You have a choice of repayment plans if you received a FFEL or a Direct Student Loan. Federal Perkins Loans do not have repayment plan choices. Generally, you have up to 10 years to repay. Your monthly payment will depend on the size of your debt and the length of your repayment period. Note to parents: Generally, Direct PLUS Loan borrowers can choose all but the Income Contingent Repayment Plan. FFEL PLUS Loan borrowers usually can choose from among all the FFEL repayment plans. In some cases, you might be able to reduce your interest rate if you sign up for electronic debiting.
If you do not repay your student loans on time or according to the terms of your promissory note, you might go into default, which will affect your credit rating. There is assistance for borrowers having difficulty repaying their education loans, including deferment and forbearance.
If you are a teacher serving in a low-income or subject matter shortage area, it may be possible for you to cancel or defer your student loans.
There is a new loan forgiveness program for public service employees. Under this program, the amount forgiven is the remaining outstanding balance of principal and accrued interest on an eligible Direct Student Loan for a borrower who is not in default and who makes 120 monthly payments on the loan after October 1, 2007. The borrower must be employed full-time in a public service job during the same period in which the qualifying payments are made and at the time that the cancellation is granted.
A Consolidation Loan allows you to combine all the federal student loans you received to finance your college education into a single loan.
If you default, it means you failed to make payments on your student loan according to the terms of your promissory note. The legal document you signed is binding at the time you took out your loan. In other words, you failed to make your loan payments as scheduled. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe. I have outlined some consequences of default:
- National credit bureaus will be notified of your default, which will harm your credit rating severely, making it hard to buy a car or a house.
- You would be ineligible for additional federal student aid if you decided to return to school.
- Loan payments can be garnished from your paycheck.
- State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You will have to pay late fees and collection costs on top of what you already owe which only increased your debt and burden.
- You can be sued.
You obviously do not want to let your direct student loan go into default. However, should this happen, find out what options are available. Click on this link to a Federal aid site http://www.ed.gov/offices/OSFAP/DCS/ to find comprehensive information developed by the Department’s FSA Collections section. Clicking on various tabs within that publication will give you information about how to remove your loan from default, what to do if you have a dispute about your loan’s default status, and how to get answers to questions you might have.
For further information on a default or any kind of forgiveness of a student loan, go online and do so checking. You will find credible information that can help you in a very bad situation.