Your Federal Student
Your Federal Student
Loans
Student Aid on the Web
www.FederalStudentAid.ed.gov
Click on “Students, Parents and Counselors”
At this Web site you can
• Find information on federal student aid
and access sources of nonfederal aid.
• Apply online using FAFSA on the Web SM
(the online version of the Free Application
for Federal Student Aid or FAFSASM).
Federal Student Aid Information Center (FSAIC)
1-800-4-FED-AID (1-800-433-3243)
TTY users can call 1-800-730-8913
Callers in locations without access to 1-800 numbers
may call 319-337-5665 (this is not a toll-free number).
FSAIC
P.O. Box 84
Washington, DC 20044-0084
Office of Inspector General Hotline
To report student aid fraud (including identity theft),
waste or abuse of U.S. Department of Education funds
1-800-MIS-USED (1-800-647-8733)
E-mail: oig.hotline@ed.gov
Web site: www.ed.gov/misused
Updates!
For any changes to federal student aid programs since this booklet was printed, please visit
www.FederalStudentAid.ed.gov and click on “Students, Parents and Counselors.”
U.S. Department of Education Federal Student Aid
April 2009
This publication is in the public domain. Authorization to
reproduce it in whole or in part is granted. While permission
to reprint this publication is not necessary, the citation should
be: U.S. Department of Education, Federal Student Aid, Students
Channel, Your Federal Student Loans: Learn the Basics and
Manage Your Debt, Washington, D.C., 2008
To order copies of this publication, write to:
U.S. Department of Education
P. O. Box 1398
Jessup, MD 20794-1398
or fax your request to:
301-470-1244
or e-mail your request to:
orders@FSApubs.org
or call in your request toll-free:
1-800-394-7084 or 1-877-433-7827 (1-877-4-ED-PUBS).
If 877 service is not yet available in your area, call 1-800-872-5327
(1-800-USA-LEARN). Those who use a telecommunications
device for the deaf (TDD) or a teletypewriter (TTY), should
call 1-800-437-0833.
or order online at www.FSAPubs.org
This publication is also available on the Federal Student Aid Web
site at www.FederalStudentAid.ed.gov/pubs
On request, this publication is available in alternate formats,
such as Braille, large print, or CD. For more information, please
contact the Federal Student Aid Information Center at
1-800-433-3243 (1-800-4-FED-AID). TTY users (for the
hearing-impaired) should call 1-800-730-8913.
This publication contains Web site addresses for information created and maintained
by outside organizations. This information is provided for the reader’s convenience.
The U.S. Department of Education is not responsible for control ing or guaranteeing
the accuracy, relevance, timeliness or completeness of this outside information.
Further, the inclusion of information or Web site addresses does not reflect the
importance of the organization, nor is it intended to endorse any views expressed,
or products or services offered.
All Web site addresses included in this publication were accurate at press time.
Contents
PREFACE .............................................................................................................................................. 1
Considerations ................................................................................................................................ 1
Organization of Content ......................................................................................................................1
Questions ..................................................................................................................................................2
PREPARE .............................................................................................................................................. 3
Talk With Your Family and Others .................................................................................. 3
Suggestions ...............................................................................................................................................3
How do I meet the costs of college? ...................................................................................................3
As I prepare for college, can I find out now how much federal student aid I might get? ...4
Who can get federal student loans? ...................................................................................................4
Do all schools participate in the federal loan program? ..............................................................5
How are federal student loans different from private loans? ............................................. 5
Can my parents get a loan? ..................................................................................................................8
What are the eligibility requirements for PLUS Loans?...............................................................8
APPLY ..................................................................................................................................................... 9
RECEIVE ............................................................................................................................................... 11
Your Award Letter .......................................................................................................................... 11
Review the financial aid award letter you receive from each school ........................................11
What should I consider? .......................................................................................................................11
Before you accept any aid .....................................................................................................................12
What should I do now? .........................................................................................................................12
How and when do I receive the money from my federal student loans?.................................13
What can I use my federal student loan money for? ....................................................................13
I don’t need to borrow all this money. Can I return some of it? ...............................................13
What if I still need more money? Where should I look? .............................................................14
Graduate With Less Debt ......................................................................................................... 14
Manage your money and change your spending habits ..............................................................15
Keep Track of How Much You’re Borrowing ............................................................ 15
Other things to remember ...................................................................................................................16
Borrower’s Rights and Responsibilities ....................................................................... 16
REPAY ..................................................................................................................................................... 17
What You Need to Do .................................................................................................................. 17
Exit counseling ........................................................................................................................................17
Why is the amount the school told me I must repay
more than the amount I actually received? .....................................................................................17
Interest .................................................................................................................................................. 17
What is the interest rate on my federal student loan? ..................................................................18
How is interest calculated? ...................................................................................................................19
How are loan payments applied to my loan balance?...................................................................19
Repayment Options ..................................................................................................................... 20
When choosing a repayment plan, what are my options? ...........................................................20
III
Why do I have an outstanding balance? ...........................................................................................22
Can I do anything to lower my monthly payments?.....................................................................23
Are there any repayment incentive benefits? ..................................................................................23
What are Internal Revenue Service (IRS) tax credits? ..................................................................23
Consolidation Loans .................................................................................................................. 24
Should I consolidate my loans? ..........................................................................................................24
How can consolidation help me manage my debt? .......................................................................24
Is there a downside to consolidation? ...............................................................................................24
Making Your Monthly Payments ...................................................................................... 24
What if I’ve forgotten what type of loan I have and who my loan holder is? ........................25
What if I forgot to send a payment or can’t send the full monthly amount? Should I send
a partial payment? ..................................................................................................................................25
What if I can’t make my payments? ...................................................................................................25
Why is missing a payment a problem? .............................................................................................26
What is a deferment? .............................................................................................................................26
What is forbearance? .............................................................................................................................26
Loan Discharge or Forgiveness ........................................................................................... 27
What qualifies my loan for discharge? ..............................................................................................27
What qualifies my loan for forgiveness? ...........................................................................................27
Where can I learn more? ........................................................................................................ 27
Glossary ................................................................................................................................................. 29
Don’t Default ................................................................................................ Inside back cover
FIGURES
Figure 1 Federal Student Loans vs. Private Loans
7
Figure 2 Maximize Sources of Aid You Don’t Have to Repay
8
Figure 3 Interest Rate Reductions for Subsidized Loans
18
Figure 4 Estimated Monthly Payments for Direct and FFEL Stafford Loans
22
Figure 5 Sample Communication Log
25
APPENDICES
Appendix A What types of federal student loans are there?
39
Appendix B Sample FAFSA4caster Award Scenarios
41
Appendix C How much can I borrow?
42
Appendix D Informed Borrowing: Selecting Loans and Selecting Lenders
44
Appendix E Borrower Rights and Responsibilities
45
Appendix F If You Need to Take a Break or Can’t Go to School Full-Time
46
Appendix G Worksheet to Calculate Your Budget When You Graduate
47
Appendix H Perkins Loan Discharge and Cancellation Summary Chart
48
Appendix I Stafford and PLUS Loan Discharge or Cancellation and Forgiveness Summary Chart
49
IV
Your Federal Student Loans
PREFACE
Considerations
When you’re considering college—or some form of education after high school—
financial aid almost always comes to mind. How much aid you’ll receive may be a
deciding factor in whether or not to attend college or whether you’ll be able to attend
the college of your choice.
You and your family have the primary responsibility of paying for college. But
when those funds aren’t enough, you need to look at other resources. First you need
to make the most of scholarships and grants. If you’ve already done that and still
need more money, a federal student loan (a loan from or guaranteed by the federal
government) is your best option (see cautions regarding private loans on page 7).
Every year, more than $83 billion in federal student aid (grants, work-study, and
loans) is available to students. Everyone can receive a federal student loan because not
all federal student loans are based on financial need.
As with any financial decision, you should understand the process to make informed
decisions. This publication provides you with the information you need.
Organization of Content
Each section covers the different stages of the student aid lifecycle.
The four stages in the federal student aid lifecycle are:
Prepare
Apply
Receive
Repay
Learn what you
Learn how to apply
Learn when and
Learn how you will
need to know
and what happens
how you wil receive
repay the loan and
about federal
when you apply
your aid.
what to do if you’re
student aid.
for federal
having difficulty
student aid.
repaying your loan.
1
Learn the Basics and Manage Your Debt
Questions
If you ever have any questions about federal student aid, you can always:
•
call us at 1-800-4-FED-AID (1-800-433-3243),
•
talk to your high school counselor, or
•
contact the financial aid office at the school you plan on attending.
Remember
Federal student loans are real loans, just like car loans or mortgage loans. You must
repay a student loan even if your financial circumstances become difficult. Federal
student loans usually can’t be written off in bankruptcy. They can’t be canceled
because you didn’t get the education or job you expected, and they can’t be
canceled because you didn’t complete your education (unless you couldn’t
complete your education because your school closed).
2
Your Federal Student Loans
PREPARE
Talk With Your Family and Others
Paying for a postsecondary education (college or career school) is an investment.
It requires planning. It takes money. So talk with your family openly and early, don’t
wait until your senior year. You can also talk to a guidance counselor at your school;
they often have helpful information about planning for a postsecondary education.
Suggestions
Find out which college expenses your family will cover and which ones will be your
responsibility. College costs are not just tuition, room, and board. Other costs can include
1) Fees: Fees will depend on the school you’re attending. This list can be obtained
directly from the school. Fees include activity fees, parking decal fees, etc.
2) Books and school supplies: Books can be expensive. The national average
at four-year private colleges in 2006–07 was about $1,000 a year. School
supplies can include book bags, notebooks, pens, pencils, paper, folders,
stapler, desk organizing system (trays, pen holder, etc.), computer paper, etc.
3) Equipment, room materials, and miscellaneous expenses: Equipment may
include computer, printer, etc. Furnishings may include such items as reading
lamps, microwave, refrigerator, sheets, towels, etc. Other expenses can include
clothing, cell phone use, and entertainment.
Create a budget to maintain control of your financial situation, limit spending, and
borrow wisely.
How do I meet the costs of college?
You and your family have the primary responsibility of paying for college through
•
scholarships,
•
qualified prepaid or 529 savings plans,
•
personal savings, and
•
money from summer work.
If these resources are not enough and you still need additional money, turn to
•
the federal government and
•
institutional and state aid.
Why the federal government? The federal government is the main provider of financial aid
for college. Every year, students, and parents, receive more than $83 billion in aid. With all
these funds available, applying for aid from the federal government is a good option.
3
Learn the Basics and Manage Your Debt
Federal student aid from the federal government can be one of the following:
•
Grants: Free money that doesn’t have to be repaid, except in some cases
when you withdraw from school.
• Work-study: You earn money to pay for your education.
• Loans: You borrow money for school, which you must repay with interest.
This publication covers all facets relating to loans. Read Appendix A to become
familiar with the types of federal student loans we’re covering in this publication.
For comprehensive and updated information on all of the federal student aid
programs, including grants and work-study, visit Student Aid on the Web at:
www.FederalStudentAid.ed.gov. You can also access Funding Education
Beyond High School: The Guide to Federal Student Aid, an annual publication
on federal student aid programs, at: www.FederalStudentAid.ed.gov/guide
or order a copy by calling the Federal Student Aid Information Center toll-free at
1-800-4-FED-AID (1-800-433-3243). TTY users (for the hearing-impaired) can call
1-800-730-8913. Callers in locations without access to 1-800 numbers may call
(319) 337-5665. (This is not a toll-free number).
As I prepare for college, can I find out now how much federal student
aid I might get?
Yes. To get an early estimate of your federal student aid eligibility use FAFSA4casterSM.
It’s a free online tool to help students and families financially plan for college. Fill it
out. The tool will instantly display the types of federal student aid you might receive.
In addition to estimated award amounts for any federal grant programs, it gives you
examples of award packages based on the scenarios you select. (See Appendix B
for an example).When you’re ready to apply for aid, FAFSA4caster will automatically
move your information to your federal student aid application, FAFSA on the
WebSM (www.fafsa.ed.gov), thus reducing the time it takes for you to complete your
application. You can access FAFSA4caster at www.FederalStudentAid.ed.gov
(click on “FAFSA4caster”).
Who can get federal student loans?
To be eligible for federal student aid, you must:
•
be a U.S. citizen or eligible noncitizen (for most programs) with a valid
Social Security number;
•
be working toward a degree or certificate;
• have a high school diploma or a General Educational Development (GED)
certificate; pass an approved ability-to-benefit test (if you don’t have a diploma
or GED, a school can administer a test to determine whether you can benefit
from the education offered at that school); meet other standards your state
establishes that the U.S. Department of Education has approved; or complete
a high school education in a home school setting approved under state law;
4
Your Federal Student Loans
•
register (if you haven’t already) with the Selective Service, if you’re a male
between the ages of 18 and 25; and
•
maintain satisfactory academic progress once in school.
These are general eligibility requirements. To get more detailed information,
see Funding Education Beyond High School: The Guide to Federal Student Aid
at www.FederalStudentAid.ed.gov/guide.
This publication covers all facets relating to loans. Read Appendix A to become
Many students are going to private lenders or online to look for financial aid.
familiar with the types of federal student loans we’re covering in this publication.
Always exhaust scholarships, grants, and federal student loans before turning
For comprehensive and updated information on all of the federal student aid
to private or alternative student loans. Why? Private or alternative student loans
programs, including grants and work-study, visit Student Aid on the Web at:
often carry high and variable interest rates* and may require credit checks.
www.FederalStudentAid.ed.gov. You can also access Funding Education
Beyond High School: The Guide to Federal Student Aid, an annual publication
Avoid credit cards to pay for your education; interest rates on credit cards are very
on federal student aid programs, at: www.FederalStudentAid.ed.gov/guide
high and payments are due every month.
or order a copy by calling the Federal Student Aid Information Center toll-free at
1-800-4-FED-AID (1-800-433-3243). TTY users (for the hearing-impaired) can call
Do all schools participate in the federal loan program?
1-800-730-8913. Callers in locations without access to 1-800 numbers may call
No. You need to contact your school to find out if it participates in the Federal Student
(319) 337-5665. (This is not a toll-free number).
Aid program.
•
Federal Perkins Loans* are offered and made through participating schools
to undergraduate, graduate and professional degree students who demonstrate
financial need. This loan is repaid to your school.
•
If your school participates in the Direct Loan ProgramSM,*
the U.S. Department of Education is your lender.*
• If your school participates in the Federal Family Education (FFELSM)* Program,
the federal government guarantees loans made under the FFEL* Program but
you’ll have to choose a lender* (either your own bank or financial institution or
private lender that participates in the federal student aid program) to fund your
loan.* You have the right to work with a lender of your choice and although
some schools do have preferred lender lists* (list of banks and private lenders
your school suggests) you’re not limited to those options because, either way,
the federal government backs your loan (see Appendix C).
RECAP—Funds to pay for your education should first come from:
• Family resources, scholarships, and grants.
• If you’ve exhausted those options, federal student loans are your
next best option.
How are federal loans different from private loans?
While every student wants scholarships and grants, not everyone can cover the entire
cost of college or career school through those options. Loans* can make your education
possible and affordable.
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
5
Learn the Basics and Manage Your Debt
Federal student loans and private loans are available to students to help pay for their
education. Federal student loans have lower, fixed interest rates,* generous repayment
plans,* no prepayment* penalties and no credit checks (except for PLUS Loans).
In contrast, private loans, which may be aggressively marketed to students through TV
ads and other media, are substantially more expensive than federal student loans. They
generally have higher, variable interest rates* that may substantially increase the total
amount you repay. The interest rate you receive might depend on your credit* score.
Private loans can also have prepayment* penalty fees.
If your bank or other private lender provides loans that are backed by the federal
government, then they are participating in the FFEL* program. Be sure to ask if they
do. Documents for a federal student loan will state somewhere on the form that it is
a federal student loan. Some private student loan lenders have forms that look similar
to the federal forms and might confuse some students (see Appendix D for tips on
selecting lenders).
6
Your Federal Student Loans
The following table shows that a federal student loan is a better option than a private
student loan.
FIGURE 1
Federal Student Loans vs. Private Loans
Federal Student Loans
Private Student Loans
(loans from the government or
(nonfederal loans from a bank, credit
guaranteed by the government)
union, or other financial institution)
You wil not have to start repaying your federal
Many private student loans require payments
student loans until you graduate, leave school, or
while you are still in school.
change your enrollment status to less than half-time.*
The interest rate* on Stafford Loans is fixed,
Private student loans can have variable interest*
currently at 6.0 percent for subsidized* loans
rates greater than 18 percent.
for undergraduate students and 6.8 percent for
unsubsidized* loans for undergraduate and graduate
students, and almost always lower than on a private
loan—and much lower than on a credit card!
Students with greater financial need might qualify for
Private student loans are not subsidized.
a subsidized* loan. The government pays the interest
No one pays the interest on your loan but you.
on subsidized loans while a borrower is enrolled in
school at least half-time and during certain other periods.
You don’t need to pass a credit check to get a federal
Private student loans may require an established
student loan (except for PLUS Loans). Federal student
credit record. The cost of a private student loan
loans help you establish a good credit record.
depends on your credit score, which you may not
yet have as a student.
You don’t need a co-signer* to get a federal
You may need a co-signer* to get
student loan.
the best possible deal.
Free help is available at 1-800-4-FED-AID.
You need to find out if there is free help.
Some interest is tax deductible.
Interest may not be tax deductible.
Loans can be consolidated into the Direct or FFEL
Private student loans can’t be consolidated into
Consolidation programs which have favorable
a federal loan consolidation program. They can
repayment plans and other benefits. See
only be consolidated into a private bank loan,
www.loanconsolidation.ed.gov for more
if available.
information for Direct Consolidation Loans. For
FFEL Consolidation Loans contact your lender.*
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
7
Learn the Basics and Manage Your Debt
FIGURE 2
Maximize Sources of Aid You Don’t Have to Repay
Maximize the Sources on the Left Side of the Range
ate Educational,
Scholarships and Grants
Savings and
Federal Loans
ork-Study Earnings
Priv
Credit Cards
W
Home Equity Loans
DO NOT HAVE
CHEAPEST
EXPENSIVE
TO REPAY
LOANS
LOANS
Source: Helping Families Finance College: Improved Student Loan Disclosures and Counseling.
Report by Consumer’s Union, July 2007.
Be careful!
Private loans and credit cards are consumer loans, and are very expensive
ways of financing your education.
Can my parents get a loan?
Yes. Parents of dependent students and students pursuing a graduate or professional
degree can borrow from the PLUS Loan* program. The terms and conditions applicable
to PLUS Loans made to parents of dependent students also apply to PLUS Loans made
to graduate and professional degree students. These terms and conditions include:
• a requirement that the applicant not have an adverse credit history,
• a repayment period that begins on the date of the last disbursement
of the loan and a fixed interest rate of 8.5 percent for FFEL PLUS Loans
and 7.9 percent for Direct PLUS Loans.
What are the eligibility requirements for PLUS Loans?
PLUS applicants must meet the general eligibility requirements for federal student
aid. If a parent is borrowing on behalf of a dependent undergraduate student, the
student must also meet these general eligibility requirements. For example, the PLUS
applicant and the student must:
• be a United States citizen or eligible noncitizen,
• not be in default* on a federal student loan, and
• not owe a refund on a federal education grant.
As with PLUS Loans made to parent borrowers, eligible graduate and professional
degree students may borrow under the PLUS program up to their cost of attendance,*
minus other financial aid received.
8
Your Federal Student Loans
APPLY
Apply for a federal student loan by completing the Free Application for Federal
Student Aid (FAFSASM).* The FAFSA also determines eligibility for federal grants,
work-study, state and institutional aid. A separate loan application isn’t required.
• Collect the documents needed to apply.
Your Social Security number. Be sure it’s correct!
Your driver’s license (if any)
Your W-2 forms and other records of money earned
Your (and your spouse’s, if you are married) Federal Income Tax Return
IRS 1040, 1040A, 1040EZ
Foreign Tax Return, or
Tax return for Puerto Rico, Guam, American Samoa, the U.S. Virgin
Islands, the Marshall Islands, the Federal States of Micronesia, or Palau
Your parents’ Federal Income Tax return (if you are a dependent student)
Your untaxed income records
Your current bank statements
Your current business and investment mortgage information, business
and farm records, stock, bond and other investment records
Your alien registration or permanent resident card (if you are not
a U.S. citizen)
Although not all aid is need based, you’ll need to include information from your (and
your parents’, if applicable) income tax returns and W-2 forms (and other records of
income) to help determine what type of aid you may receive. Tax return not completed at
the time you apply? Estimate the tax information, apply, and correct the information later.
• Complete the FAFSA at www.fafsa.ed.gov on or after Jan. 1 of the year you
expect to start college.
A useful tool in preparing to complete the online application is the FAFSA on
the Web Worksheet (available in English or Spanish). The worksheet, designed
for applicants who prefer to fill something out in writing before applying online,
lists the FAFSA questions and provides boxes for students’ (and parents’)
answers. The order of questions on the worksheet follows that of FAFSA on
the Web, which differs from the paper FAFSA. You can view and download
the worksheet in PDF at www.FederalStudentAid.ed.gov/worksheet.
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
9
Learn the Basics and Manage Your Debt
• Review the Student Aid Report (SAR)*—The U.S. Department of Education
will send you a SAR, a summary of the FAFSA data you submitted. Review your
SAR and, if needed, make changes or corrections and submit for reprocessing.
Your complete, correct SAR will contain your Expected Family Contribution
(EFC)*—the number used to determine your federal student aid eligibility.
The U.S. Department of Education also sends your FAFSA results to the schools you
included on the FAFSA. The schools then develop your award packages. This process
is covered in the next section.
Don’t forget … Fill out an application!
You MUST submit the Free Application for Federal Student Aid (FAFSA)* to receive federal student
aid. Fill out this application as soon as you can on or AFTER Jan. 1 on the year you plan on
attending college.
State and Institutional Aid
Some school and state student aid is based on the data you provide on your FAFSA.
Because such aid is often provided on a first-come first-served basis, submit your FAFSA
as soon as possible on or after Jan. 1 to be considered for this aid.
If your parents are going to apply for a loan* for your education, they must
complete a PLUS Loan* application and promissory note* available from the
school, lender or state guaranty agency.*
10
Your Federal Student Loans
RECEIVE
Your Award Letter
The schools you included in your FAFSA receive the results of your application.
The financial aid office at the school considers the cost to attend their institution
and the information in the FAFSA to put together an award package for you.
The award letter will include federal student loan, grant, and work-study you can receive
as well as state aid, institutional aid, and other sources of aid to help pay your costs.
Review the financial aid award letter you receive from each school.
Once admitted, the school will send you the financial aid award letter that lists the
grants, scholarships, work-study, and loans for which you’re eligible.
•
Aid is based on the school’s cost of attendance (all direct and indirect
expenses, including tuition, fees, room and board, books, transportation,
and supplies) minus the EFC.*
•
Award letters are unique to each school and vary in the amount of
information included.
Some schools might include optional private loans in your award letter. Before you
accept any loans, make sure you:
•
understand the source of your loan (government or private) and
•
understand the terms of the loan.
Every award package is individually tailored. If you have any questions or don’t understand
what’s in your award letter, contact the school. The school will also tell you what actions
you need to take after you review your award letter. Always ask questions. Be an
informed borrower. Know what you’re receiving and what the terms of repayment are.
What should I consider?
When you receive your award letter, start by:
•
Accepting scholarships and grants you’re eligible for—be sure you understand
any conditions and requirements you must meet to receive these free funds.
•
Accepting the loans with the most favorable terms; that is, federal student loans
and state aid offered to you. If you see private or commercial loans in your
award letter, ask why this type of loan was included, find out the terms, and
reject the private loan if the terms aren’t favorable.
•
Borrowing only what you need and what you’ll be able to repay. Remember
that federal student loans have to be paid after you graduate, leave school,
or stop attending at least half-time.*
•
Exhausting all options before looking into private loans. Private loans and
credit cards should be your last resort.
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
11
Learn the Basics and Manage Your Debt
Before you accept any aid:
•
Get a breakdown of the direct expenses (tuition, room, board, and fees) and estimates
of indirect expenses (travel, books, etc.) for one year of college;
•
Know the actual amount (cost of attendance* minus financial aid) that you’ll have
to pay to attend one year of college;
•
Know how much in scholarships and grants (money that doesn’t have to be repaid)
you’ve been awarded and the conditions under which they are renewable each year;
•
Know the amount of work-study you’ve been awarded and the conditions to fulfill
the work-study;
•
Find out which types of loans* you’ve been awarded and the amounts;
•
Find out which loans your parents can get to help pay for your education;
•
Know the interest rates,* loan terms, monthly repayment amounts, and total repayment
amounts of your loans; and
•
Know where you can get additional information or have your loan questions answered.
NOTE: Your award letter or financial aid package doesn’t transfer with you
if you go to another school. Contact the financial aid office at your
new school as early as possible to find out what to do.
What should I do now?
• Sign a promissory note.* The promissory note is a legally binding agreement
that contains the terms and conditions of the loan. It explains how and
when the loan should be repaid. By signing it, you are promising to repay
your student loan. Keep the promissory note and any other loan documents
in a safe place until the loan is repaid.
•
Complete entrance counseling. This is a must before the loan is disbursed and
required for first-time borrowers. Entrance counseling is an information
session explaining your responsibilities and rights as a student borrower.
Loans add up!
Remember that loans accumulate over the two, four, five years or more that you wil attend
school. You should know the ful estimated cost of attendance for the total number of years
you plan to attend school. This wil give you an idea of the total cost of the federal student
loans you may be taking out. You can see estimated monthly payment amounts for different
repayment plans on page 22.
12
Your Federal Student Loans
How and when do I receive the money from my federal
Before you accept any aid:
student loans?
•
Get a breakdown of the direct expenses (tuition, room, board, and fees) and estimates
•
Generally, your loan will be paid directly to the school in two disbursements*
of indirect expenses (travel, books, etc.) for one year of college;
(payments). No disbursement will be greater than half the amount
•
Know the actual amount (cost of attendance* minus financial aid) that you’ll have
of your loan.
to pay to attend one year of college;
• If you’re a first-year undergraduate student and a first-time borrower, your
•
Know how much in scholarships and grants (money that doesn’t have to be repaid)
first disbursement can’t be made until 30 days after the first day of your
you’ve been awarded and the conditions under which they are renewable each year;
enrollment period.
•
Know the amount of work-study you’ve been awarded and the conditions to fulfill
•
Your school usually credits your loan payment to school charges on your
the work-study;
account (tuition and fees, room and board, and other authorized charges).
•
Find out which types of loans* you’ve been awarded and the amounts;
•
If the loan money exceeds your school charges, the school will pay you the
•
Find out which loans your parents can get to help pay for your education;
credit balance by check or other means.
•
Know the interest rates,* loan terms, monthly repayment amounts, and total repayment
For more information on disbursement* dates, check with your school’s financial aid office.
amounts of your loans; and
•
Know where you can get additional information or have your loan questions answered.
What can I use my federal student loan money for?
You may use the money you receive only to pay for education expenses at the school
that awarded your loan. Education expenses include school charges such as tuition;
room and board; fees; books; supplies; equipment; dependent childcare expenses;
transportation; and rental or purchase of a personal computer. Talk to someone at
the financial aid office at your school if you need more details.
I don’t need to borrow all this money. Can I return some of it?
Yes. You may cancel all or part of your loan at any time by notifying your school
before your loan is disbursed, and within certain timeframes after your loan has been
disbursed. These timeframes, and the procedures for canceling a loan, will also be
explained in notices that the school is required to send you. Contact your financial
aid office for more details.
Always consider what you’ll have to repay
Repayment of student loans should be only a small percentage of your salary after you
graduate. If you expect to pay more than 15 percent of your annual salary for student
loans, you might have difficulty making your monthly payments. Ask your school’s
financial aid office for starting salaries of recent graduates in your field of study to get
an idea of how much you are likely to earn after you graduate. Estimates of salaries for
different careers are available in the Occupational Outlook Handbook at www.bls.gov/oco.
You also should research employment opportunities advertised in the area where you
plan to live.
13
Learn the Basics and Manage Your Debt
What if I still need more money? Where should I look?
Try these free sources of information:
•
other federal agencies: www.students.gov
•
your state education agency
•
a college or career school financial aid office
•
a high school or TRIO counselor
•
your library’s reference section
•
FREE online scholarship searches
•
foundations, religious or community organizations, local businesses,
or civic groups
• organizations (including professional associations) related to your field
of interest
• ethnicity-based organizations (for example, www.chci.org for
Hispanic students; www.cbcfinc.org for African-American students;
http://honda.house.gov/capac for Asian-American students)
•
your employer or your parents’ employers
ALERT: Some companies may offer to search for money for college for a fee.
You don’t need to pay for help to find money for college and you shouldn’t
share your personal information with anyone. For more information on how
to avoid fraud and identity theft, visit www.studentaid.ed.gov/LSA.
Graduate With Less Debt
After exploring the various non-loan and low-interest* loan options, another option
is to reduce your cost of attendance*—start at a less expensive school or community
college before transferring to a four-year college (make sure the four-year school
you’re interested in accepts course credits from the community college you’re
attending), and consider in-state vs. out-of-state schools.
Debt adds up quickly, so keep an eye on it. If accumulating too much debt is your
concern you can:
•
search for more scholarships and grants;
•
work while you’re attending school;
•
change your spending habits; and
•
consider transferring to a less-expensive school.
14
Your Federal Student Loans
Manage your money and change your spending habits
Resist the urge to get a credit card or get more than one credit card. A credit card can
help you build a credit* history, if you use it wisely. But don’t spend more than you
can afford to pay. Use your credit card for emergencies only. If you do decide to get a
credit card, make sure you understand how it works and read the fine print. You should
also open a checking account and learn how to balance your checkbook.
A few more tips to save money:
• Buy used books instead of new ones whenever possible.
• Use your prepaid meal plan instead of eating out.
• Take advantage of free activities sponsored by your school.
• Resist impulse buying. Buy what you need, not what would be nice to have.
When you do shop, use coupons and look for sales.
• Know and understand your cell phone plan. Stay within your free minutes.
• Brew your own coffee.
Keep Track of How Much You’re Borrowing
Keep good records. Repaying your student loans is a serious matter and it’s important
to keep accurate, accessible records.
Set up a file folder for each loan and file all paperwork. Your file should include
•
Financial aid award letters
•
Loan counseling materials (entrance and exit counseling*)
•
Promissory note(s)*
•
Amount of your student loans, including the amount that is disbursed each
semester or year (you may access this information at www.nslds.ed.gov) see below
• Name, address, phone number, and Web site of your lender* or loan servicer*
(the entity to whom you send your monthly payments)
•
Loan disclosure and payment schedule sent to you by your lender before
you start to repay your loan
•
Monthly payment stubs (if you pay by check) or printouts of proof
of payment (if you pay electronically)
•
Account numbers for each of your loans
•
Notes about any questions you ask about your loans, the answers, and the
name of the person you talked to
•
Documentation proving that you paid your loans in full
•
Any deferment* or forbearance* paperwork and notes of any phone calls
to the lender
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
15
Learn the Basics and Manage Your Debt
Use the U.S. Department of Education’s National Student Loan Data System (NSLDS)*
at www.nslds.ed.gov, the central database for federal student aid, to keep track of all
your federal student loans.
Other things to remember
•
If you’re preparing to leave school, withdraw early or transfer to another
school, you must remember to notify your lender* and the school you’re
currently attending.
• Stafford Loans: the U.S. Department of Education is your lender for Direct
LoansSM; a different agent is your lender for FFEL Loans.
• Visit www.nslds.ed.gov or call 1-800-4-FED-AID to find out who your lender is.
•
If you have a Stafford Loan that has not previously entered repayment, you
enter the grace period* when you withdraw, drop below half-time* status,
or graduate. You enter repayment at the conclusion of the grace period.*
Borrower’s Rights and Responsibilities
To learn what are your rights and responsibilities as a student borrower,* see Appendix E.
If you need to take a break from school or can’t go full-time, see Appendix F.
16
Your Federal Student Loans
REPAY
What You Need to Do
Exit counseling
You will receive a notice about exit counseling when you graduate or begin attending
school less than half-time.* At this session, you’ll be given information on your loans
and when repayment begins.
When you graduate or withdraw you will have six months before your first payment
is due. This is called a grace period.* (PLUS Loans don’t have a grace period). This
time can allow you to get financially settled, select your repayment plan* and determine
the amount of income you need to put toward your student loan each month.
Why is the amount the school told me I must repay more than
the amount I actually received?
In addition to interest,* there are fees and charges required to get these loans.
Loan fees* are deducted proportionately from each loan disbursement* you receive.
This means the proceeds you received were less than the amount you actually
borrowed. You’re responsible for repaying the entire amount you borrowed and
not just the amount you received in loan disbursements.*
•
Direct Loans: For all Direct Subsidized Loans and Direct Unsubsidized
Loans first disbursed on or after July 1, 2007, and before July 1, 2008, the
loan fee (also called origination fee) is 2.5 percent.
• The Direct PLUS loan fee is 4 percent for Direct PLUS Loans made to both
parent and to graduate and professional degree student borrowers.
•
FFEL Loans: You may be charged fees comparable to the fees charged
for Direct Loans. Contact your lender* for more information.
Interest
Interest* accumulates on your loan.* Interest is a percentage of the original loan
amount (the loan principal) that’s added to what you have to pay. It’s a charge for
using borrowed money. Everyone has to pay interest, no matter what type of loan
they have; education loans are no different.
• Unsubsidized: If you borrowed an unsubsidized loan, interest starts accruing
(accumulating) from the time the funds are disbursed to you, and you’re
responsible for paying that interest. You can chose to either pay it while you
are in school or let it accrue* and be added to the principal* balance of
your loan. This is called “capitalization.”
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
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Learn the Basics and Manage Your Debt
Capitalization* increases your loan principal* balance because you will then
have to pay interest on the increased loan principal amount. The total amount
you repay over the life of your loan will be greater than if you paid interest
while you were in school.
• Subsidized: The federal government pays interest* on subsidized loans during
school and certain other periods.
What is the interest rate on my federal student loan?
Stafford loans first disbursed on or after July 1, 2006, have a fixed rate of 6.0 percent
for subsidized* loans made to undergraduate students and 6.8 percent for unsubsidized*
loans made to undergraduate and graduate students.
Interest Rate Reductions for Subsidized* Loans
Over a four-year period beginning July 1, 2008, the fixed interest rate on subsidized Stafford
loans made to undergraduate students in the Federal Family Education Loan (FFEL)
ProgramSM* and the William D. Ford Federal Direct Loan ProgramSM* (Stafford Loans) will
be gradually reduced. The applicable interest rates for loans made during this period are:
FIGURE 3
Interest Rate Reductions for Subsidized Loans
First disbursement of a loan:
Interest rate on the unpaid balance
Made on or after
And made before
July 1, 2008
July 1, 2009
6.0 percent
July 1, 2009
July 1, 2010
5.6 percent
July 1, 2010
July 1, 2011
4.5 percent
July 1, 2011
July 1, 2012
3.4 percent
These reduced interest rates apply only to subsidized Stafford loans made to
undergraduate students first disbursed on or after July 1 of each year through June 30
of the next year. Unsubsidized Stafford loans made to undergraduate students will
continue to have the current fixed interest rate of 6.8 percent, as will all Stafford loans
(both subsidized and unsubsidized) made to graduate and professional students.
This interest rate reduction does not affect any loans that were first disbursed before
July 1, 2008. The interest rates of those prior loans remain unchanged.
Updates!
For any changes to federal student aid programs since this booklet was printed, please visit
www.FederalStudentAid.ed.gov and click on “Students, Parents and Counselors.”
18
Your Federal Student Loans
How is interest calculated?
Interest on all loans borrowed under the U.S. Department of Education’s programs is
calculated on a simple daily basis.
The following formula demonstrates how the simple interest
is calculated between payments
Average daily balance between payments x
Interest rate x
(Number of days between payments/365.25) = Monthly interest
How interest accrues between payments made on April 15 and May 15, for example:
Average daily balance: $10,000 x Interest rate: .08
Days between payments (30/365.25) x .08214 =
Monthly interest: $65.71
For more help on calculating interest on your own, visit www.dl.ed.gov, click on
Question Center, and then click on Calculating Interest.
How are loan payments applied to my loan balance?
•
The loan holder* first applies your payment to late charges or collection
costs on your account (if any).
•
Then, to the interest that has accumulated (accrued interest).
•
The remainder of the payment is then applied to the principal balance.
Just as the accrued interest varies monthly (depending on how many days elapse between
the receipt of payments), the amount of a payment applied to accrued interest and
the amount applied to principal also will vary monthly.
A breakdown of how your payments are applied should be on your billing statement.
If not, ask your loan holder* or servicer* for that information.
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
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Learn the Basics and Manage Your Debt
Repayment Options
When choosing a repayment plan, what are my options?
There are flexible repayment plans to help you manage this important financial
responsibility. The repayment plans* below are for Direct and FFEL Stafford Loans.
•
Standard Repayment Plan: You generally pay a fixed amount each month
for up to 10 years. Your payment must be at least $50 a month.
• Graduated Repayment Plan: Your payments start out low at first and then
will increase, usually every two years. You must repay your loan in full
within 10 years. At a minimum, your payments must cover the interest
that accumulates on your loans between payments. This plan is tailored to
individuals with relatively low current incomes (e.g., recent college graduates)
who expect their incomes to increase in the future. However, you’ll ultimately
pay more for your loan than you would under the Standard Plan, because
more interest accumulates in the early years of the plan when your outstanding
loan balance is higher.
•
Extended Repayment Plan: If you’re a FFEL borrower, you must have more
than $30,000 in outstanding FFEL Program loans. If you’re a Direct Loan
borrower, you must have more than $30,000 in outstanding Direct Loans.
This means, for example, that if you have $35,000 in outstanding FFEL
Program loans and $10,000 in outstanding Direct Loans, you can choose
the extended repayment plan for your FFEL Program loans, but not for
your Direct Loans.
Your fixed monthly payment is lower than it would be under the Standard
Plan, but you’ll ultimately pay more for your loan because of the interest
that accumulates during the longer repayment period.
• Income-Sensitive Repayment Plan (for FFEL Loans only): With an income-
sensitive plan, your monthly loan payment is based on your annual income.
As your income increases or decreases, so do your payments. The maximum
repayment period is 10 years.
• Income-Contingent Repayment Plan (for Direct Loans and Direct PLUS
Loans): Your monthly payments will be based on your annual income (and
that of your spouse, if married), your family size, and the total amount of
your Direct Loans. Borrowers have 25 years to repay under this plan, the
unpaid portion will be forgiven. However, you may have to pay income tax
on the amount that is forgiven.
Effective July 1, 2009, graduate and professional student PLUS borrowers
in the Direct Loan program will be eligible to use the income-contingent
repayment (ICR) plan. Direct Loan parent PLUS borrowers will not be
eligible for the ICR repayment plan.
20
Your Federal Student Loans
• Income-Based Repayment (IBR): Under this plan, your required monthly
payment amount will be based on your income during any period when you
have a partial financial hardship. Your monthly payment amount may be
adjusted annually. The maximum repayment period under this plan may exceed
10 years. If you repay under this plan and meet certain other requirements over
a specified period of time, you may qualify for cancellation of any outstanding
balance on your loans. Contact the Direct Loan Servicing Center (for Direct
Loans) or your FFEL lender (for FFEL Program loans) for more information
about the Income-Based Repayment Plan.
NOTE: Federal Perkins Loans have different repayment options. Your payment depends
on the amount that you borrow, but the minimum is $40 per month.
Prepare for your new financial responsibilities
A lot wil be going on as you prepare to graduate. Not only do your loans enter repayment after
your grace period,* but there are other financial responsibilities you need to think about.
• Think about all the living expenses you will have.
• Get rough estimates of salaries in different careers by checking the Occupational
Outlook Handbook at www.bls.gov/oco
• Check jobs advertised, and living expenses, in the area where you plan to live.
• Get a handle of your financial situation by knowing exactly where all your money goes.
• Put al your expenses on paper (see Appendix G) to give you an idea of what
expenses you might have.
21
Learn the Basics and Manage Your Debt
FIGURE 4
Estimated Monthly Payments for Direct and FFEL Stafford Loans
For Direct Loans Only: Income
Initial Debt
Repayment Plan
Contingentc (Income = $25,000)
When
You Enter
Standard
Graduatedb
Repayment (not to exceed
Extendeda
(not to exceed
Single
Married/HOHd
10 years)
10 years)
Per
Total
Per
Total
Per
Total
Per
Total
Per
Total
Month
Repaid
Month
Repaid Month Repaid
Month Repaid
Month
Repaid
$ 3,500
$ 50
$ 4,471
Not available
$ 25
$ 5,157
$ 27
$ 6,092
$ 25
$ 6,405
5,000
58
6,905
Not available
40
7,278
38
8,703
36
9,150
7,500
83
10,357
Not available
59
10,919
57
13,055
54
13,725
10,500
121
14,500
Not available
83
15,283
80
18,277
76
19,215
15,000
173
20,714
Not available
119
21,834
114
26,110
108
27,451
40,000
460
55,239
277
83,289
316
58,229
253
72,717
197
84,352
Payments are calculated using the fixed interest rate of 6.8 percent for Stafford Loans first disbursed on
or after July 1, 2006.
aFor a FFEL borrower, the requirement is that the borrower (1) must have had no outstanding balance on
a FFEL Program loan as of Oct. 7, 1998, or on the date the borrower obtained a FFEL Program loan on or
after that date, and (2) must have more than $30,000 in outstanding FFEL Program loans. For a Direct Loan
borrower, the requirement is that the borrower (1) must have had no outstanding balance on a Direct Loan
Program loan as of Oct. 7, 1998, or on the date the borrower obtained a Direct Loan Program loan on
or after that date, and (2) must have more than $30,000 in outstanding Direct Loan Program loans. The
amounts were rounded to the nearest dollar and were calculated based on a 25-year repayment plan.
bThis is an estimated monthly repayment amount for the first two years of the term and total loan payment.
The monthly repayment amount will generally increase every two years, based on this plan.
cAssumes a 5 percent annual growth (Census Bureau) and were calculated using the formula requirements
in effect during 2006.
dHOH is Head of Household. Assumes a family size of two.
You can find a repayment calculator at www.FederalStudentAid.ed.gov.
Why do I have an outstanding balance?
Repayment schedules and payment coupon books are designed on the assumption
that all payments will be made on time. If you do this and pay the correct amount
each month, you’ll pay your loan in full by the end of the repayment schedule.
If you’re delinquent,* excess interest* will accrue.* You might also have collection
charges or late fees. Interest also accrues during forbearance* and deferment.*
So, if you pay the correct monthly payment amounts but have delinquency during
repayment, you’ll have an outstanding balance at the end of the repayment schedule.
Similarly, if extra interest has accrued, your balance will go up. You’re responsible for
paying that outstanding balance.
22
Your Federal Student Loans
Can I do anything to lower my monthly payments?
The Direct Loan Programs offers a 0.25 percent rate discount* for automatic payments.
For FFEL Program loans, check with your lender.* You might also be able to switch
payment plans, see page 20 for available plans, and check with your lender* for details.
Are there any repayment incentive benefits?
A repayment incentive can be an up-front interest* rebate to borrowers. For example,
Direct Stafford Loans offer borrowers a rebate amount equal to 1.5 percent of the
loan amount borrowed. This is the same amount that would result if the interest rate
was lowered on a loan by approximately 0.24 percent, but the borrower receives the
rebate up front.
• The Direct Loan Program currently offers two repayment incentive programs.
One is the interest rate reduction for having payments automatically debited
from the borrower’s bank account (discussed in the preceding section). The
other is the up-front interest rebate that is equal to a “certain percentage” of
the loan amount borrowed, and is the same amount that would result if the
interest rate was lowered by a “specified percentage.” The result of the rebate
is an increase in the net loan amount that the borrower receives up-front
when the loan is disbursed.
• A lender* in the FFEL Program might offer incentives for making payments
on time, such as a reduction in the interest rate. Contact your lender* to
find out if any incentives are offered.
What are Internal Revenue Service (IRS) tax credits?
The IRS offers two federal income tax credits (tax credits offer dollar-for-dollar reductions
in your final tax liability) to certain taxpayers for higher education expenses.
• The Hope Tax Credit, worth up to $1,650 per student, is available for first- and
second-year students enrolled at least half-time.*
•
The Lifetime Learning Tax Credit is a tax benefit equal to 20 percent of a
family’s tuition expenses, up to $10,000, for virtually any postsecondary
education and training. This applies to undergraduate, graduate and
professional degree students and even for less than half-time* study.
For more information on the Hope and Lifetime Learning tax credits, and other tax
benefits for postsecondary students, go to www.irs.gov. IRS Publication 970, Tax
Benefits for Higher Education, which explains these credits and other tax benefits,
is available online, or call 1-800-829-1040. TTY callers should call 1-800-829-4059.
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
23
Learn the Basics and Manage Your Debt
Consolidation Loans
Should I consolidate my loans?
A federal consolidation loan may help make payments more manageable for some by
combining several federal student loans into one loan with one monthly payment. You
need to apply for loan consolidation and choose a standard, an extended, a graduated, an
income-contingent (for Direct Consolidation Loans) or an income-sensitive (for FFEL
Consolidation Loans) repayment plan. Depending on the amount of your debt, standard
and graduated repayment plans have 10- to 30-year repayment periods.
The interest rate for both Direct and FFEL Consolidation Loans is a fixed rate for the
life of the loan. The fixed rate is based on the weighted average of the interest rates on
all of the loans you consolidate, rounded up to the nearest one-eighth of 1 percent.
However, the interest rate will never exceed 8.25 percent.
How can consolidation help me manage my debt?
Loan consolidation can offer you benefits to help manage your education debt. You can:
• Make lower monthly payments by increasing the repayment period (However,
this will increase the total amount you repay over the life of your loan).
•
Make a single monthly loan payment on one bill to one lender.
Is there a downside to consolidation?
Although consolidation can help many students manage their monthly payments,
there are some cases when consolidation may not be right for you.
•
You may lose certain benefits (such as cancellation benefits, interest
subsidies, etc.) that were offered on the loans being consolidated.
• If you are close to paying off your student loans, it may not make sense to
consolidate or extend your payments. By extending the years of repayment for
your loans, you may be increasing the total amount you have to pay in interest.
•
Discuss your options with the financial aid office at your school.
For more information on Direct Consolidation Loans visit www.loanconsolidation.ed.gov
or call the Federal Student Aid Information Center at 1-800-4-FED-AID. For FFEL
Consolidation Loans, contact your lender.*
Making Your Monthly Payments
When you make your payments on time, you may qualify for certain repayment
benefits—and you are taking steps toward building a solid credit* history. Information
on Direct Loan repayment incentives* (such as reduced interest rates) to encourage
borrowers to make payments on time is available at www.dl.ed.gov. Contact your
lender* or loan servicer* to discuss setting up automatic payments.
24
Your Federal Student Loans
What if I’ve forgotten what type of loan I have and who
my loan holder is?
This information should be on the bill you receive from your loan holder. If you
have questions about what loans you have, you can review your federal student loan
history through the U.S. Department of Education’s National Student Loan Data
System (NSLDS)* at www.nslds.ed.gov, the central database for federal student aid.
You will need your Federal Student Aid PIN* to access the database. For information
on your PIN visit www.pin.ed.gov.
What if I forgot to send a payment or can’t send the full monthly
amount? Should I send a partial payment?
If you can’t make your payments, don’t ignore the problem.
•
Contact your lender* immediately to discuss options.
• Consider changing your repayment plan* if your current one is not favorable.
•
Keep track of all communications. Use the sample log below.
FIGURE 5
Sample Communication Log
Date:
Lender:
Phone number or e-mail:
Person you spoke to:
Reason you called:
Were your questions answered or issues resolved?
What were the answers to your questions?
Follow-up actions:
ALERT: Although your credit* history was not taken into account when you received
federal student loans, your credit history wil be affected if you do not repay
your federal student loans under the repayment plan* you agreed to when
you entered repayment.
What if I can’t make my payments?
Your student loan debt is a legal obligation and can be a 10- to 30-year
financial commitment.
Don’t ignore debt. It won’t go away.
There are many ways to get help, including changing your payment due date,*
repayment options, deferment* or forbearance.*
*See Glossary on page 29.
Financial aid terms frequently used in this publication will appear with an asterisk.
You’ll find these terms and their meaning in the Glossary beginning on page 29.
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Learn the Basics and Manage Your Debt
Why is missing a payment a problem?
If you don’t make a payment on time or if you start missing payments—even one—
your loan is considered delinquent and late fees can be assessed. If you are making
late or partial payments, contact your lender* or servicer* immediately for help.
If you don’t make payments for more than 270 days, your loan will go into default*
and your credit* rating could suffer. If your credit rating is affected, you may be denied
future education or consumer loans, and you may not be able to obtain a mortgage
or rent an apartment.
What is a deferment?
A deferment* is a period in which repayment of the principal balance is temporarily
postponed if you meet certain requirements. During a deferment, if the loan is subsidized,
the government pays the interest* charged.
For all unsubsidized loans (including PLUS loans), you are responsible for the interest
that accrues during the deferment period.
If you have unsubsidized loans, when you resume making payments at the end of the
deferment period, any unpaid interest will be capitalized* (added to the principal balance).
If you do not meet the requirements for a deferment, you may still be eligible
for forbearance.*
What is forbearance?
Forbearance* allows you to postpone or reduce your monthly payment amount for
a limited and specific period if you are temporarily unable to make your scheduled
loan payments for reasons including, but not limited to, financial hardship or illness.
You must request forbearance from your loan holder.*
You are responsible for the interest* that accrues* during forbearance on all loan types,
including Subsidized Stafford Loans. When you resume making payments at the end of the
forbearance period, any unpaid interest will be capitalized* (added to the principal balance).
Your loan holder* is required to grant you forbearance under certain conditions.
These include, but are not limited to, the following:
•
While you are serving in an AmeriCorps position for which you are receiving
an education award.
•
While you are serving in a medical or dental internship or residency program
and meet certain other requirements.
• If the total amount you owe each month on all of your FFEL, Direct Loan,
and Perkins Loan program loans is 20 percent or more of your total
monthly gross income.
For more information on deferment or forbearance go to www.studentaid.ed.gov/repaying
and click on “Difficulty Repaying.”
26
Your Federal Student Loans
Loan Discharge or Forgiveness
Some employers such as state or local governments offer loan repayment in return
for working in a job that’s in great demand. There are also programs offered by some
schools that will assume a portion of your debt. If loan forgiveness* is something
you’d like to explore, begin by asking at your school or workplace.
What qualifies my loan for discharge?
Discharge* refers to the cancellation of a loan, even one in default,* due to school closure,
false certification, your death, or your total and permanent disability.
NOTE: A loan, whether in default or not, cannot be discharged in bankruptcy
in most cases.
What qualifies my loan for forgiveness?
Forgiveness* of a loan is based on the borrower performing certain types of service
such as teaching in a low-income school. A defaulted loan can’t be canceled based on
qualifying service (e.g., teaching).
Where can I learn more?
For a complete list of discharge and forgiveness provisions for Perkins Loans and
Stafford Loans, check the following two charts: Perkins Loan Discharge and Cancellation
Summary (Appendix H) and Stafford and PLUS Loan Discharge or Cancellation and
Forgiveness Summary (Appendix I). Or visit www.studentaid.ed.gov/discharges.
After reviewing the conditions for discharge or forgiveness, if you think you qualify,
you must apply with the holder of your loan.*
• Federal Perkins Loans—Check with the school that made you the loan or
with the school’s loan servicing agent.
•
Direct Loans—Contact the Direct Loan Servicing Center at 1-800-848-0979.
TTY users can call 1-800-848-0983. Or, go to www.dl.ed.gov.
• FFEL Loans—Contact your lender or its loan servicing agent.
27
Learn the Basics and Manage Your Debt
NotES
28
Glossary
Accrue
The process whereby interest accumulates on your loan. When we speak of “interest
accruing on your loan,” we mean that the interest due on your loan is accumulating.
Aggregate Loan Limit
The maximum total outstanding loan debt you can have when you graduate.
Borrower
An individual who signed and agreed to the terms in the promissory note and is responsible
for repaying a loan.
Capitalization
Adding unpaid interest to the loan amount borrowed.
Capitalization increases the unpaid principal balance of your loan and interest is charged
on the increased principal amount. This occurs at the end of a deferment, forbearance
or grace period on unsubsidized loans, and at the end of a forbearance period on a
subsidized loan and increases the total amount you will repay over the life of your loan. To
save money, pay interest before it’s capitalized.
Consolidation
The process of combining one or more eligible federal educational loans into a single new
loan. The Direct Loan Program offers a Direct Consolidation Loan for those borrowers
who are interested in consolidating their eligible educational loans.
Co-signer
A person, other than the borrower, who signs the promissory note as a back up for
repayment on the loan. A co-signer is pursued for collection on the loan if the borrower
fails to fulfill his repayment obligations.
Cost of Attendance (COA)
The total amount it will cost you to go to school—usually expressed as a yearly figure. It’s
determined using rules established by law. The COA includes tuition and fees; on-campus
room and board (or a housing and food allowance for off-campus students); and allowances
for books, supplies, transportation, loan fees, and, if applicable, dependent care. It also
includes miscellaneous and personal expenses, including an allowance for the rental or
purchase of a personal computer. Costs related to a disability are also covered. The COA
includes reasonable costs for eligible study-abroad programs as well. For students attending
less than half-time, the COA includes tuition and fees and an allowance for books, supplies,
transportation and dependent care expenses; and can also include room and board for up
to three semesters, or the equivalent, at the institution. But no more than two of those
semesters, or the equivalent, may be consecutive. Talk to the financial aid administrator at
the school you’re planning to attend if you have any unusual expenses that might affect your
cost of attendance.
29
Credit (financial)
A summary of a person’s financial strength, including his or her history of paying bills
and ability to repay future loans. Students are often turned down for private loans because
they have not established a credit history and have no income with which to repay debts.
People who pay their bills after the due date, have defaulted on debts, or declared bankruptcy
are usually judged to have poor credit. Several private companies gather consumers’ financial
information to create reports used by businesses and lenders to determine how much to
lend and how much interest to charge each consumer. Federal law requires credit rating
agencies to provide consumers with one free report on their credit each year.
Credit Bureau
Organization that tracks and reports the manner in which borrowers repay their loans
(not only student loans).
Default
Failure to repay a loan according to the terms of the promissory note. There can be serious
legal consequences for student-loan defaulters.
Deferment
A postponement of payment on a loan that is allowed under certain conditions and during
which interest does not accrue for subsidized loans.
Delinquent
Delinquency status indicates that borrowers’ accounts have become past due on payment.
This occurs when borrowers’ loan payments are not received by the due dates. Accounts
remain delinquent until borrowers bring their accounts current with payments, deferments,
or forbearances. If borrowers’ accounts have become delinquent and the borrowers are
unable to make payments, deferments or forbearances should be considered.
Dependent Student
A student who does not meet any of the criteria for an independent student. An independent
student is at least 24 years old, married, a graduate or professional student, a veteran, a
member of the armed forces, an orphan, a ward of the court, or someone with legal
dependents other than a spouse. Please see the fact sheet “Am I Dependent or Independent?”
at www.studentaid.ed.gov/pubs for more detailed information.
Direct Consolidation Loans
A federal program that allows you to combine one or more federal student loans into one
new Direct Consolidation Loan. Only one monthly payment is made to the U.S. Department
of Education. In certain circumstances, students who have loans under the Federal Family
Education Loan Program (FFEL) may consolidate them into Direct Loans.
Direct PLUS Loans
Direct PLUS Loans are unsubsidized loans available to parents of dependent students, and
to students enrolled in graduate or professional programs. These loans are available regardless
of financial need and the amount of eligibility depends on the total cost of education.
30
Direct Subsidized Loan
Also referred to as Federal Direct Stafford Loan. A loan from the U.S. Department of
Education made on the basis of the student’s financial need and other specific eligibility
requirements. The federal government does not charge interest on these loans while
borrowers are enrolled at least half-time, during a six-month grace period, or during
authorized periods of deferment.
Direct Unsubsidized Loan
Also referred to as Federal Direct Unsubsidized Stafford Loan. A federally financed student
loan made to students meeting specific eligibility requirements. Interest is charged
throughout the life of the loan. The borrower may choose to pay the interest charged
on the loan or allow the interest to be capitalized (added to the loan principal) when
the loan enters repayment.
Disbursement
Payment of loan proceeds by the lender. During consolidation, this term refers to sending
payoffs to the loan holders of the underlying loans being consolidated.
Discharge (Cancellation)
The release of borrowers from their obligations to repay all or part of their Direct Loans.
Direct Loans are discharged if a borrower dies, becomes totally and permanently disabled,
was a victim of identity theft, or did not receive a refund owed to them. Borrowers might
also be eligible for a discharge if they are unable to complete their program of study
because the school closed while they were still attending or the school falsely certified
the borrower’s eligibility to receive a loan. In certain cases, a borrower’s loan may be
discharged in bankruptcy.
Borrowers can have their federal student loans discharged (i.e., forgiven, canceled, or
repaid) if the student dies or becomes permanently disabled, or if they work in one of
many in-demand fields such as teaching or healthcare.
Discounts—Electronic Debit Account (EDA)
If you repay your loans through the EDA repayment option, you could receive a quarter
point (.25 percent) discount on your interest while in repayment.
Due Date (Payment Due Date)
The date during the month when payment of your current due amount must be received.
If you have any past due amounts or fees or outstanding charges, these are due immediately.
Monthly payments must be received by the payment due date. Therefore, if you do not
have your payments debited electronically from a bank account, you may want to mail
your payments well in advance to ensure they arrive and are applied to your account(s)
by the due date.
Electronic Debiting
Electronic Debiting is a service that allows your bank to automatically deduct your monthly
Direct Loan payments from your checking or savings account. Your payment will be
forwarded to the Direct Loan Servicing Center for processing. Payments may be deducted
only from the borrower’s bank account.
31
Entrance Counseling
Entrance counseling is an information session which takes place before the loan is disbursed
and is required for first-time borrowers. The session explains your responsibilities and
rights as a student borrower.
Exit Counseling
You will receive a notice about exit counseling when you graduate or attend school less
than half-time. At this session, you’ll be given information on your loans and when
repayment begins.
Expected Family Contribution (EFC)
Your EFC is the number that’s used to determine your eligibility for federal student financial
aid. This number results from the financial information you provided in your Free Application
for Federal Student Aid (FAFSA) application. Your EFC is reported to you on your Student
Aid Report or SAR.
FAFSA4caster
An online tool designed to help students and families financially plan for college, you can get
an early estimate of your federal student aid eligibility by using FAFSA4caster.
Federal Family Education Loan Program (FFEL Program)
A federal program that provides loans to eligible student and parent borrowers. The
program consists of Federal Subsidized and Unsubsidized Stafford Loans, Federal PLUS
Loans, and Federal Subsidized and Unsubsidized Consolidation Loans. Funds are provided
by private lenders such as banks, credit unions, and other private financial institutions.
The loans are backed by the federal government.
Forbearance
A period during which your monthly loan payments are temporarily suspended or reduced.
You may qualify for a forbearance if you are willing but unable to make loan payments
due to certain types of financial hardships.
A complete list of Direct Loan forbearances and their eligibility criteria can be seen
at www.dlservicer.ed.gov.
Forgiveness (loans):
For Child Care Providers
If you receive a degree in the field of early childhood education, become a childcare
provider in a facility that serves a low-income community, and meet other eligibility
requirements, you may be eligible to have up to 100 percent of your combined Direct
Loan or FFEL debt canceled. However, this type of loan forgiveness depends
upon the availability of federal funds. If no funds are available, you will not be able
to receive this type of forgiveness.
For Teachers
The Teacher Loan Forgiveness Program was instituted by the U.S. Department of
Education to encourage individuals to enter and remain in the teaching profession.
32
The program grants loan forgiveness of up to $17,500 for teachers in certain
specialties and up to $5,000 for other teachers, who teach for five years in certain
low-income schools and meet other requirements. This forgiveness benefit is available
to Direct Loan and Federal Family Education Loan (FFEL) program borrowers who
did not have an outstanding balance on a Direct Loan or FFEL Program loan on
Oct. 1, 1998, or on the date they obtained a Direct Loan or FFEL program loan
after Oct. 1, 1998.
For Public Service Employees
There is a new loan forgiveness program for public service employees. Under this
program, the amount forgiven is the remaining outstanding balance of principal
and accrued interest on an eligible Direct Loan for a borrower who is not in default
and who makes 120 monthly payments on the loan after Oct. 1, 2007. The borrower
must be employed full-time in a public service job during the same period in which the
qualifying payments are made and at the time that the cancellation is granted.
Free Application for Federal Student Aid (FAFSA)
The FAFSA or FAFSA on the Web, the online version, is the FREE application used
to apply for federal student aid.
Grace Period
After borrowers graduate, leave school, or drop below half-time enrollment, loans that
were made for that period of study have several months before payments are due. This
period is called the “grace period.”
Grace periods extend from 6 to 12 months after borrowers leave school:
•
Most FFEL and Direct Loans have six-month grace periods.
•
Perkins Loans have grace periods of either six or nine months, depending
on when the loan was first disbursed.
•
Some health professions (loans administered by the U.S. Department of Health
and Human Services that are included in consolidation loans by the U.S. Department
of Education) have grace periods of 9–12 months.
During the grace period, no interest accrues on subsidized loans. Interest accrues on
unsubsidized loans during grace periods, and this interest is capitalized when borrowers’
loans enter repayment.
Borrowers’ repayment periods begin the day after their loans’ grace periods end. First
payments will be due within 60 days after the repayment periods begin.
Each loan has only one grace period. If borrowers return to school after the grace periods
has expired, the borrowers’ loans qualify for deferment while borrowers are enrolled but
return to repayment after borrowers leave school. There is no additional grace period.
33
Guaranty Agency
The guaranty agency is an organization that administers the FFEL Program in your state.
This agency is an excellent source of information on FFEL Loans. For the name, address
and telephone number of the agency serving your state, you can contact the Federal Student
Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).
Half-time
At schools measuring progress in credit hours and semesters, trimesters, or quarters,
“ half-time” is at least six semester hours or quarter hours per term for an undergraduate
program. At schools measuring progress by credit hours but not using semesters, trimesters or
quarters, “half-time” is at least 12 semester hours or 18 quarter hours per year. At schools
measuring progress by clock hours, “half-time” is at least 12 hours per week. Note that
schools may choose to set higher minimums than these. You must be attending school at
least half-time to be eligible for a Stafford Loan. Half-time enrollment is not a requirement to
receive aid from the Federal Pell Grant, Federal Supplemental Educational Opportunity
Grant, Federal Work-Study and Federal Perkins Loan programs.
Independent Student
An independent student is at least 24 years old, married, a graduate or professional student,
a veteran, a member of the armed forces, an orphan, a ward of the court, or someone
with legal dependents other than a spouse. Please see the fact sheet “Am I Dependent
or Independent?” at www.studentaid.ed.gov/pubs for more detailed information.
Interest
A loan expense charged by the lender and paid by the borrower for the use of borrowed
money. The expense is calculated as a percentage of the unpaid principal amount (loan
amount), which includes the original amount borrowed and any capitalized interest.
Accrued interest is interest that accumulates on the unpaid principal balance of the loan.
Interest Paid
Interest is calculated and accumulates daily based on an interest rate charged on your
loans. The Interest Paid amount is the total amount of interest you would be expected
to pay for a particular loan(s).
Interest Rate
The current rate at which interest is calculated on your loan(s).
Lender
The organization that made the loan initially; the lender could be the borrower’s school
(for Federal Perkins Loans); a bank, credit union, or other lending institution (for FFELs);
or the U.S. Department of Education (for Direct Loans).
Loan
Money borrowed from a lending institution or the U.S. Department of Education that
must be repaid.
34
Loan Fee
A fee payable by the borrower that is deducted proportionately from each loan disbursement.
Loan Holder
An entity that holds a loan promissory note and has the right to collect from the borrower.
Many banks sell loans, so the initial lender and the current holder could be different.
Loan Principal
The total sum of money borrowed. Loan principal includes the original amount borrowed
plus any interest that has been capitalized.
Loan Servicer
An organization that administers and collects education loans payments on behalf of
the lender.
Loan Type
The kind of Federal Loan program name by which you obtained your student loans. For
example your loan type will say “Stafford Subsidized” if your loan was a Subsidized loan
obtained through the FFEL or Direct Loan Programs (Stafford Loans).
NSLDS
The National Student Loan Data System (NSLDS) is a centralized database that stores
information on all Department loans and grants. NSLDS also contains borrowers’ school
enrollment information. Borrowers can access this information online using their Department
of Education PIN. Web site: www.nslds.ed.gov.
Parent Borrower
Parents that have at least one PLUS Loan to finance their dependent child’s education.
Past Due
The amount that you were scheduled to pay in previous month(s) but did not. The past
due amount is also called the delinquent amount. Your account is considered “delinquent”
if you have missed any monthly payments. Past Due amounts are due immediately.
Payment Due Date
The date during the month when payment of your current due amount must be
received. If you have any past due amounts or fees and charges outstanding, these are due
immediately. Monthly payments must be received by the payment due date. Therefore,
if you do not have your payments debited electronically from a bank account, you may
want to mail your payments well in advance to ensure they arrive and are applied to your
account(s) by the due date.
35
Perkins Loans
Formerly known as National Defense Student Loan, National Direct Student Loan.
Federal Perkins Loans are low-interest (5 percent) loans for both undergraduate and
graduate students with exceptional financial need. Your school is your lender. The loans
are made with government funds with a share contributed by the school. You must repay
these loans to your school.
PIN (Federal Student Aid PIN)
Your PIN serves as your identifier to allow access to personal information in various
U.S. Department of Education systems.
Your PIN also acts as your digital signature with some online forms. Use your PIN to
electronically sign your online Consolidation Loan application and Promissory Note
and deferment, or forbearance forms.
If you do not already have a PIN, you can request one online at www.pin.ed.gov. The PIN
you will receive will be your universal U.S. Department of Education PIN.
Preferred Lender List
A list of lenders that a college suggests its students consider when taking out federally
guaranteed student loans. Students who receive a “preferred lender” list from a school
should remember that those lists are not legally binding. Borrowers can choose from
any federally approved lender and may often find a better deal outside of the list.
Prepayment
A prepayment is an amount in excess of the amount due on a loan. If borrowers have
more than one federal student loan, they must specify which loan they are prepaying.
Like all other federal student loan payments, a prepayment will first be applied to any
outstanding fees and charges, next to outstanding interest, and then to the principal
balance of the loan(s). There is never a penalty for prepaying principal or interest on
federal student loans.
Promissory Note
A promissory note is a binding legal document you sign when you get a student loan. It
contains the loan terms and conditions under which you’re borrowing and the terms under
which you agree to pay back the loan. It will include deferment and cancellation provisions
available to the borrower. It’s very important to read and save this document because
you’ll need to refer to it later when you begin repaying your loan or at other times when
you need information about provisions of the loan, such as deferments or forbearances.
Rebate
The amount of the up-front interest rebate given to borrowers. You usually must make all
of your first 12 required monthly payments on time or the rebate amount will be added
back to the principal balance of your loans. Check with your lender.
Refund
The total amount of funds returned to the loan program as unused for the student’s
education expenses.
36
Rehabilitation
The process of bringing a loan out of default and removing the default notation on a
borrower’s credit report. To rehabilitate a Direct or a FFEL Loan, you must make at least
9 full payments of an agreed amount within 20 days of their monthly due dates over
a 10 month period to the U.S. Department of Education. To rehabilitate a Perkins
Loan, you must make 12, on-time, monthly payments of an agreed amount to the
Department. Rehabilitation terms and conditions vary for other loan types and can
be obtained directly from loan holders.
Repayment Incentive
A benefit that the U.S. Department of Education offers borrowers to encourage them
to repay their loans on time. Under a repayment incentive program, the interest rate
charged on borrowers’ loans might be reduced. Some repayment incentive programs
require borrowers to make a certain number of payments on time to keep the benefits
of the repayment incentive.
Repayment Plan
Changing repayment plans is a good way to manage your loan debt when your financial
circumstances change. For example, you can usually lower your monthly payment by
changing to another repayment plan with a longer term to repay the loan. There are no
penalties for changing repayment plans.
Repayment Schedule
A statement provided by the loan servicer to the borrower that lists the amount borrowed,
the amount of monthly payments, and the date payments are due.
Repayment Term
The number of months it will take to repay your federal student loans under a specific
repayment plan.
Secondary Market
An organization that purchases student loans from originating lenders so these lenders can
make additional student loans. If an organization buys the loans, that organization becomes
the “loan holder.” Only loans under the FFEL program are sold in the secondary market.
Servicer
An entity designated to track and collect a loan on behalf of a loan holder.
Simple Daily Interest
The method used to calculate interest on your student loans. To learn more about how
interest is calculated see page 19.
37
Status
The present state of your Subsidized, Unsubsidized, PLUS, or Consolidation loan(s).
An account will be either:
•
in-School
•
deferment
•
in-Military
•
forbearance
•
grace
•
paid-in-full
•
repayment-current
•
suspended
•
repayment-delinquent
•
default
Student Aid Report (SAR)
After you apply for federal student financial aid, you’ll get your FAFSA results in an e-mail
report within a few days after your FAFSA has been processed or by mail in a few weeks.
This report is called a Student Aid Report or SAR. Your SAR details all the information
you provided on your FAFSA. If there are no corrections or additional information you
must provide, the SAR will contain your EFC, which is the number that’s used to determine
your eligibility for federal student aid. Whether you applied online or by paper, we will
automatically send your data electronically to the schools you listed on your FAFSA.
Subsidized Loan
A loan for which a borrower is not responsible for the interest while in an in-school, grace,
or deferment status.
Total Amount Repaid
The total amount you would be expected to pay over the life of the loan, including principal
and interest.
Total Due
Total Due = Current Due amount + Past Due amount + Late Charges and Fees
Unsubsidized Loan
A loan for which the borrower is fully responsible for paying the interest regardless of the
loan status. Interest on unsubsidized loans accrues from the date of disbursement and
continues throughout the life of the loan.
Variable Interest
The rate of interest charged on a loan that changes annually and fluctuates with a stated index.
William D. Ford Federal Direct Loan Program (Direct Loan Program)
The federal program that provides loans to eligible student and parent borrowers. The
loan programs include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS
Loans, and Direct Consolidation Loans. Funds are provided directly by the federal government
to eligible borrowers through participating schools.
38
Your Federal Student Loans
What types of federal student loans are there?
Appendix
• Federal Perkins Loans are:
Made through participating schools to undergraduate, graduate
and professional degree students.
A
Offered by participating schools to students who demonstrate
financial need.
Made to students enrolled full-time or part-time.
Repaid by you to your school.
• Stafford Loans (Direct or FFEL) are for undergraduate, graduate and
professional degree students. You must be enrolled as at least a half-time*
student to be eligible for a Stafford Loan. There are two types of Stafford
Loans: subsidized and unsubsidized made through these two U.S.
Department of Education programs: Direct and FFEL (see next page
regarding the distinction between these two programs). You must have
financial need to receive a subsidized Stafford Loan.
Subsidized Stafford Loan: You are eligible for a subsidized Stafford Loan
if you are in school at least half-time and have financial need. With a
subsidized Stafford Loan, the federal government will pay the interest
while you’re enrolled at least half-time, during your grace period, and
during deferment periods.
Unsubsidized Stafford Loan: Unsubsidized Stafford loans are for students
who do not have financial need. With an unsubsidized Stafford Loan,
you are responsible for paying the interest during all periods, starting
from the date the loan is first disbursed.*
• PLUS Loans (Direct or FFEL) are loans parents can obtain to help pay the
cost of education for their dependent undergraduate children. In addition,
graduate and professional degree students may obtain PLUS Loans to help
pay for their own education.
A biological or adoptive parent (and in some cases, a stepparent) who
does not have an adverse credit history may receive a PLUS Loan to help
pay for the educational costs of a dependent undergraduate student who
is enrolled at least half-time in an eligible institution. The maximum PLUS
Loan amount a parent can borrow is equal to the cost of attendance, as
determined by the school, minus any other financial aid the student may
be receiving.
(continues on next page)
Your Federal Student L
Learn the Basics and Manage Y oans
our Debt
39
(continued from page 39)
A
If you are a graduate or professional student, you are eligible for a PLUS
Loan if you do not have an adverse credit history and are enrolled at least
half-time at an eligible institution. The maximum PLUS Loan amount
Appendix
you can borrow is equal to the cost of attendance, as determined by the
school, minus any other financial aid you may be receiving, including
any Stafford Loans you receive for the same period of enrollment.
• PLUS Loans are unsubsidized; the borrower is responsible for interest during
the life of the loan. There is no grace period* on PLUS Loans.
• Consolidation Loans (Direct or FFEL) allow student or parent borrowers
to combine multiple federal education loans into one loan with one
monthly payment.
Stafford, PLUS and Consolidation Loans are made through
one of two U.S. Department of Education programs —
the Direct Loan Program or the FFEL Program.
William D. Ford Federal Direct
Federal Family Education Loan
Loan (Direct Loan) Program. Loans
(FFEL) Program. Loans made
made through this program are
through this program are referred
referred to as Direct Loans. Eligible
to as FFEL Loans. Banks or private
students and parents borrow directly
lenders provide funds that are
from the U.S. Department of Education
backed by the federal government.
at participating schools. Direct Loans
FFEL Loans include subsidized
include Direct Subsidized Loans and
and unsubsidized FFEL Stafford
Direct Unsubsidized Loans, Direct
Loans, FFEL PLUS Loans and FFEL
PLUS Loans, and Direct Consolidation
Consolidation Loans. You repay these
Loans. You repay these loans directly
loans to the bank or private lender
to the federal government.
that made you the loan.
Note: Documents for federal student loans will state somewhere on the
form that it is a federal student loan. Some private student loan lenders
have forms that look similar to the federal forms and might confuse
some students.
40
Your Federal Student Loans
Sample FAFSA4caster Award Scenarios
Appendix B
Get an estimate of your federal student aid eligibility and compare costs at
www.FederalStudentAid.ed.gov, click on FAFSA4caster.
FAFSA4caster
Contact Us
Live Help
Sara’s Estimated Federal Student Aid Eligibility
E S T I M AT E
E S T I M AT E
E S T I M AT E
This is an estimate of your federal student aid eligibility based on national averages and your estimated EFC of 1549
Only your financial aid office can official y award you aid after you complete a Free Application for Federal Student Aid (FAFSA).
Estimate based on:
4-year public college
on campus
E S T I M AT E
E
nev S T I M A T E
er attended college/1st yr.
E S T I M AT E
To receive an estimate for a different type of college, click here.
In-state Resident
Out-of-state Resident
Average Cost of Attendance
Your Cost of Attendance includes:
Tuition and Fees
Room and Board
Books
Other Expenses
you will see a list of federal sources of aid for which you may qualify. Please note that these are estimates and not
a guaranteed amount of aid. Not all schools participate in the federal student aid programs and there may be other
Federal Pell Grante
Federal Stafford Loan (Subsidized)+
Federal Stafford Loan (Unsubsidized)+
+
Unsubsidized Federal Stafford Loan amount not included in
your estimate.
amount that other students have received.
Federal Supplemental Educational Opportunity Grant (FSEOG)
Federal Work-Study
Federal Perkins Loan
Average Cost of Attendance
Total Estimated Aid Eligibility
Estimated Need
$1,149
$9,005
At FAFSA4cast
attend. Y
er:
ou can visit your state agency’s Web site and each college’s Web site to get specific information. Your estimated
man •
enter
y other things .the r
Apply f equired financial information,
or all the scholarships whose requirements you meet.
•
what
There is also a
t
TEA ype of sc
CH Grant Pr hool
ogram
f you would like to attend, and
or students who intend to teach in a public or private elementary or secondary
•
your
school that serv housing plans
es students from low-income families.
You can input various scenarios:
•
Attending a 4-year public college
•
Attending a 2-year public college
•
Attending a 4-year private college
•
Attending school full-time and living on campus
•
Attending school full-time and living off campus
Then compare the outputs of various scenarios to determine which works
best for your circumstances.
Your Federal Student L
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41
How much can I borrow?
Federal Student Loans for You
Appendix C
Loan
Lender/Length
Eligibility
Award Amounts
Interest Rates
Program
of Repayment
Federal
Undergraduate
Undergraduate—up to $5,500
5 percent
Lender is
Perkins
and
a year (maximum of $27,500 as
your school
Loans
graduate students an undergraduate)
Repay your
Graduate—up to $8,000 a year
school or
(maximum of $60,000, including
its agent
undergraduate loans)
Up to 10 years to
Amount actually received depends
repay, depending
on financial need, amount of other aid,
on amount owed
and availability of funds at school
Direct
Undergraduate
First Year (freshman)
Loans First Disbursed Lender is the U.S.
Stafford
and graduate
$5,500 for dependent students
on or After July 1, 2006 Department of
Loans
students; must
(maximum $3,500 subsidized)
—Fixed rate of
Education; repay
be enrolled at
$9,500 for independent students
6.0 percent for
the Department
Subsidized
least half-time
(maximum $3,500 subsidized)
subsidized loans made
(financial
Second Year (sophomore)
to undergraduate
Between 10 and
need
See next page.
$6,500 for dependent students
students
25 years to repay,
IS required)
(maximum $4,500 subsidized)
—Fixed rate of
depending on
$10,500 for independent students
6.8 percent for
amount owed
Unsubsidized
(maximum $4,500 subsidized)
unsubsidized
and type of
(financial
Third Year (junior) and beyond
loans made to
repayment
need is
$7,500 for dependent students
undergraduate and
plan selected
NOT required)
(maximum $5,500 subsidized)
graduate students.
$12,500 for independent students
(maximum $5,500 subsidized)
The federal
Graduate and Professional
government pays
$20,500 (maximum $8,500 subsidized)
interest on subsidized
loans during school
Aggregate Loan Limits: Maximum Total
and certain
Outstanding Loan Debt When
other periods
You Graduate
Undergraduate
The borrower pays
$31,000 for dependent students
all interest on
(maximum $23,000 subsidized)
unsubsidized loans
$57,500 for independent students
(maximum $23,000 subsidized)
Graduate and Professional
$138,500 (maximum $65,500 subsidized)
Certain Approved Health Professions
$224,000
The graduate debt limit includes Stafford
Loans received for undergraduate study
(continues on next page)
42
Your Federal Student Loans
(continued from page 42)
Appendix C
Federal Student Loans for You
Loan
Lender/Length
Eligibility
Award Amounts
Interest Rates
Program
of Repayment
FFEL Stafford Same as above
Same as above
Same as above
Lender is a
Loans
bank, credit
(subsidized
union or other
and
participating
unsubsidized)
private lender
Repay the
loan holder or
its agent
Between 10 and
25 years to repay,
depending on
amount owed
and type of
repayment
plan selected
Direct and
Graduate and
Student’s Cost of Attendance Direct PLUS has a fixed
Same as for
FFEL PLUS
professional degree
– Other aid student receives
rate of 7.9 percent
Direct and
Loans for
students enrolled
FFEL Stafford
Graduate and at least half-time
= Maximum loan amount
FFEL PLUS has a fixed
Loans above
Professional
rate of 8.5 percent
Degree
Must not have
Students
negative
Borrower pays all interest
credit history
Federal Student Loans for Your Parents
Direct and
Parents of
Student’s Cost of Attendance Direct PLUS has a fixed
Same as for
FFEL PLUS
dependent
– Other aid student receives
rate of 7.9 percent
Direct and
Loans
undergraduate
FFEL Stafford
for parents
students enrolled
= Maximum loan amount
FFEL PLUS has a fixed
Loans above
at least half-time
rate of 8.5 percent
Parent must not
Borrower pays all interest
have negative
credit history
Your Federal Student L
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Informed Borrowing: Selecting Loans and Selecting Lenders
D
Before you search for the best student loan out there, you need to take
advantage of funds available through scholarships and grants offered
by the government, charities, workplaces, professional organizations, etc.
Appendix
After you have received all you can in scholarships and grants, your next
option is a student loan.
Here are some things to remember:
Go with the federal student loan programs. Federal programs such
as Perkins and Stafford Loans for students and PLUS Loans for parents
and graduate and professional degree students have fixed interest rates
ranging from 5 to 8.5 percent. Private or alternative loans typically have
interest rates that rise and fall with the economy. Private loans require
credit reports; federal student loans don’t (except for PLUS Loans).
Check the terms and fine print carefully. Not all students can take
advantage of all the benefits lenders advertise. Choose the loan that offers
the best up-front discounts, such as waiving both origination and default
fees, or other immediate discounts. Benefits that are promised several years
down the road usually won’t help you if you consolidate your loans or get
into financial trouble.
There’s an interactive repayment calculator at www.studentaid.ed.gov/repaying, click
on “Paying Back Your Loan.”
44
Your Federal Student Loans
Borrower Rights and Responsibilities
Appendix E
Your Rights as a Borrower:
•
Before you begin repayment, your loan holder is required to give you a
repayment schedule and detailed information about interest rates, fees,
the balance you owe and available repayment options.
•
You have the right to defer repayment for certain defined periods,
if you qualify.
•
You have the right to request forbearance.
• You may prepay your loans in whole or in part at any time without penalty.
See page 26 for more information on deferment and forbearance.
Your Responsibilities as a Borrower:
•
Your primary responsibility is to repay your loans according to the terms
and conditions of your loan agreement.
•
You must attend entrance counseling before receiving loan funds and exit
counseling before leaving school.
•
You must make payments on time, or make other arrangements with your
lender or loan holder.
•
You must notify your lender if you change your name, address, phone
number, or enrollment status.
•
You must notify your lender if you’re unable to make payments.
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If You Need to Take a Break or Can’t Go to School Full-Time
If your enrollment status changes, there are a few steps that you, as a borrower,
must take care of.
Appendix F
Withdraw Drop your Return to school Transfer Graduate
Go to
from
enrol ment at least half-time
to
graduate
If you
school
to less than after a period of another
school
half-time less than half-time school
Steps
enrol ment or
to take
non-enrollment
Contact your
financial
x
x
aid office
Complete
exit
x
x
x
counseling
Notify
x
x
your lender
Begin loan
repayment
x
x
x
after your
grace period
Apply for
financial
aid by
x
x
x
completing
the FAFSA
Request
from your
lender an
x
x
x
in-school
deferment
46
Your Federal Student Loans
Worksheet to Calculate Your Budget When You Graduate
Appendix G
Your actual expenses depend on the area you live in, housing arrangements,
and other expenses.
Monthly Net Income
Monthly Expenses
Your Budget
(work and other income)
$
Rent/mortgage
Student loan payments
Car payments and insurance
Other debts (including credit card debt)
Utility bills (gas, electric, water, telephone, cable)
Groceries
Medical insurance (doctor visits, dentist, etc.)
Clothing
Entertainment and recreation (dining out,
movies, music, vacation trips)
Miscellaneous/savings
Total
Your Federal Student L
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47
Perkins Loan Discharge and Cancellation Summary Chart
Cancellation Conditionsa
Amount Forgiven
Appendix H
Bankruptcy (in rare cases—cancellation is possible only if the bankruptcy
100 percent
court rules that repayment would cause undue hardship)
Closed school (before student could complete program of study)—applies
100 percent
to loans received on or after Jan. 1, 1986
Borrower’s total and permanent disabilityb or death
100 percent
Full-time teacher in a designated elementary or secondary school serving
Up to 100 percent
students from low-income familiesc
Ful -time special education teacher (includes teaching children with disabilities
Up to 100 percent
in a public or other nonprofit elementary or secondary school)c
Full-time qualified professional provider of early intervention services
Up to 100 percent
for the disabled
Full-time teacher of math, science, foreign languages, bilingual education,
Up to 100 percent
or other fields designated as teacher shortage areas
Full-time employee of a public or nonprofit child- or family-services
Up to 100 percent
agency providing services to high-risk children and their families from
low-income communities
Full-time nurse or medical technician
Up to 100 percent
Full-time law enforcement or corrections officer
Up to 100 percent
Full-time staff member in the education component of a Head Start Program
Up to 100 percent
VISTA or Peace Corps volunteer
Up to 70 percent
Service in the U.S. Armed Forces
Up to 50 percent in areas of
hostilities or imminent danger
a As of Oct. 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the
loan was made or the terms of the borrower’s promissory note. However, this benefit is not retroactive to services
performed before Oct. 7, 1998.
b Total and permanent disability is defined as the inability to work and earn money because of an illness or injury
that is expected to continue indefinitely or result in death. Your loan may be discharged if you are determined
to be totally and permanently disabled based on a physician’s certification, and if you meet certain other
requirements during a three-year conditional discharge period.
c Detailed information on teaching service cancellation/deferment options can be found at
www.FederalStudentAid.ed.gov. At the site, click on “Students, Parents and Counselors.”
48
Your Federal Student Loans
Stafford and PLUS Loan Discharge or Cancellation and Forgiveness
Appendix I
Summary Chart
Discharge/
Amount Discharged/
Notes
Forgiveness Condition
Forgiven
Borrower’s total and
100 percent
For a PLUS Loan, circumstances include
permanent disability
the death, but not disability, of the
or death.+
student for whom the parents borrowed.
Ful -time teacher for five
Up to $5,000 (up to $17,500
For Direct and FFEL Stafford Loan
consecutive years in a
for teachers in certain
borrowers with no outstanding balance
designated elementary
specialties) of the total loan
on a Direct or FFEL Loan as of Oct. 1, 1998,
or secondary school
amount outstanding after
or on or after the date they received a
serving students from
completion of the fifth year
loan. PLUS Loans are not eligible. At
low-income families.
of teaching.
least one of the five consecutive years of
Must meet additional
teaching must occur after the 1997–98
eligibility requirements.
Under the Direct and FFEL
academic year.
Consolidation Loan programs,
only the portion of the
To find out whether your school is
consolidation loan used to
considered a low-income school, go to:
repay eligible Direct Loans
www.FederalStudentAid.ed.gov. Click on
or FFEL Loans qualifies for
“Students, Parents and Counselors.” Or call
loan forgiveness.
1-800-4-FED-AID (1-800-433-3243).
Bankruptcy (in rare cases)
100 percent
Cancellation is possible only if the
bankruptcy court rules that repayment
would cause undue hardship.
Closed school (before student
100 percent
For loans received on or after Jan. 1, 1986.
could complete program of
study) or false loan certification.
False loan certification now
100 percent
Effective July 1, 2006
includes identity theft.
School does not make
Up to the amount that the
For loans received on or after Jan. 1, 1986.
required return of loan funds
school was required to return.
to the lender.
Loan forgiveness for public
100 percent of the remaining
For a borrower not in default and who
service employees.
outstanding balance on an
makes 120 monthly payments on the loan
eligible Direct Loan.
after Oct. 1, 2007.
+ Total and permanent disability is defined as the inability to work and earn money because of an illness or injury
that is expected to continue indefinitely or result in death. Your loan may be discharged if you are determined
to be totally and permanently disabled based on a physician’s certification, and if you meet certain other
requirements during a three-year conditional discharge period.
Your Federal Student L
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NotES
NotES
NotES
Don’t Default
You’ve made a commitment to yourself and your future. Be a responsible borrower,
loan default has serious consequences:
•
Your entire loan balance (principal and interest) will be due in full immediately.
•
Your college records may be placed on hold.
•
You’ll lose your student loan deferment options.
•
You won’t be eligible for additional federal student aid.
• Your account may be turned over to a collection agency and you’ll have
to pay additional charges, late fees and collection costs, all of which become
part of your debt.
•
Your credit rating will be damaged for several years because defaulted loans
are reported to national credit bureaus.
•
You’ll have difficulty qualifying for credit cards, a car loan, a mortgage, or renting
an apartment (credit checks are required to rent an apartment).
•
Your federal and state income tax refunds can be withheld and applied to student
loan debt. This is called a tax offset.
•
You may have a portion of your wages garnished (withheld).
•
You may not be able to obtain a professional license or get hired by an employer
that performs credit checks.
Remember
Student loans have become a fact of life.
Make a budget and stick with it. Be careful with credit card spending.
Borrow only what you need.
If you don’t understand something, call your lender or your financial aid office.
Keep all student loan documents in a file.
Open all your mail and read everything pertaining to your student loans.
Keep in contact with your lender or servicer.
Make all regularly scheduled payments.
Ask your lender for help if you have difficulty making payments.
There are options for you.
Borrowing is an investment in your future.
