Repaying your federal student loans

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1 Repaying your federal student loans Many borrowers don t worry about their student loans until they graduate or leave school. But you should immediately notify your loan servicer and school in writing if you: Change your address or telephone number. (Filing an address change with the post office isn t enough.) Change your name. Transfer to a new school. Drop below half-time enrollment, withdraw or graduate. Change your anticipated graduation date. You should check with your servicer about repayment, deferment, forbearance, cancellation and consolidation options. Things to know about repayment Loan repayment plans available to meet the needs of almost every borrower. Your options may vary depending on whether you borrowed federal loans directly from the U.S. Department of Education (Direct Loans) or federal loans from a state agency or other lender (FFELP loans). Standard Repayment With the standard plan, you ll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you ll have up to 10 years to repay your loans. The standard plan is good if you can handle higher monthly payments because you ll repay your loans more quickly. For the same reason, you may pay the least interest. Extended Repayment Under the extended plan, you have 25 years for repayment and two payment options: fixed or graduated. Fixed payments are the same amount each month, while graduated payments start low and increase every two years. This is a good plan if you need to make smaller monthly payments. Because the repayment period is 25 years, your monthly payments will be less than with the standard plan. However, you ll pay more in interest because you re taking longer to repay the loans. To be eligible for the extended plan, you must have more than $30,000 in federal student loan debt, and you must not have an outstanding balance on a federal student loan taken out before October 7, Graduated Repayment With this plan your payments start out low and increase every two years. Your repayment period will be up to 10 years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no payment under this plan will be more than three times greater than any other payment. Income Contingent Repayment (Direct Loans only) Your monthly payments are calculated each year based on your adjusted gross income (plus your spouse s income if you re married), family size and the total amount of your Direct Loans. Under this plan you will pay each month the lesser of: The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income. Twenty percent of your monthly discretionary income. If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized (added to the loan principal) once each year. Capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If you haven t fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may have to pay taxes on the amount that is discharged. Parents who borrowed PLUS Loans for undergraduate students are not eligible for this plan. Income Based Repayment (IBR) This plan is available for the major types of federal student loans. Under IBR, the monthly payment is based on your income and family size. You are eligible for KHEAA 42 Adults Returning to School

2 IBR if the monthly repayment amount under IBR will be less than the monthly amount calculated under a 10-year standard repayment plan. If you repay under the IBR plan for 25 years and meet other requirements, you may have any remaining balance of your loans cancelled. Also, if you work in public service and have reduced loan payments through IBR, the remaining balance after 10 years in a public service job could be cancelled. You may have to pay taxes on the amount that is discharged. PLUS Loans made to parents are not eligible for IBR. Income-sensitive Repayment (FFELP loans only) With an income-sensitive plan, your monthly payment is based on your income. As your income changes, so do your payments. The maximum repayment period is 10 years, but you can only use income-sensitive repayment for five years. You must apply each year you want to use income-sensitive repayment. Deferments A deferment lets you temporarily postpone payment. Interest may not accrue during a deferment if the loan is subsidized. You may qualify for a deferment while you are: Enrolled at least half-time in an eligible postsecondary school or studying full-time in a graduate fellowship program or an approved disability rehabilitation program. Unemployed or meet the rules for economic hardship (limited to three years). You may also be eligible for a deferment based on service in the Armed Forces or National Guard. Refer to your MPN or contact your servicer for more information about specific qualifications for deferment based on military service. In most cases, you must request a deferment and document your eligibility. If you ve gone back to school and your servicer receives enrollment information that shows you re enrolled at least half-time, it will automatically put your loans into deferment and notify you. You have the option of cancelling the deferment and continuing to make payments on your loan. Forbearances If you can t make your payments but don t qualify for a deferment, you may be eligible for a forbearance. Forbearance lets you temporarily stop making payments on your loan, temporarily make smaller payments or extend the time for making payments. Some common reasons for getting forbearance are illness, financial hardship or serving in a medical or dental internship or residency. Under certain circumstances, your servicer can automatically grant you a forbearance for instance, while processing a deferment, forbearance, cancellation, change in repayment plan or consolidation, or if you re involved in a military mobilization or a local or national emergency. Loan cancellation Under certain circumstances, all or part of your federal student loans may be cancelled. Teacher service If you teach full-time in an elementary or secondary school in a low-income area for five consecutive years, you may be able to have up to $17,500 in Federal Stafford Loans forgiven. You may have to pay taxes on the amount that is discharged. This does not apply to Federal PLUS Loans. You must not have had an outstanding balance on a Stafford Loan as of October 1, 1998, or when you received a Stafford Loan after that date. For more information, contact your servicer. Public service (Direct Loans only) If work in certain public service jobs and make 120 payments on your Direct Loans after October 1, 2007, the remaining balance may be forgiven. Only payments made under certain repayment plans count toward the required 120 payments. You must not be in default on the loans that are forgiven. You may have to pay taxes on the amount that is discharged. School-related discharges In certain cases, you may be able to have all or a part of your loan cancelled because: Your school closed before you completed your program. Your school falsely certified you were eligible for a loan. Your loan was falsely certified because of identity theft (additional requirements apply). You withdrew from school, but the school didn t pay a refund it owed under its written policy or federal regulations. Check with the school to see how refund policies apply to federal aid. In general, you must repay your loan even if you don t graduate, can t find work in your field of study or are dissatisfied with the education you receive. KHEAA 43 Adults Returning to School

3 Disability, bankruptcy or death Your loan may be discharged if you re totally and permanently disabled and you meet certain requirements during a three-year conditional discharge period. To apply for this discharge, you must provide a physician s statement that you became totally and permanently disabled after the loan was made. Your loan may be cancelled if it is discharged in bankruptcy. This is not an automatic process you must prove to the court that repaying the loan would cause undue hardship. Few student loans are discharged in bankruptcy. If you die, your loan will be cancelled if a family member or other representative provides an original, a copy of the original or a certified copy of your death certificate to your servicer. Loan Consolidation Consolidation generally extends the repayment period, resulting in a lower monthly payment. This may make it easier for you to repay your loans. However, you ll pay more interest since you ll be making payments for a longer period of time. Contact the Direct Loan Consolidation Center for more information at , TTY for the hearing-impaired at Amount Maximum Consolidated Repayment Term Up to $7, years $7,500 9, years $10,000 19, years $20,000 39, years $40,000 59, years $60,000 or more 30 years Loan default When a loan defaults, it will be assigned for collection. Any or all of the following may occur: The full balance of the loan becomes due and payable immediately. A collection fee of 24.34% is added to the account. The default is reported to consumer reporting agencies. Requests for future federal student aid may be denied. Forbearance and deferment eligibility is lost. Income tax refunds or monies owed to you may be taken. You may be sued to garnish your wages and/ or place a lien on property and other financial accounts. Loans may be reassigned back to the Department of Education for further collection activity. Protecting your credit score Student loans are reported to national consumer reporting agencies every month. Some important points to remember to maintain a healthy credit score include: Making loan payments on time. Maintaining accurate payment records. Retaining important documents, such as promissory notes and disclosure statements. Responding immediately to any errors on billing statements or disclosures. Ensuring contact information is kept up to date. You should: Contact your lender in writing when you change your name, address, enrollment status or school. Always keep copies of all correspondence relating to your loans for future reference. Avoid unexpected early repayment by informing your lender if you transfer schools or change the date you expect to complete your studies. KHEAA 44 Adults Returning to School

4 Deferment Eligibility Chart 1 New Borrower 7/1/87 to 6/30/93: A borrower whose first loan was made on or after July 1, 1987, and before July 1, 1993, or who had an outstanding balance on a loan obtained on or after July 1, 1987, and before July 1, 1993, when he or she obtained a loan on or after July 1,1993, or who had no outstanding balance on a Federal Consolidation Loan made before July 1, 1993, that repaid a loan first disbursed before July 1, New Borrower 7/1/93: A borrower whose outstanding loans were all made on or after July 1, 1993, and when his or her first loan was made on or after July 1, 1993, had no outstanding loans that were made before July 1, Deferment for parent borrower who received a loan between July 1, 1987, and June 30, 1993, during which the student for whom the parent obtained the PLUS Loan meets the conditions required for an in-school deferment. Upon request, a parent borrower may defer repayment on a parent PLUS Loan that was first disbursed on or after July 1, 2008, during the period in which the student for whom the parent obtained the PLUS Loan meets the conditions required for an in-school deferment. (Footnotes continued on next page) KHEAA 45 Adults Returning to School

5 4 A deferment may be granted during periods when the borrower is temporarily totally disabled or during which the borrower is unable to secure employment because the borrower is caring for a spouse or dependent who is temporarily totally disabled. 5 Borrowers are eligible for a combined maximum of 3 years of deferment for service in NOAA, PHS, and Armed Forces. 6 A parental leave deferment may be granted to a borrower in periods of no more than 6 months each time the borrower qualifies. 7 A Grad PLUS borrower whose loan was first disbursed on or after July 1, 2008, may receive a 6-month postenrollment deferment beginning on the day after he or she no longer meets the conditions required for an in-school deferment. Upon request, a parent PLUS borrower may defer repayment on a parent PLUS Loan that was first disbursed on or after July 1, 2008, for a 6-month period that begins on the day after the parent or the student for whom the parent obtained the PLUS Loan no longer meets the conditions required for an inschool deferment. 8 A borrower who received a Federal Consolidation Loan before July 1, 1993, that repaid a loan made before July 1, 1987, or who had an outstanding balance on a loan obtained before July 1, 1987, when the Federal Consolidation Loan was obtained, is eligible for inschool deferment only if the borrower attends school full-time. 9 A borrower with a Federal Consolidation Loan made before July 1, 1993, or a borrower who receives a Consolidation Loan on or after July 1, 1993, who has any outstanding loan at the time of consolidation that was first disbursed before July 1, A borrower who receives a Federal Consolidation Loan made on or after July 1, 1993, who has no outstanding FFELP loans at the time of consolidation that were made on or before July 1, A deferment may be granted to a borrower who is serving on active duty during a war or other military operation or national emergency (including qualifying National Guard duty). The borrower s military service must begin on or after October 1, 2007, or include that date 12 A deferment may be granted to a borrower called to active national or state duty who is a member of the National Guard or Reserves (including retired members) and who was enrolled at least half-time at an eligible school at the time of, or within 6 months prior to, being activated. The borrower s military service must begin on or after October 1, 2007, or include that date. 13 A post-active duty student deferment may be granted to a borrower for a period of no more than 13 months each time the borrower qualifies. There is no limit to how many deferments of this type a borrower may receive. If a borrower is also eligible for a military service deferment, the 13-month period must run concurrently with the 180- day post-military mobilization period. KHEAA 46 Adults Returning to School

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