you have failed to make payments on your federal student loans, your loan holder must exercise "due diligence" in attempting to collect the loan - your loan holder must make repeated efforts to locate and contact you about repayment.

If you have not received a letter from your servicer and you believe you may be in default, you should contact your servicer immediately to discuss repayment options and determine if it is possible for you to avoid default. 

What does it mean to "default" on my private student loans?

Private student loans often go into default as soon as you miss three monthly payments (120 days). You can also default on a private student loan if you declare bankruptcy, default on another loan, or die.

You should review your private loan contracts carefully to better understand what rights you have if you are worried about going into default. If you have not received a letter from your servicer and you believe you may be in default, you should contact your servicer immediately to discuss repayment options and to determine if it is possible for you to avoid default.

What is a federal Direct Loan? How do I find out what kind of federal loan I have?

A federal Direct Loan is a federal student loan made directly by the U.S. Department of Education.  Generally, if you took out a federal loan or consolidated your loans after July 1, 2010, you have a federal Direct Loan. You can learn more about what type of loan you have through the National Student Loan Data System (NSLDS).

All federal Direct Loans are eligible for Public Service Loan Forgiveness and Income-Based Repayment. Some recent Direct Loans may be eligible for Pay As You Earn, a new income-driven repayment plan that offers even lower monthly payments for some borrowers.

What is forbearance?

Forbearance is a temporary postponement or reduction of your student loan payments for a period of time because you are experiencing financial difficulty. You can receive forbearance if you’re not eligible for a deferment. With forbearance, you will eventually owe the new interest charges even if you’re not making payments. Unlike deferment, with forbearance interest accrues whether your loans are subsidized or unsubsidized, and you’re responsible for repaying it even while in forbearance. Your loan holder can grant forbearance in intervals of up to 12 months at a time for up to three years. You have to apply to your loan servicer for forbearance, and you must continue to make payments until you've been notified your forbearance has been granted.

These rules apply to federal student loans. Private student loan forbearance usually varies and is less extensive than the federal program. Contact your loan servicer as early as possible if you want to explore this option.

What is graduated repayment?

Graduated repayment is a way to repay your student loans that works for those who expect their incomes to rise over time. In graduated repayment, payments start off low and increase every two years. You can contact your loan servicer to enroll, and all federal student loan borrowers are eligible for this program.

TIP: When it comes to federal student loans, your best option to get a more affordable payment is the income-based repayment program. You can always make extra payments if you’re able to.

What happens if I default on a federal student loan?

If your loan holder is unable to obtain payment from you for 270 days, they will take steps to place the loan in default and attempt to collect on the loan. Your loan holder may even “accelerate” a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

Once your federal student loan goes into default, you could face a number of consequences:

  • Your wages may be garnished without a court order
  • You can lose out on your tax refund or Social Security check (funds would be applied toward your defaulted student loan)
  • Credit reporting agencies will be notified, and your credit score may suffer

You may not receive any additional federal student aid if you are in default on any federal student loan until you have taken steps to bring your federal student loan out of default. The Department of Education’s Going Back to School guide has more information on this topic.

What happens if I default on a private student loan?

Private lenders may attempt to collect on your debt directly, or they may hire collection agencies to try to collect on your debt. In addition, they may take you to court. Lenders can also report your default to the credit reporting agencies, which could harm your credit.

TIP: If you are worried you won’t be able to pay your private student loan, you should contact your lender as soon as possible. You may be able to negotiate with your lender to set up a repayment plan or otherwise settle your debt.
 

What happens to my federal student loans if I die or become disabled?

Federal student loans do not transfer to another person if you die. Your relatives can notify the loan servicer, and the loans will be canceled.

In the case of total and permanent disability of the student borrower, federal student loans can often be discharged. There is a special process to make this disability determination. The U.S. Department of Education has established a special website with further details.

What happens to my private student loans if I die or become disabled?

Unlike federal student loans, there are no legal requirements to cancel private student loans for borrowers who die or become disabled. In certain cases, private lenders have special provisions to discharge loans. Check the terms and conditions of your loan, or contact your servicer for more details.

What is Income-Based Repayment (IBR)?

Income-Based Repayment (IBR) is a federal student loan repayment program that allows you to limit the amount you must repay each month based on your income. Many borrowers with federal Direct Loans can now enroll in IBR online.

You get a lower payment with IBR if your federal student loan debt is high relative to your income and family size. While your loan servicer will perform the calculation to determine your eligibility, you can use the U.S. Department of Education's IBR calculator to estimate whether you would likely benefit from the IBR plan.

The IBR calculator looks at your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment you would be paying under the standard 10-year repayment plan, then you are eligible to repay your loans under IBR.

IBR has two key advantages, compared to other repayment plans. First, loans are forgiven after you repay for 25 years (or, in some cases, 20 years), even if your loan is not completely paid off. Second, if you have a subsidized loan and your monthly IBR payment is less than the interest that accrues, the government will pay the difference for the first three years that you are repaying through the IBR program, which means your overall balance won’t increase.

Your monthly payment adjusts annually and you must submit documentation to remain in the IBR program. The U.S. Department of Education has more information about IBR.

For some recent borrowers, the Pay as You Earn program may offer an even lower monthly payment.

 

What is the National Student Loan Data System (NSLDS)?

The National Student Loan Data System (NSLDS) is the U.S. Department of Education's central database for student aid. NSLDS receives data from schools, the federal loan programs, and other U.S. Department of Education programs. NSLDS Student Access provides a centralized, integrated view of your federal student loans and grants so you can access and inquire about them.

 

What is Pay As You Earn (PAYE)? How do I know if I qualify?

Pay As You Earn (PAYE) is a new federal student loan repayment plan that is now available to some borrowers with newer federal loans. It caps your monthly federal student loan payment at 10 percent of your discretionary income. Another repayment program, Income-Based Repayment (IBR), is currently available for all student loan borrowers and caps your monthly payment at 15% of your discretionary income. 

For borrowers who qualify for PAYE, monthly loan payments will be two thirds of what they would be under IBR. Additionally, after 20 years of monthly payments, any remaining student loan balance is forgiven. 

PAYE is also an eligible repayment plan for borrowers seeking to qualify for Public Service Loan Forgiveness.

To determine whether or not you qualify for PAYE, check out the Pay-As-You-Earn calculator created by the U.S. Department of Education.

In order to qualify for PAYE, you need to have borrowed your first federal student loan after October 1, 2007, and you need to have borrowed a Direct Loan or a Direct Consolidation Loan after October 1, 2011. You also need to demonstrate partial financial hardship.

Most people who qualify for PAYE will have borrowed for college for the first time during the 2008-09 academic year and will have still been in school during the 2011-12 academic year. These can be borrowers who were freshman in 2008-09 and graduated in May 2012 or later. They may also be borrowers who were upperclassmen in 2008-09 and were enrolled in grad school during the 2011-12 academic year or later. 

You can now enroll in PAYE and IBR online.

What is the period of eligibility for the Post-9/11 GI Bill?

The period of eligibility for the Post 9/11 GI Bill ends 15 years from the date of the last discharge or release from active duty of at least:

  • 90 consecutive days;
  • 30 consecutive days if released for a service-connected disability; or
  • 15 years from the date of discharge for the last period of service used to meet the minimum service requirements of 90 aggregate days of service.

The 15-year cap does not apply if the benefit is transferred to an eligible child, but the child may not use the Post 9/11 GI Bill benefit after reaching age 26. For more details on limitation of use, visit the Post 9/11 GI Bill website.

What is a Perkins loan?

Perkins loans are a type of federal student loan that is awarded to undergraduate and graduate students based on financial need. This is a campus-based loan program: the school acts as the lender using funds provided by the federal government.

The Perkins loan is a subsidized loan, meaning that the federal government pays the loan’s interest while you are in school. You will typically start making your payments nine months after you graduate or drop below half-time enrollment.

Perkins loans have no origination or default fees, and the interest rate will not change. Like many other federal student loans, the standard repayment term is ten years from the date of your first payment. 

The amount of your Perkins loan is determined by your school's financial aid office. The U.S. Department of Education’s Federal Student Aid website has the most up-to-date information on Perkins loan limits.

What is a PLUS loan?

There are two types of PLUS loans: the Parent PLUS loan and the Grad PLUS loan. All PLUS loans have a fixed interest rate of 7.9 percent and are not subsidized, which means that interest accrues while enrolled in school. 

The Parent PLUS loan allows parents of dependent students to borrow money to cover any costs not already covered by the student's financial aid package, up to the full cost of attendance. The program does not set a cumulative limit to how much parents may borrow, and Parent PLUS loans are the financial responsibility of the parents, not the student.

Grad PLUS loans allow graduate and professional students to borrow money to pay for their own education.

Parent PLUS repayment begins 60 days after the funds are fully disbursed with up to 10 years to repay. Parents have the option of deferring repayment on Parent PLUS loans while the undergraduate student on whose behalf they borrowed the PLUS loan is in school, but they must begin repayment once the student graduates or drops below full-time enrollment.

Graduate students may defer repayment on Grad PLUS loans while they are in school, but they also must begin repayment once they graduate or drop below full-time enrollment.

What is Public Service Loan Forgiveness?

There are a number of programs designed to help you manage your student loan debt while pursuing a career in public service.  We estimate that 25 percent of the U.S. workforce is employed by a public service employer and many may be eligible for existing student loan repayment benefits, including Public Service Loan Forgiveness. We’re asking public service organizations to take a pledge to help tackle student debt. 

Public Service Loan Forgiveness (PSLF) is available to many employees working in public service and at all levels of government—states and municipalities, school districts, public hospitals, non-profit organizations, and more. Understanding the various programs and how they best work together will help you get the largest possible benefit

Step 1: Understand your options

For most public service employees, enrolling in the Income-Based Repayment (IBR) plan will ensure maximum savings. If you have federal student loans and can show partial economic hardship, you can cap your monthly payment at a percentage of your discretionary income through IBR. IBR is a great way to keep your monthly payments low while continuing to make progress toward the 120 on-time qualifying payments  needed for Public Service Loan Forgiveness (PSLF).

Only federal Direct Loans are eligible for PSLF. However, if you have other federal loans originated under the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to consolidate those loans into a new Direct Loan to qualify. You can learn out more about what type of loan you have through the National Student Loan Data System (NSLDS), available at www.nslds.ed.gov.

Tip: If you have a Perkins loan you may have access to other benefits and consolidating your loans may jeopardize your eligibility.

Step 2: Enroll and certify

Once you know which programs are best for you, early enrollment is critical to achieve maximum savings. In order to benefit from the Public Service Loan Forgiveness (PSLF) program you must:

Enroll in a qualifying payment plan. Generally, payments at or above the 10-year standard repayment plan qualify for PSLF, but you will likely pay off your entire loan before you are eligible for forgiveness under the standard plan. Reduced monthly payments made under IBR qualify for PSLF and will maximize savings. To get started on IBR, contact your servicer or enroll online.

Certify that you work for a qualified public service employer. Use the Employment Certification for Public Service Loan Forgiveness form to keep track of your eligible employment and qualifying loan payments.

You will need your employer’s help to complete the certification form. Complete sections one and two on your own, then ask your employer to complete and sign section three before you submit the form. Some employers may already have an established process for submitting this form. You should check with your employer for more information.

Step 3: Follow up with your servicer

After the form is complete, submit it to your servicer and be sure to follow up. It is likely that the organization servicing your loan will change. Each year, you should resubmit the Employment Certification for Public Service Loan Forgiveness form so that you can keep track of your qualifying payments and make sure you stay on the road toward loan forgiveness.

What resources are available to help pay for school while I'm serving in the military or after I've finished?

The Department of Defense and the Department of Veteran Affairs (VA) offer a number of generous education benefits to those who are serving, or those who have served, as well as eligible survivors and dependents of veterans.

The most popular programs are the Post-9/11 GI Bill and the Tuition Assistance Program. Learn more about Tuition Assistance and the Post-9/11 GI Bill.

What role does my school play in obtaining student loans?

In order to receive federal grant aid or borrow federal student loans, you (or your family) must fill out a Free Application for Federal Student Aid (FAFSA). Your school’s financial aid office will receive your FAFSA information from the U.S. Department of Education, and then they will tell you about your awards and other options. This is generally referred to as your “financial aid award package.”

Your school’s financial aid office is involved in the allocation and disbursement of grant and scholarship aid. You should always seek out grants, scholarships, and other money you don’t have to pay back before turning to loans.

Additionally, the financial aid office can consult on private student loans to see if they have any lenders who offer special rates to students. You may also consult a local credit union or bank.

What is a servicer?

Your loan servicer is the company that sends you your bill each month. Servicers are private companies that collect payments on a loan, respond to customer service inquiries, and perform other administrative tasks associated with maintaining a loan. Loan servicers also disburse loans/funds, monitor loans while the borrowers are in school, process deferments and forbearances, respond to borrower inquiries, maintain loan records, and ensure that the loans are administered in compliance with federal regulations and other legal requirements.

What should I consider if I want to use my GI bill to attend college?

First, always remember to compare the costs of different colleges to make sure you’re getting the best deal. As a veteran using your GI bill benefits, here are a few additional things you should consider:

  • How will your military benefits cover the cost of each school?
  • How will your credits transfer to another college?
  • Will a civilian employer accept a degree from the schools you are interested in?
  • Will you have to take out expensive private student loans to pay for the tuition and fees not covered by the GI Bill?

Warning: For-profit colleges have an extra incentive to enroll veteran students. Under federal law, these schools are required to get at least 10 percent of their revenue from sources other than certain federal education funds. Because GI Bill benefits are not considered to be a type of these funds, many for-profit colleges target veterans to satisfy this requirement.

Over the last few years, for-profit colleges have marketed aggressively to veterans. However, you should consider all options when deciding which school to attend with your GI Bill benefits. One of the most important things to consider is whether you will need to take out expensive private student loans to pay for the tuition and fees not covered by the GI Bill.

What should I consider when deciding how much to borrow?

You should borrow only what your future earnings will allow you to repay. In general, try not to borrow more for all four (or more years) of college than you expect to earn as a starting annual salary when you leave school.

If your total student loan debt when you graduate were equal to your starting annual salary, at the current interest rate for federal student loans, your payment would be nearly 14 percent of your gross monthly income. 

Contact your local library or your college’s career center to find resources to determine the salary you might be able to expect when graduating in your field. 

Tip: Don’t borrow the maximum just because you are able to obtain the loans. Borrow just enough to make sure your tuition, housing, and other expenses are fully paid after accounting for work earnings and any other sources of income.

Tip: Don’t replace student loan debt with credit card debt. This will be a much more expensive way to finance your education. Credit cards do not provide the flexible repayment terms or borrower protections offered by federal student loans.

Tip: As you continue to borrow additional student loans each year you are in school, you should keep track of your total student debt. The definitive source for your current loan balances of all of your federal student loans is the National Student Loan Data System (NSLDS). Your college financial aid office or your lender will have more information about your private student loan balances.

Of course, you should consider many other factors specific to your individual circumstances when determining how much debt you can handle. This is a personal decision that only you can make. You may also want to consider discussing the decision with your family and other trusted advisors.

What is a Stafford loan?

Stafford loans are a type of federal student loan. Stafford loans are either subsidized – the government pays the interest while you're in school – or unsubsidized – you pay all the interest, although most students will not start making these payments until after graduation. Unsubsidized Stafford loans add the accrued interest to the loan balance, increasing the size and ultimate cost of the loan.

Both subsidized and unsubsidized Stafford loans require the completion of the Free Application for Federal Student Aid (FAFSA). To receive a subsidized Stafford loan, you must be able to demonstrate financial need. All students, regardless of need, are eligible for the unsubsidized Stafford loan.

As of July 1, 2012, graduate and professional students are eligible only for unsubsidized Stafford loans.

Repayment on all Stafford loans typically begins six months after you graduate or drop below half-time enrollment. The standard repayment term is 10 years from the date of your first payment, but alternative repayment terms are available. You may want to investigate alternative repayment plans if you have trouble making your payment, or if you want to have lower monthly payments over a longer period of time.

Annual and lifetime Stafford loan limits vary widely by the status of the student (dependent versus independent) and the year of schooling (freshman versus graduate or medical student). The U.S. Department of Education’s Federal Student Aid website has the most up-to-date information on Stafford loan limits.

Stafford Loans are made under the Federal Direct Loan Program (FDLP). Before July 2010, they were also made under the Federal Family Education Loan Program (FFELP), though no new FFELP loans are being made now.

What is a subsidized loan?

For all subsidized federal student loans, the U.S. Department of Education subsidizes - pays the interest on - your loan while you are in school and during periods of deferment, such as during military service. Subsidized loans are given to students who demonstrate financial need. You will be notified by your school if you qualify for a subsidized loan, after you complete the Free Application for Federal Student Aid (FAFSA).

Subsidized loans are always federal student loans. If you take out a private student loan, you must pay all interest, including interest that is charged while you are in school.

 

What is a tuition payment plan?

Tuition payment plans, also called tuition installment plans, are short-term (12 months or less) payment plans that split your college bills into equal monthly payments. Tuition installment plans can be an alternative to student loans if you can afford to pay tuition, just not in a lump sum at the start of the semester or quarter. These payment plans do not generally charge interest, but they may have up-front fees.

When do I need to start paying my federal student loans?

For most federal student loans, you must start making payments six months after leaving school. The six-month period following school where you don’t have to pay is called a “grace period.” Federal student loans require online “exit counseling” when you are about to leave your school, which will tell you about when you’ll need to make payments.

You should know that you are never penalized for making federal student loan payments before you are required to start paying. Making early payments will reduce the total balance of your loans when required payments begin. This can lead to substantial savings in interest costs over time. Make sure if you make an additional payment that you inform your loan servicer that you would like this payment to be applied to your loan principal – the amount of money that you currently owe on your loan.

Warning: Sometimes when you pay more than your monthly payment, your lender will “credit” the amount against a future payment rather than apply it toward your loan balance. For example, say you had a loan with a monthly payment of $115, and one month you decide to pay $300. If your lender is crediting your payments forward, the next month you would get a statement that showed no payment due; you would get your next actual bill the month after.

Even though you don’t have a payment due, you should continue making payments each month if you can afford it. You won’t actually be paying your loan back any faster unless you keep making payments each month.

Tip: If you plan to pay more than your minimum monthly payment, you can instruct your lender or servicer to credit the payment against the principal.

When do I need to start paying my private student loans?

Unlike federal student loans, all private student loans do not have the same, set repayment process. Some loans require payments in school, while other loans let you delay the due date of your first payment for a period of time – called a “grace period” – similar to the feature offered by most federal student loans. Contact your loan servicer for more information or refer to your original loan documents.

Who can I talk to about student loans?

First, you should talk to your school’s financial aid office – they will have information about your federal student loan options.

To find out more information about private student loan options, you might first consult a local credit union or bank. You should also ask your school’s financial aid office to see if they have any lenders who offer special rates to their students. 

TIP: Do your homework to understand your options. You should shop for various loan options, including beyond those your school provides, and always verify information presented by your school’s financial aid office with lenders.




Copyright © 2013 by Mark McCracken , All Rights Reserved