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Borrowing Responsibly

Responsibilities, Rights & Loan Deferment

There are a lot of responsibilities when taking out student loans. Below are the most important ones:

Signing a promissory note binds you to the payment terms and conditions of the note. The note states that you must repay the loan even if you do not finish your education. Exceptions include loan discharge (see Federal Perkins Loans and Stafford Loans) or if your school closes before you finish your program. Think about what your repayment obligation means before you take out a loan. Also be sure to choose your college wisely. If you don’t repay your loan on time or according to the terms in your promissory note, you’ll go into default, which has serious consequences and lowers your credit score. You must make payments on your loan even if you don’t receive a bill or repayment notice. Billing statements (or coupon books) are sent to you as a convenience, but you’re obligated to make payments even if you don’t get a reminder. You also have to make monthly payments in full. Partial payments do not count.

If you apply for a deferment or forbearance, you must continue to make payments until your request is granted. Keep a copy of your request forms and the contact information of the organization that holds your loan. You have to notify the loan servicer when you graduate, withdraw from school, drop below half-time status, change your name, address, Social Security Number or transfer to another school.

If you borrow a federal loan, the Federal Direct Loans Program services your loan. If you borrow a private loan, the lender you borrowed from services your loan. You will get the names of your loan servicer(s) during your loan counseling session. All borrowers have entrance counseling before your first disbursement and exit counseling before graduation. Your school provides counseling and important information about your loan. Your lender has additional information if necessary.

Rights

Before your school makes your first loan disbursement, you’ll receive the following information about borrowing rights and your loan from your school, lender, and/or the Federal Direct Loans Program:

  • the full amount of the loan
  • your repayment date (based on the anticipated graduation date recorded on the promissory note)
  • a complete list of charges and loan fees, and information on how those charges are collected
  • information about yearly and total borrowing amounts
  • information about the maximum repayment period and the minimum repayment amount
  • an explanation of default and its consequences
  • an explanation of refinancing and consolidation options
  • a statement that you can prepay your loan at any time without penalty

Your school must notify you (or your parents, for a PLUS Loan) in writing whenever it credits your account with Stafford, PLUS, or Perkins Loan funds. This notification must be sent no earlier than 30 days before and no later than 30 days after the school credits your account. You or your parents can cancel a portion or all of the loan within 14 days after your school sends the notice, or by the first day of the payment period, whichever is later. Your school will tell you the first day of your payment period. If you or your parents receive loan funds directly by check you can refuse funds by returning the check.

Before you leave school, you’ll receive the following information from your school, lender, and/or the Federal Direct Loans Program:

  • your total debt, including principal and estimated interest, your interest rate, and the total interest charges on your loan
  • the name of the lender or agency that holds your loans, where to send your payments, and where to write/call for questions
  • an explanation of the late fees, collection costs or litigation costs if you are delinquent or in default
  • an explanation of available options for consolidating or refinancing your loan including a statement that you can prepay your loan without penalty at any time

If you borrowed a Perkins, Direct, or FFEL Stafford Loan, your school provides the information to you. If you borrow a federal loan, you’ll receive information from the Federal Direct Loans Program. The Direct Loans Program or your school provides the following information during exit counseling:

If you have Direct or FFEL Stafford Loans, your school will also provide the following information during exit counseling:

  • a current description of your loans, including average monthly anticipated payments
  • a description of applicable deferment, forbearance, and discharge provisions
  • repayment options;
  • budgetary advice about how to manage your payments
  • notification that you must provide your expected permanent address, the name and address of your expected employer, and any corrections to your school’s records concerning your name, Social Security Number, references, and driver’s license number (if you have one). You have the right to a grace period before your repayment period begins. There is no grace period for PLUS Loans. Your grace period begins when you leave school or drop below half-time status.

Your school, lender, and/or the Federal Direct Loans Program, must give you a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.

You must be given a summary of deferment and discharge provisions, including the conditions under which the U.S. Department of Defense might repay your loan.

Loan Deferment Summary

Deferment Condition Direct
Loans 1,2
FFEL Program
Loans 1,3
Perkins
Loans
At least half-time study at a postsecondary
school
YES YES YES
Study in an approved graduate fellowship
program or in an approved rehabilitation
training program for the disabled
YES YES YES
Unable to find full-time employment Up to 3 years Up to 3 years Up to 3 years
Economic hardship Up to 3 years Up to 3 years Up to 3 years
Engages in services listed under discharge/cancellation conditions
(Stafford and Perkins)
NO NO YES

NOTE: You must formally request a deferment through the procedures established by the holder of your loan, and you must continue making payments until you’re notified that the deferment has been granted.

  1. For PLUS Loans and unsubsidized student loans, only principal is deferred. Interest continues to accrue.
  2. Direct Loan borrowers who have outstanding balances on FFEL Loans disbursed prior to July 1993, might be eligible for additional deferments, provided the outstanding balance on the FFEL existed when the borrower received his or her first Direct Loan.
  3. Applies to loans first disbursed on or after July 1, 1993, to borrowers who have no outstanding FFELs or Federal Supplemental Loans for Students (Federal SLS Program) on the date they signed their promissory note. (Note that the Federal SLS Program was repealed beginning with the 1994-1995 award year.)
  4. Many Peace Corps volunteers will qualify for a deferment based on economic hardship.
  5. More information on teaching service deferments can be found on the Internet at www.studentaid.ed.gov. At the site, Click on "Repaying," then click on "Cancellation and Deferment Options for Teachers."

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Last Edited: December 2015

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