There are several different repayment plans to help manage loan payments. Students can choose a payment plan that is right for them at that particular time. Some of the repayment plans include:
- Standard Repayment Plan – A student pays a minimum monthly amount (no less than $50) for 120 payments, or ten years. The monthly amount depends on how much money is borrowed. span
- Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be paid off in the shortest amount of time.
- Graduated Repayment Plan – A student pays a smaller monthly amount in the beginning of the repayment cycle and gradually increases the monthly payment over a ten year period.
- Income Based Repayment – The required monthly payment is capped at an amount that is supposed to be affordable based on family income, family size and total federal loan debt. Students will pay on this plan for up to 25 years.
- Income Contingent Repayment – Each year, the student's monthly payments will be calculated using their (and their spouses, if married) adjusted gross income, family size and total amount of Direct Loans owed. Student will pay on this plan for up to 25 years.
- Consolidation Repayment Plan – Students combine all eligible loans into a new loan. Students can take up to 30 years to pay a consolidation loan which lowers their monthly payments. However, students will pay more interest on the loan because the repayment term is longer.
If a student becomes totally and/or permanently disabled, their loan funds will be forgiven. Certain documentation must be filed to receive this forgiveness option. Also, if a student passes away, their loans will be forgiven. A copy of their death certificate is needed and must be submitted to the loan holder. There are other loan forgiveness programs available to students. Some forgiveness programs will completely pay off the student’s debt while others will forgive a portion of the debt. Some of the notable programs are:
- Teacher Loan Forgiveness – Student must teach for five consecutive, complete years at an eligible school. Student can receive from $5,000 to $17,500 in loan forgiveness depending on the area of teaching.
- Public Service Loan Forgiveness – Student must make 120 monthly payments while serving in a public service position and continue to be employed in a public service position at the time of forgiveness.
- Child Care Loan Forgiveness – Student working full-time in a child care center that services low-income communities is eligible for loan forgiveness based on the number of years employed at the eligible child care center.
A deferment is a period of time in which the student postpones (or stops) making monthly loan payments. Interest on the subsidized loans will be paid by the federal government during the deferment periods. There are several types of deferments available:
- In School – Student enrolled at least half-time in an eligible program. Students have a lifetime of in-school deferments.
- Unemployment – Student must be registered with the local unemployment office. Students have three years of unemployment deferments.
- Military Service – Student is called to active duty during a war or other military operation or national emergency.
- Post-Active Duty – Student who is enrolled and then called to active duty is eligible for 13 months deferment after their active duty service.
- Economic Hardship – Student's income is at or below the poverty level. Students have three years of economic hardship deferments.
A forbearance is a period of time in which the student may postpone or reduce their monthly loan payments. If a student is not eligible for a deferment, loan forbearance is an option. Interest on the loan will continue to accrue during any forbearance period and will not be paid by the federal government. Students must contact their holder of their loan to request a forbearance. A student has three years of forbearance options.
A student is considered to be delinquent on their students loans if they are 30 days past due. Once a student is 30 days past due, the holder of the loan will report the delinquency status to all major credit bureaus. The student will be contacted by their holders to offer help in resolving the delinquent status. Deferment and forbearance options will be discussed at this time.
When a student has failed to make payments as agreed under the master promissory note, the student is considered to be in default if they have not made a payment on their loan for 270 days. Once a student defaults, numerous consequences occur such as:
- National Credit Bureaus will be contacted and the students credit score is negatively affected
- The loan will be due in full within 10 days
- The borrower will be sued for the balance of the loan
- The borrower will be responsible for any collection costs, court costs and attorney fees
- Income tax refunds will be applied to the defaulted loan
- Wages will be garnished
- Professional license will not be renewed
- The borrower will be ineligible for deferments
- The borrower is no longer eligible for financial aid funds
- The loan debt is still owed in full