Rules Of Stafford Loans Repayment

October 1st, 2007, 3:17 am

While you’re enrolled in school at least half time, you don’t have to make principal payments on your stafford loans. When you leave school or enroll less than half time, your stafford loans enter their six-month grace period, during which you don’t have to make stafford loan payments.

Stafford loans have grace

If you return to school at least half time before the six month grace period is up on your stafford loans, you keep the full grace period. To use up the grace period, you must be out of school or enrolled less than half time for six consecutive months.

PLUS Loans do not have a grace period.

Beginning repayment

If you don’t return to school at least half time by the end of the grace period, your stafford loans will enter their repayment period, typically five to 10 years in length. Your first payment will be due 30 to 45 days after your grace period ends.

For PLUS Loans, repayment begins within 60 days after full disbursement.

PLAY HARD , PAY EARLY

You may prepay all or part of your loan at any time, without penalty. In fact, it’s to your advantage to pay off your loans as quickly as possible. And if you can’t pay it all off early, at least try to increase your monthly loan payments. Even a small increase over your required minimum monthly payment can make a big difference in the interest you save.

Repayment options

Determine which repayment plan would best suit your budget and notify your lender. You may choose between the following repayment plans:

Standard repayment: One fixed monthly payment for up to 10 years.

Graduated repayment: Payments start out low and gradually increase during the repayment period.

Income-sensitive repayment: Payments are adjusted each year to between 4 percent and 25 percent of your income.

Extended repayment: For borrowers with over $30,000 in FFELP loans and no outstanding FFELP loans made before October 7, 1998, you may have up to 25 years to repay.

Each plan has its pros and cons. Choosing which works for you depends on your individual circumstances. Use our repayment calculators online to see which plan works the best for you. In general, you will pay a minimum of $50 a month or the interest due on your loan, whichever is greater.

Avoid the heat with repayment relief

Student loans offer plenty of help if you run into financial trouble. Even so, you should understand the serious consequences of default and the importance of avoiding it. Save yourself from misery by contacting your loan holder right away to discuss your options.

Bad credit BITES

No one likes being in debt, but borrowers who try to walk away from their student loans soon learn that there are worse things — like bad credit. Defaulted student loans are reported to credit bureaus, resulting in a negative credit rating. A negative credit rating may impact your ability to buy a car, rent an apartment or get a job.

You can’t walk away

Think you can live with bad credit? You might change your mind once your guarantor, collection agencies or
the Department of Education begin contacting you to demand payment. If you default:

1. Your federal and state income tax refunds may be withheld and applied to your loan balance.
2. Your wages could be garnished.
3. Your professional license or certificate may be withdrawn.
4. Collectors will continue to collect until your account is paid in full.
5. Your credit rating may tank.
6. You will lose eligibility to obtain additional student loans.

Your entire balance of your student loan becomes due immediately.

Remember, repaying your student loan doesn’t have to be painful. If you need help, ask for it.

Delay via deferment

If you can’t make your student loan payments because of a temporary financial hardship, you may be eligible for deferment. A deferment allows you to postpone your monthly payments for a specific amount of time.

The federal government pays the interest on subsidized stafford loans during deferment, but you’re responsible for paying the interest on unsubsidized stafford loans and PLUS Loans.

Postpone via Forbearance

If you’re experiencing financial hardship but don’t qualify for deferment, your lender may be willing to grant a forbearance for a specific amount of time. Unlike deferment, lenders aren’t required to grant forbearance. Most lenders are willing to work with you, though, as long as you stay in touch and demonstrate a willingness to repay.

During forbearance, you’re responsible for the interest that accrues on your stafford loans.