Repayment Programs

The standard repayment term for a Stafford loan is 10 years. You may be able to extend repayment by deferring or consolidating your Stafford loans. You can choose one of the following plans:

• Standard Repayment Plan: it requires you to pay a fixed amount each month based on your principle and interest, but will be no less than $50 or the interest that has accrued.
• Graduated Repayment Plan: it allows you to make lower payments at the beginning of the term and over time your payments increase. Each of your payments must equal the interest accrued on the loan between scheduled payments and initial payment.
• Income-Based Repayment Plan: your monthly payment is based on your annual income and your loan amount. Payments may change as your income increases or decreases.
• Extended Repayment Plan: is for borrowers with loans totaling more than $30,000. This plan offers a choice of fixed or graduated payments over a period of up to 25 years.

• Federal Family Education Loan (FFEL) allows borrowers to consolidate several loans, with various repayment schedules, into one loan with one monthly payment.
• Credit bureaus will be notified that your account has a zero balance and you will sign a new promissory note with a new interest rate and repayment schedule.
• To qualify you must first be in “repayment” status on your defaulted loan (that is, you must make three voluntary, on-time, regular monthly payments). The FFEL program allows you to become eligible for other federal education loans. You must consent to the IRS to disclose to the Department of Education certain income tax information. This information is necessary in order to calculate a monthly repayment plan based on your income.
• The monthly payments on ta FFEL must, at a minimum, equal all interest as it accrues, while Direct Loan monthly payments may go as low as zero. An order to receive a Direct Loan you must certify that you could not obtained and FFEL or secure a plan that is satisfactory to you.

• In the case of either a Federal Family Education Loan (FFEL) or a Federal Direct Consolidation Loan (Direct Loan) there are repercussions if you file for a personal bankruptcy seven years after the first payment became due.
• If you are considering challenging the loan, a consolidation loan may waive some defenses. If you are considering court proceedings to appeal a loan, or your are considering bankruptcy, you should consult a lawyer before applying for consolidation.
• Another disadvantage of consolidation is that while you cure the default by consolidating a loan, your credit continues to show that at one point you were in default. If you “rehabilitate” a loan instead, any reference to the default is removed from your credit history. After consolidation any collection fees become part of the loan principle.
• Borrowers may have more opportunity to “compromise” the amount owed on old loans. Compromise entails negotiation of the repayment amount. However, this usually requires a lump sum payment of a major portion of the loan.

• There are two methods to temporarily stop making payments and avoid a default. They are: (i) Deferment, (ii) Forbearance.

• You may request the United States Department of Education to grant you a “deferment” which allows you to stop payments (and stop interest from accruing as well). You must meet specific criteria in order to qualify for a deferment.

• Principal and interest payments may be deferred while the borrower is: (i) attending school at least 50% of the time, (ii) unemployed (up to three years), (iii) studying in an approved graduate fellowship or rehabilitation program for the disabled, (iv) experiencing economic hardship (up to three years).

• There are two sets of standards for obtaining deferments depending on whether your loans were disbursed before or after July 1, 1993. The standards adopted for loans disbursed after July 1, 1993 tend to be viewed as more generous.
• Deferment Standards for loans disbursed after July 1, 1993: the maximum unemployment deferment period is increases from two to three years. A new three-year deferment category called “economic hardship” was created which supersedes the former three-year deferment for specified types of financial hardship which include: (i) temporary total disability, (ii) primary caregiver for a disabled dependent, (iii) parental leave,(iv) mother with preschool children at or near minimum wage. Those who receive public assistance, automatically qualify.
• Some of the more important grounds for deferral of loans disbursed prior to July 1, 1993 are: (i) unemployment (maximum of two year deferment), (ii) full-time student at participating school, (iii) active duty status in the U.S. Armed Forces, (iv) receiving, or being scheduled to receive service, under a program designed to rehabilitate disabled individuals, (iv) temporary total disability, (v) providing nursing or similar services to a spouse who is temporarily totally disabled, (vi) parental leave and being a mother of preschool children starting work at no more than $1.00 above the minimum wage.

• Parent PLUS deferment options are based on the parent borrower’s eligibility. If the parent, not the student on whose behalf the parent took out the loan, you may be eligible for Federal student loan deferment (principle and interest payments). The criteria (for the parent) are: (i) attending school at least 50% of the time, (ii) unemployed (up to three years), (iii) studying in an approved graduate fellowship or rehabilitation program for the disabled, (iv) experiencing economic hardship (up to three years).
• Deferment does not lock-in an interest rates. Deferred loans can still have variable rates unless a loan is being deferred that was also consolidated (which has a fixed interest rate). Stafford loans borrowed prior to July 1, 2006 have variable interest rates. Those borrowed after July 1, 2006 have fixed interest rates. If Stafford loans have been consolidated then the interest rate will remain fixed. Deferment has no effect on the interest rate of a loan.

Forbearance is a tool to assist borrowers in meeting their loan repayment obligations. Lenders permit a temporary cessation of payments for an extension of time or temporarily accepts smaller payments.

• Interest continues to accrue. Accordingly the outstanding debt could increase during forbearance. However, forbearance is not available when the loan is in default.
• Lenders are encouraged to grant a forbearance to prevent a borrower from defaulting and must grant forbearance when your debt exceeds 20% of your gross income. Forbearance cannot be the cause of a negative credit report and no fees can be charged.

Forbearance of payments is typically granted when the borrower is experiencing financial difficulty, but can be requested for any of the following reasons: (i) unemployment, (ii) partial disability, (iii) other documented hardship.

If the borrower is ineligible for a deferment, he/she can still receive forbearance. Unlike deferment, it doesn’t matter if the loans are subsidized or not.

• The borrower’s loan holder can grant forbearance in intervals of up to 12 months for up to a total of three years.

• Federal PLUS Loan: the eligibility requirements and procedures are the same as Stafford Loans. Since all PLUS Loans are unsubsidized, interest is charged during forbearance.

• Forbearance does not lock-in interest rates. While loans are deferred variable rates may still apply. Consolidated loans that are deferred have fixed interest rates. Stafford loans from July 1, 2006 and prior have variable interest rates and those after July 1, 2006 have fixed interest rates. Stafford loans that have been consolidated remain fixed. Forbearance has no effect on the interest rate of a loan.

• The United States Department of Education encourages lenders to grant forbearance if you are in poor health or have other personal problems. Forbearance eligibility is limited to loans held by lenders. It does not apply if the loan has been taken over by guaranty agency or the United States Department of Education.  Contact your HLP Advisor for additional information.