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Borrowing Responsibly

Responsibilities, Rights & Loan Deferment

When you take out a Student Loan, you have certain responsibilities. Here are some important ones:

When you sign a promissory note, you’re agreeing to repay the loan according to the terms of the note. The note states that except in cases of loan discharge (see Federal Perkins Loans and Stafford Loans), you must repay the loan, even if you don’t complete your education (unless you couldn’t for a valid reason—because the school closed, for example). Also, you still must repay your loan if you can’t get a job after you complete the program, or you don’t like, or don’t receive, the education you paid for. Think about what your repayment obligation means before you take out a loan. If you don’t repay your loan on time or according to the terms in your promissory note, you might go into default, which has very serious consequences and will affect your credit rating. 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 receive any reminders. You must also make monthly payments in the full amount your repayment plan has established. Partial payments do not fulfill your obligation.

If you apply for a deferment or forbearance, you must continue to make payments until you’re notified the request has been granted. If you don’t, you might end up in default.You should keep a copy of any request form you submit, and you should document all contacts with the organization that holds your loan. You must notify the loan servicer when you graduate, withdraw from school, or drop below half time status; change your name, address, or Social Security Number; or transfer to another school.

If you borrow a federal loan, the Federal Direct Loans Program will service your loan. If you borrow a private loan, the lender you borrowed from will service your loan. During your loan counseling session, you’ll be given the name of the loan servicer(s). Regardless of the type of loan you borrow, you must receive entrance counseling before you’re given your first loan disbursement and you must receive exit counseling before you leave school. Your school will provide the counseling and important information about your loan. Your lender will give you additional information about your loan.

Rights

You have certain rights as a borrower. Listed below are some of them. Before your school makes your first loan disbursement, you’ll receive the following information about your loan from your school, lender, and/or the Federal Direct Loans Program:

  • the full amount of the loan
  • the date you must start repaying the loan (based on the anticipated graduation date recorded on the promissory note)
  • a complete list of any charges you must pay (loan fees) and information on how those charges are collected
  • information about the yearly and total amounts you can borrow
  • information about the maximum repayment periods and the minimum repayment amount
  • an explanation of default and its consequences;
  • an explanation of available options for consolidating or refinancing your loan
  • 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, for a PLUS Loan) may cancel all or a portion of the loan by informing your school within 14 days after the date your school sends this notice, or by the first day of the payment period, whichever is later. (Your school can tell you the first day of your payment period.) If you or your parents receive loan funds directly by check, the funds may be refused by returning the check.

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

  • the amount of your total debt (principal and estimated interest), what your interest rate is, 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 or call if you have questions
  • an explanation of the fees you might be charged during the repayment period, such as late charges and collection or litigation costs if you’re delinquent or in default
  • an explanation of available options for consolidating or refinancing your loan; and a statement that you can prepay your loan without penalty at any time

If you borrow a Federal Perkins Loan, your school will provide this information to you. If you borrow a federal loan, you’ll receive information from the Federal Direct Loans Program. That program or your school will also provide 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;
  • advice about debt management that will help you in making 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. (Your parents do not receive a grace period for a PLUS Loan.) Your grace period begins when you leave school or drop below half time status.

Your school, lender, and/or the Federal Direct Loans Program, as appropriate, 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 (cancellation) 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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