Loan Frequently Asked Questions

Many general questions are asked each year by student loan borrowers. The following is a grouping of the most frequently asked questions that are raised with the Office of Student Financial Services:

Q. When do I begin repaying my loans?

• A. Loans are repayable six months after you graduate, leave school, or drop below half-time enrollment. You have six months before you must begin repaying your loans. This is called the "Grace Period." If you have Federal Direct Subsidized Loans, you won't be charged any interest during your grace period. If you have any Federal Direct Unsubsidized Loans, you will be responsible for the interest charged during your grace period. You may either pay this interest as it accumulates or have it capitalized when you start repaying your loans. Your repayment period begins the day after your grace period ends. Your first payment will be due within 60 days after your repayment period begins.

Q. What is the interest rate on my loans?

• A. The interest rate for both Federal Direct Subsidized Loans and Federal Direct Unsubsidized Loans is variable and is adjusted each year on July 1. The interest rate will be calculated differently depending on several circumstances. The interest rate during the in-school, grace, and deferment periods is equal to the 91-day Treasury bill rate plus 3.1 percentage points. By law, however, your interest rate can never exceed 8.25 percent.
  
  The Servicing Center will notify you each year in writing about the interest rate that will go into effect on July 1. Note that the fixed amount you pay each month will be adjusted to account for any changes in the interest rate. The length of your repayment period will not be adjusted unless you request it by contacting the Servicing Center.

Q. Is there a penalty for repaying my loans early?

• A. No. You may prepay all or part of the unpaid balance on any Federal Direct Student Loan at any time without penalty. Be sure to specify which loan you are prepaying. The Servicing Center will apply the prepayment first to any charges or collection costs, then to interest, and last to principal.

Q. Will my payment history be reported to credit bureaus?

• A. Yes. Your account balance and status will be reported to credit bureaus on a regular basis. Just as failing to repay your loan can damage your credit rating, repaying your loan responsibly can help you establish a good credit rating.

Q. What should I do if I can't make my loan payments?

• A. You should immediately contact the Servicing Center. A representative will assist you in choosing a new repayment plan, applying for a deferment or forbearance, or making other necessary adjustments to help ensure that your loan payments are affordable.

Q. What happens if I don't pay back my loans?

• A. Your loans will become delinquent and will eventually go into default. Your outstanding loan balances are reported to major credit bureaus when you are 90 days late in making payments. Actual loan default status occurs when you are 180 days late making a payment. The consequences of loan default are serious and can include a damaged credit rating, loss of eligibility for further federal student aid, withholding of wages and tax refunds, and legal actions (such as lawsuits) being taken against you.

Q. How Will I Know If I Am in Danger of Defaulting?

• A. If you fail to make a payment, the Servicing Center will send you a reminder that your payment is late. If your account remains delinquent, the Servicing Center is required to regularly send you warning notices reminding you of your obligation to repay your loans and the consequences of default. The Servicing Center can also add late fees if your payments are late.

Q. What happens if my Federal Direct Subsidized and Federal Direct Unsubsidized Loans are in repayment and I decide to go back to school?

• A. You may be eligible to postpone your loan payments with an in-school deferment if you are attending an eligible school at least half-time. If you are attending less than half-time and think you might have difficulty repaying your loans, contact the Servicing Center. You may be able to obtain a forbearance to postpone your payments.

Q. Who gets my loan payments?

• A. Your loan payments will go to the U.S. Department of Education's Direct Loan Servicing Center. Most communication with you will be by mail, but you may also call the Servicing Center whenever you have questions or concerns about your loan account. When contacting the Servicing Center, you should always use the address and toll free telephone number provided on all the correspondence you receive from the Servicing Center.

Q. How do I make payments?

• A. You can pay by check every month or by Electronic Debit Account (EDA). If you elect to pay by check, you should send all loan payments to the Servicing Center. The address for mailing payments will appear on your billing statement. If you select EDA, loan payments will automatically be deducted from your checking account.

Q. When will my payments be due?

• A. Payments will be due each month. The Servicing Center will inform you of your payment due date. You will receive a bill approximately two weeks prior to your payment due date. However, you must still make your monthly payment whether or not you receive your bill. If you would like to change the day of the month your payment is due, contact the Servicing Center.

Q. When Do I Select a Repayment Plan?

• A. You and your school must notify the Federal Direct Loan Servicing Center when you graduate, withdraw, or drop below half-time enrollment. At that time, the Servicing Center will send you information about the repayment plans and ask you to select one. If you do not select a plan after you receive information about your choices, the Servicing Center will place you on the Standard Repayment Plan. Now is the time to begin gathering the information you need to make this decision about repayment.

Q. What are the Different Repayment Plans?

• A. You may choose to repay Federal Direct Subsidized Loans and/or Federal Direct Unsubsidized Loans through one of these four repayment plans:
  
  
• Standard Repayment Plan,
  
• Extended Repayment Plan,
  
• Graduated Repayment Plan, or
  
• Income Contingent Repayment Plan.

You must repay all your Federal Direct Subsidized/Direct Unsubsidized Loans under the same type of repayment plan. If you do not choose a repayment plan, your loans will automatically be placed in the Standard Repayment Plan.

Note that your repayment period will not include any periods of deferment or forbearance. If none of the repayment plans meet your needs because you have exceptional circumstances, contact the Federal Direct Loan Servicing Center to request an alternative repayment plan.

Q. May I Pay off My Loans Early?

• A. Yes, you may repay all or part of your unpaid balance on any Federal Direct Loans at any time, without an early-repayment penalty. If, while you are in school, you have more than one Federal Direct Loan, be sure to specify which loan you are prepaying. The Servicing Center will apply the prepayment first to any charges or collection costs, then to interest, and to principal.

Q. What If I Have a Problem Repaying My Loans?

• A. If you think you might have a problem making a scheduled payment on your loans, immediately contact the Servicing Center. The Servicing Center will work with you to help you avoid the costs and adverse consequences of delinquency or default on your Federal Direct Loans. There are several options available to help you avoid default, such as changing repayment plans, deferment, or forbearance.

Q. Can I Consolidate My Student Loans to Make Repayment Easier?

• A. Yes. If you have federal student loans in addition to your Federal Direct Loans, you may want to consider a Federal Direct Consolidation Loan to simplify repayment. Consolidation allows you to make only one monthly payment to cover all your loans (including non-Federal Direct federal student loans). You will also receive the benefits of Federal Direct Loan consolidation, such as greater repayment flexibility.
  
  You may consolidate your loans while you are enrolled at least half-time in a school that participates in the Federal Direct Loan program, during your grace period, or after you begin repayment. If you apply to consolidate your loans while one of your loans is in an in-school period, you will receive a grace period on your Federal Direct Consolidation Loan. This means that after you graduate or reduce your enrollment to less than half time, you will not have to make payments on your loan for six months.

Q. Can I consolidate my Federal Family Education Loan (FFELP) Program loans with my Federal Direct Loans under the same repayment plan?

• A. Yes. If you have other federal student loans, such as those in the Federal Family Education Loan Program (FFELP's), in addition to your Federal Direct Loans, you might want to consider a Federal Direct Consolidation Loan to simplify repayment. Consolidation allows you to make only one monthly payment to cover all your loans (including FFELP's). You'll also get the benefits of Federal Direct Loan Consolidation, such as greater repayment flexibility.
  
  If you are in default on a federal student Loan, you may consolidate if you agree to repay under the Income Contingent Repayment Plan. (This option does not apply to borrowers who are in default on PLUS loans or to in-school borrowers with defaulted loans.) If you do not wish to repay under the Income Contingent Repayment Plan, you must make three consecutive monthly payments to your current holder under a satisfactory repayment arrangement before you can consolidate your loans. Your three monthly payments are not allowed to be more than what is reasonable and affordable, based on your total financial circumstances.
  
  To apply for a Federal Direct Consolidation Loan, contact the Consolidation Department of the Federal Direct Loan Origination Center. The toll-free telephone number is 1-800-557-7392.

Q. Can my loans ever be discharged?

• A. Yes. A discharge releases you from all obligations to repay your loans. You can receive a discharge with proof of the following:
  
  
• You become totally and permanently disabled. (This cannot be for a condition that existed at the time you applied for the Federal Direct Loans, unless a doctor certifies that the condition substantially deteriorated after the loans were made.)
  
• You are unable to complete a course of study because your school closed.
  
• The school falsely certified your eligibility.
  
• Your obligation to repay a loan is discharged in bankruptcy (in rare cases).
  
• Your Federal Direct Loans may be discharged upon your death.
  
  You may not avoid repaying your loans because you did not complete your program of study (for reasons other than school closure or false certification of loan eligibility), did not like your school or program of study, or did not obtain employment after completing your studies.

Q. What Should I Do about My Loans If I Transfer to Another School?

• A. If you enroll at a different school at least half time before your grace period ends, your Federal Direct Loan can then be put back into an "in-school" status, and repayment will be delayed until six months after you graduate, leave school, or drop below half time enrollment. Check with the Servicing Center to make sure your loans remain in an in-school status.

Q. What happens If I Go Back to School After My Grace Period Has Ended?

• A. If you return to school at least half time after your six-month grace period has ended and your Federal Direct Loans have entered repayment, you may qualify for a deferment.
  
  You will need to contact the Servicing Center about your plans. The Servicing Center will send you the form the school needs to use to confirm your enrollment. After the school submits the deferment form for you, the specific deferment benefits you receive will depend on the types of Federal Direct Loans you have.
  
  
• If you have Federal Direct Subsidized Loans, your payments will be deferred, and no interest will be charged to your loans.
  
• If you have Federal Direct Unsubsidized Loans, your principal payments will be deferred, but interest will continue to accumulate. You may pay the interest or allow it to be capitalized.
  
  Your repayment period begins the day after your grace period ends. Your first payment will be due within 60 days after your repayment period begins.

Q. What is capitalized interest?

• A. Capitalized interest is interest that has not been paid as it accumulates but has been added to the principal balance of your loans (the total amount you borrowed). Unpaid interest will be capitalized whenever your borrower status changes -- for instance, when you enter repayment or come out of deferment or forbearance. (In some cases under the Income Contingent Repayment Plan, interest may also be capitalized yearly.) If you do not pay the interest on your loans while in school, you will pay it when your loans enter repayment. Capitalized interest becomes part of the principal of your loans; therefore, it increases the total cost of repaying your loans because interest accumulates on the new, higher principal.

Q. What happens if, as a parent, I'm already repaying a Federal Direct PLUS Loan, then I take out another one for the same or another child? How does this affect my monthly payments?

• A. The Servicing Center will send you one monthly bill for both loans. Depending on the repayment plan you have selected and the amount of your loans, your monthly payment is likely to increase.