Douglas Olsen
For most federal student loans, you are not obligated to start paying them back until six months after you graduate. This is known as the grace period, during which interest will continue to grow on your loan. There are a few exceptions to this rule, such as Parent PLUS loans, which start accruing interest from their disbursement date. If you are having trouble making payments, you can apply for student loan forbearance, which can pause or lower your payments for up to 12 months. Additionally, there are student loan forgiveness programs available, such as the Public Service Loan Forgiveness program and the Teacher Loan Forgiveness program.
| Characteristics | Values |
|---|---|
| When to start paying federal student loans | 6 months after graduating, leaving school, or dropping below half-time enrollment |
| Interest on federal student loans | Accrues daily, typically starting on the day the loan is disbursed |
| Federal student loan forgiveness programs | Public Service Loan Forgiveness, Perkins Loan Cancellation and Discharge, Teacher Loan Forgiveness |
| Federal student loan repayment plans | Fixed, variable, income-driven (IDR) |
| Loan consolidation | Merging multiple loans into a single loan with a fixed interest rate |
| Student loan forbearance | A short-term solution that may pause or lower payments for up to 12 months |
| Delinquency reporting for federal loans | Commercially-owned Federal Family Education Loans (FFEL): 60 days; Direct and ED-owned FFEL: 90 days |
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What You'll Learn
Federal student loan grace periods
Federal student loans usually offer a grace period, which is a set amount of time after you graduate, leave school, or drop below half-time enrolment when you don't have to make payments. The length of this grace period depends on the type of loan. For example, the Federal Perkins Loan has a nine-month grace period, whereas the Federal Stafford Loan and Federal Direct Loan have a six-month grace period. During this grace period, interest will typically continue to accrue, except in the case of Direct Subsidized Loans.
It is important to note that Parent PLUS loans do not come with a grace period. Parents with these loans must start repaying as soon as the loan funds are received by the child or the school. However, they can request a deferment of payments while their child is in school and for an additional six months after their child graduates or leaves school.
If you return to school or maintain at least half-time status during your initial grace period, you may be eligible for another grace period. For Federal Perkins Loans, you will be granted another nine-month grace period. For Stafford and Direct Loans, you will receive an additional six-month grace period. However, once you have exited your initial grace period, you will not be eligible for a new one in the future.
Towards the end of your grace period, you will need to decide on a repayment plan and determine whether to enrol in autopay. You will make payments to your loan servicer, which you can find by accessing your StudentAid.Gov account. It is important to stay in contact with your lender to ensure they have your current contact information and to avoid missing any payments.
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Loan repayment plans
For most federal student loans, repayment starts six months after you graduate, leave school, or drop below half-time enrollment. During this six-month grace period, interest will continue to grow on your loan. It is worth noting that Parent PLUS loans do not have a grace period, so repayment of these loans must begin as soon as the loan funds are received.
There are four main federal student loan repayment plans: Standard Repayment, Extended Repayment, Graduated Repayment, and Income-Contingent Repayment. Each plan has different terms, conditions, and eligibility criteria.
Standard Repayment involves fixed monthly payments for up to 10 years, with a minimum monthly payment of $50. The loan term may be shorter than 10 years, depending on the loan amount.
Extended Repayment offers a longer repayment period of 12 to 30 years, reducing the size of each monthly payment. However, extending the loan term increases the total amount of interest repaid over the loan's lifetime.
Graduated Repayment starts with lower payments that gradually increase every two years. The loan term is 12 to 30 years, and the monthly payment can be between 50% and 150% of the standard repayment plan's monthly payment. The minimum payment must cover the accruing interest and be at least $25.
Income-Contingent Repayment plans base monthly payments on the borrower's income and total debt. Payments are adjusted annually as the borrower's income changes. The loan term is up to 25 years, after which any remaining balance is discharged, although this write-off is currently taxable.
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Loan consolidation
For most federal student loans, you will start making payments six months after you graduate, leave school, or drop below half-time enrollment. During this grace period, interest will continue to grow on your loan.
Before consolidating, it is important to review the interest rates on your current loans. Federal loans do not all have the same interest rate, and consolidating may cause you to lose any interest rate reductions you are receiving. The interest rate on a new Direct Consolidation Loan is a weighted average based on your loan amounts and interest rates. This rate is fixed for the life of the loan.
You can use the loan consolidation application to see a demo of the weighted interest rate for your loans. Simply select the "Add Loans" or "Add Another Loan" button in the "Select Loans to Consolidate" section and enter your loan information.
If you have concerns or questions about loan consolidation, you can contact your loan servicer for free help.
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Loan forgiveness programs
Repaying federal student loans can be a daunting task, but there are several loan forgiveness programs that can help ease the burden. These programs offer full or partial loan forgiveness if you meet certain eligibility requirements. Here are some of the available loan forgiveness programs:
Income-Driven Repayment (IDR) Plans
IDR plans base your monthly loan payments on your income and family size. If you consistently repay your loans under an IDR plan, the remaining balance on your student loans may be forgiven after you make a certain number of payments over 20 or 25 years. There are different types of IDR plans, and you can use the Loan Simulator to compare and determine which plan you're eligible for.
Public Service Loan Forgiveness (PSLF) Program
If you work full-time for a government or not-for-profit organization, you may qualify for forgiveness of the entire remaining balance of your Direct Loans through the PSLF Program. This program requires you to make 120 qualifying monthly payments under an IDR plan while working for a qualifying employer.
Teacher Loan Forgiveness (TLF) Program
The TLF Program offers forgiveness of up to $17,500 if you teach full-time for five complete and consecutive academic years in certain elementary or secondary schools serving low-income families. To qualify, you must meet specific teaching qualifications and other requirements. It's important to note that you cannot receive benefits under both the TLF and PSLF Programs for the same period of teaching service.
Total and Permanent Disability (TPD) Discharge
If you have a physical or mental disability that severely limits your ability to work now and in the future, you may be eligible for a TPD discharge. With this discharge, you won't have to repay any of your federal student loans. To qualify, you'll typically need to provide specific proof of your disability and may be subject to a post-discharge monitoring period.
Borrower Defense to Repayment
Borrower defense to repayment is a legal ground for discharging federal Direct Loans. Borrowers can apply for this type of loan forgiveness for specific reasons, such as if their school closes while they are enrolled or soon after they withdraw.
These are just a few examples of loan forgiveness programs available for federal student loans. Each program has its own specific requirements and eligibility criteria. It's always a good idea to research and explore these options to understand the potential opportunities for assistance in repaying your student loans.
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Loan refinancing
Before deciding to refinance, it's important to consider the pros and cons. Refinancing can help you lock in lower rates, reduce monthly payments, and save money. It can also simplify your payments by allowing you to combine multiple loans into one. Additionally, if your credit score has improved, refinancing can help you release a cosigner from responsibility for your loan. However, refinancing may cause you to lose certain benefits associated with your original loan, such as autopay discounts or loyalty rewards. You may also lose out on federal benefits if you refinance federal loans.
To qualify for refinancing, you must meet certain eligibility requirements, such as having a minimum loan amount and using the loan to fund tuition at an eligible accredited school. It's also important to have a good credit score to increase your chances of approval and secure better terms. When comparing lenders, consider interest rates (fixed vs. variable), repayment terms, and monthly payments. You can use online tools to compare personalized offers from different lenders and choose the option that best fits your financial goals.
It's worth noting that refinancing is not the same as loan consolidation, although the terms are often used interchangeably. With loan consolidation, you combine multiple federal student loans into one loan with a fixed interest rate, which is the weighted average of the various interest rates rounded up to the nearest one-eighth of one percent. Consolidation simplifies your payments but may not result in a lower interest rate. Refinancing, on the other hand, involves taking out a new private loan to pay off your existing loans, potentially at a lower interest rate or with better terms.
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Frequently asked questions
For most federal student loans, you'll need to start making payments six months after you graduate, leave school, or drop below half-time enrollment.
A grace period refers to the time after you graduate or leave school before you need to start making payments. Most federal loans have a six-month grace period, during which interest will continue to grow.
You can choose from a few repayment plans, including fixed and variable repayment plans. Fixed plans offer consistent monthly payments, while variable plans may fluctuate based on interest rates. Income-driven repayment (IDR) plans are also available for federal loans, adjusting payments based on your earnings.
Yes, there are several options. The Public Service Loan Forgiveness program, Perkins Loan Cancellation, Teacher Loan Forgiveness, and student loan refinancing can all help make payments more manageable. Active-duty servicemembers can also benefit from reduced interest rates on their federal student loans.
Student loan forbearance or deferment may be an option if you're facing financial hardship or other challenges. Forbearance can pause or reduce your payments for up to 12 months, while deferment may be an option if you're enrolled in school, experiencing economic hardship, or serving in the military.
