What Happens With Your Student Loans After School
Completing Exit Counseling for a Student Loan
When you are getting
ready to leave college, your financial aid office will send you a notice that
you are required to complete exit counseling for your federal (Perkins, Stafford
and Graduate PLUS) student loans. Failure to do so could mean that your college
will place a hold on such documents as transcripts until the exit counseling has
been completed. These sessions can be beneficial because you can learn about the
repayment options available to you. You will also learn about the serious
consequences of not making your loan payments.
Quitting School Early
There are a number of reasons why you might be
unable to complete your schooling. However, if you received financial aid while
you were in school, there are some important things to consider. You may be
required to repay the funds that were disbursed to you, depending on the reason
and timing of your departure. This money was awarded to you for your educational
expenses. So when you quit school, it is expected the money will be returned,
even if you do not qualify for a refund from your college. It is also your
responsibility to understand the rules and regulations regarding the tuition
refund policy at your institution and any policies regarding grants,
scholarships, and loans you may have received.
Beginning Repayment on a Student Loan
There are many benefits to using
student loans; among the most notable is the fact that your repayments won’t
begin until after you leave school. On a federally subsidized loan, your
interest doesn’t even accrue until you enter the repayment period. After leaving
school or dropping below a half-time status, you have a six-month grace period
on your Stafford Loans and nine months before you have to begin repayment on a
Perkins Loan. Some loans, such as the PLUS loan that is available only to the
parents of a student, most often do not qualify for a grace period. Parents
typically have to begin repayment soon after the funds have been disbursed.
Private student loans have a variety of repayment options; most allow you to
defer payments while you are in school but the grace periods following your
departure or graduation can vary.
Knowing Your Expected Income After College
When you pay for your graduate
education with student loans, you may want to carefully consider how much money
you really need each year. Every time you receive a student loan disbursement,
that amount is tacked on to the student loans that you already have accumulated.
At the end, your total amount of student loan debt could be quite high. Unless
you plan to enter a field that will provide a large enough salary to meet your
monthly obligations, your student loan payments could take up a considerable
portion of your monthly budget. Be sure to track the amount you are borrowing
each year, know what the monthly payments will be, and compare them to your
expected income after college. This will help you stay on top of your student
loan debt and keep it to a manageable amount.
Staying in Contact With Your Lender
One of the many responsibilities you
have after leaving college is to stay in contact with your student loan
servicing agency or lending company. It is important that they have your current
contact information so they can reach you regarding your student loan repayment.
Without current information, your billing statements could be delayed. Remember:
even if you don’t receive a bill because your loan servicer cannot reach you,
your payment is still due on time. In addition, if you decide to switch schools,
you need to let your lender(s) know. If you don’t contact your lender to notify
them of your new contact information or your in-school status, you might be
required to begin repaying your loan.
Choosing a Plan to Repay Your Student Loan
With federal student loans, and
with many private student loans, you can choose your repayment plan, which can
be influenced by how much you can actually afford to pay. The option most
familiar to most borrowers is the Standard Plan, which requires equal payments
over a 10-year period. With an Extended Plan, you also make equal payments each
month, but repayment can take up to 30 years. Similarly, with a Graduated Plan,
payments can also be spread out over 30 years. However, with that plan your
payments will start out low and gradually increase at regular intervals. The
final option is the Income Contingent Plan. Using your current income
information, a monthly payment is calculated that should be affordable for you.
The term on this loan repayment plan can be extended to 25 years. Any balance
remaining after that 25 year period will be discharged. Make sure to ask your
student loan provider about each of these options to find the one that is right
for you.
Deferring Student Loan Payments
Taking the option of deferring your
student loan payments may help you in some situations when money is tight, for
example, if you decide to go back to school. If you enroll in a qualified
program at a higher education institution and attend at least on a half-time
basis, then you could apply through your loan servicing agency for a deferment.
If your situation is approved, not only are your payments postponed, but the
interest on a subsizided Stafford Loan does not accrue during the period (for
unsubsidized Stafford Loans and private loans, the interest would still
accrue).
Getting a Student Loan Forbearance in an Emergency
When you are facing an
emergency financial situation, you may be able to request a student loan
forbearance. This is an option when you don’t meet the qualifications for a
student loan deferment but need to temporarily postpone making payments on your
student loan. You will be required to provide your student loan servicing agency
with documented proof that you are unable to meet your required payments.
Depending on your situation, this option may help you for up to 12 months. If
the situation continues, your loan servicing agency may review your case and
renew the forbearance for up to three years. One disadvantage is that the
interest on your student loan will continue to accrue during the forbearance
period.
What Happens to Your Student Loan if You Die?
It’s not a pleasant thought,
but take heart: there is no need for you to worry about the impact your federal
student loans will have on your family if you should die. (Note: this is not
always true with private student loans. If you have a private student loan that
required a co-signer, your co-signer might be responsible for repayment.) In
this case, your federal student loans are completely discharged and no debt will
be passed on with your estate. Your family will need to follow a few steps for
this to happen, including sending a copy of your death certificate to the
student loan servicing agency. Likewise, if you should find yourself afflicted
with a permanent disability, you can also begin the process to have your student
loans discharged. You will need to supply various medical documentation
regarding your disability.
Does Your Student Loan Qualify for Forgiveness?
The criteria for student
loan forgiveness are very strict. Some students are surprised to realize that
not completing your degree or having difficulty finding employment after
graduation does not meet the qualifications for loan forgiveness. When you think
your circumstances could qualify for student loan forgiveness, the best thing
for you to do is contact your lender or loan servicing agency for more
information.
