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About Repayment | Your Credit | Federal Loans vs. Private Loans | Your Loan & Credit History | Suspending Repayment | Late Payment | Public Service Loan Forgiveness
About Repayment: What, When and How
Repayment is the process of making payments to pay off the loan amount you borrowed, plus the interest that has accrued on the loan while you were in school, during any periods of authorized deferment, and during your grace period. The longer you take to repay your loans, the more you will have to pay in interest charges.
Repayment typically begins after a grace period following your graduation or your ceasing to be registered. Your first payment is typically due within 60 days of each loan’s entering repayment.
To make your payments more affordable, repayment plans can give you more time to repay your loans or be based on your income. Your federal or private loan may offer a variety of repayment plans. Repayment options are different based on the type of loan.
You should periodically review your repayment plans and contact your lender, loan holder, or servicer for help in determining what options may be available. You may prepay your loan with no penalty or use one of the repayment plans available.
Most students today must borrow money to help finance their undergraduate and graduate studies. Some loan programs are federally sponsored, while other loans are provided by banks and other private lenders.
Whatever the source of funds, your student loans must always be repaid. You should bear in mind that any student loans you are now applying for will become part of your credit history and will also affect your credit score.
Individuals establish their credit history by borrowing money or charging purchases. Typically, anyone who has ever used a credit card issued in his or her own name has established a personal credit history. Financial institutions and major retail stores report their customers’ credit information to national credit bureaus that, in turn, compile the information in the form of a credit report. A credit report is simply a record of every credit card, retail account, student and personal loan, and other credit accounts made or established in your name.
Maintaining a good credit history on education loans is important since it may affect your ability to buy things like a home, a car, or a credit card. Whenever you apply for a loan, your credit report will most likely be reviewed. In reviewing your credit report, the lender is trying to determine your ability and willingness to pay based on your payment history. A good credit record indicates that you are likely to repay the loan for which you are currently applying.
YOUR CREDIT SCORE
Today most lenders may use a credit score to determine eligibility for a loan. This is a numerical score based on a statistical analysis of the data contained in a credit report. Lenders that use a credit score typically require applicants to meet a minimum score in order to qualify for their loan program.
Although it is often a concern for student borrowers, having multiple education loans and/or a significant amount of education debt does not necessarily mean you will have a poor credit score. People with small or large amounts of education debt can score well, provided they have managed their credit properly. Education loans are a good way for you to establish a positive credit history if you make your payments on time.
Federal Loans versus Loans from Private Sources
To be eligible for education loans from private sources, applicants must demonstrate that they have managed debt responsibly. Unlike most federally sponsored loans that have either no credit requirements or minimal credit criteria, private lenders carefully review credit history to determine eligibility for their loan programs.
Your Loan and Credit History
YOUR FEDERAL LOAN DATA
Data on federal student loans are reported to credit reporting agencies, so maintaining a good repayment history is integral to protecting your credit worthiness. You can access complete data on your federal student loan history from the National Student Loan Data System (NSLDS).
For your own awareness and protection, you should request a copy of your credit report from a local and/or national credit bureau and review it carefully. Contact the reporting credit bureau and creditor(s) immediately if you discover any inaccuracies. The three major national credit bureaus are:
- Equifax (800-685-1111)
- Experian (formerly TRW, 888-397-3742)
- TransUnion (800-888-4213)
There are also hundreds of smaller local credit reporting agencies. Telephone numbers for the agencies in your area are located in the Yellow Pages of your phone directory under the listing “Credit Reporting Agencies."
Suspending Repayment: Deferment and Forbearance
It is possible that a borrower may face circumstances that will make loan payments difficult. Under such circumstances, it may be possible to suspend repayment for a specified period of time. Two possible options are deferment and forebearance and these options are described in detail below.
- Deferment is a period of time when a borrower is allowed to postpone repaying the principal and/or interest on a loan.
Most federal loan programs allow students to defer repaying their loans while they are in school at least halftime. Deferments are an entitlement that your federal loan lender/holder/servicer must approve if you meet the requirements and provide the necessary documentation as specified in the promissory note. For example, you might qualify for a deferment if you are enrolled in an eligible graduate fellowship program or if you face unemployment or other economic hardships.
- Forbearance is an agreement between the borrower and the lender/holder/servicer of a loan that allows for:
- temporary postponement of payments;
- extension of time for making payments; or
- temporary acceptance of payments that are smaller than required by the repayment schedule.
Forbearances are available at the discretion of the lender for both federal and private loans.
CONTACT YOUR LENDER IMMEDIATELY
If at any time you face difficulties making loan payments, it is imperative that you contact your lender immediately. Failure to make an on-time payment can lead to a poor credit history which, in turn, can make it difficult to buy a house, rent an apartment, buy a car, etc. It can also take you a long time to rehabilitate a poor credit history.
Many lenders also offer interest deductions or other incentives for a specified number of on-time payments. Missing one payment can often jeopardize your ability to benefit from such incentives. If you are proactive and contact your lender when you face difficulty paying, you may be able to keep your benefits in tact.
It is also important that you contact your lender any time you change your address or phone number in order to facilitate continual communication about your repayment.
Find out from your loan servicer whether deferment or forbearance options are available for each loan.
For additional questions, email firstname.lastname@example.org .
Late Payment: Delinquency and Default
- Delinquency occurs when a borrower is late with a payment.
- Default occurs when a borrower fails to make a scheduled payment or meet other terms of the loan agreement and the lender finds it reasonable to conclude that the borrower no longer intends to honor the obligation to repay.
If you default on your federal student loan(s), one or more of the consequences below may occur. Similar consequences may occur if you default on a student loan from a private source.
- The lender/holder of your loan may declare the entire unpaid balance, including interest, immediately due and payable.
- You could be required to pay all charges and other costs permitted by law (including reasonable attorney’s fees) for the collection of your loan.
- The lender/holder of the loan may assign the promissory note to a guaranty agency, at which time all amounts due will be payable to the guaranty agency.
- The lender/holder or guaranty agency may report the default to one or all three national, authorized credit bureaus.
- The lender/holder and/or the government may take legal action against you.
- The lender/holder or guaranty agency may report the default to your school.
- You may be unable to receive assistance from federal student aid programs.
- You may become ineligible for various repayment options, deferments, and other benefits.
- Your wages may be subject to garnishment.
- State and federal income tax refunds may be subject to IRS offset and withheld by the federal government.
- Your professional licenses may not be granted or renewed.
Public Service Loan Forgiveness Program
Through the College Cost Reduction and Access Act of 2007, Congress created the Public Service Loan Forgiveness Program to encourage individuals to enter and continue to work full-time in public service jobs. Under this program, borrowers may qualify for forgiveness of the remaining balance due on their eligible federal student loans after they have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers. Borrowers must make 120 monthly payments on their eligible federal student loans beginning after October 1, 2007.
Please see the Federal Student Aid website for more information.