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UNDERSTANDING STUDENT LOANS
To find out what type of federal loan you have, visit the National Student Loan Data System (NSLDS). You can also click here to help you tell the difference between government and private loans.
What’s the difference between the two federal loan programs (FFEL and Direct)?
In the Federal Family Education Loan program (FFEL), the government subsidizes loans made by private lenders, and guarantees these loans if students default. FFEL is sometimes called the guaranteed loan program. William D. Ford Direct loans are made directly from the Department of Education to students, without the involvement of a private lender. Many of the terms and conditions for the loan programs are the same, however there are some differences in repayment options. More info.
What’s the difference between federal and private loans?
Federal loans, whether through a bank/private lender or the Department of Education, are funded and tightly regulated by the federal government. Private loans are not subsidized by the government, and therefore are not regulated as closely. Borrowers should always maximize their federal loan options before resorting to private loans. Learn more.
Why are private loans more expensive than federal?
Banks and lenders – not Congress – set the interest rates, loan limits, terms, and conditions of private loans. They usually carry higher, variable interest rates, and lack the flexible repayment options of federal loans. More info.
Who is eligible to take out federal student loans?
Anyone who is enrolled in a degree, certificate, or other approved program at an eligible school and is a U.S. citizen or eligible non-citizen. In addition, borrowers must have a high school diploma or pass a test approved by the Department of Education. There is also a rule that students convicted under federal or state laws of sale or possession of illegal drugs cannot get federal student aid in certain cases. More info.
Guaranty agencies are state or private nonprofit agencies that administer the federal guaranteed loan program. The agencies insure federal student loans against default and pay off lenders when borrowers default. They also try to collect from borrowers.
What are the terms and conditions of Stafford loans?
Click here.
What are the terms and conditions of Perkins loans?
Click here.
What are the terms and conditions of PLUS loans?
Click here.
What are the terms and conditions of HEAL loans?
Click here.
Do I need good credit to borrow a student loan?
Except for PLUS loans, the government will not look at your credit in deciding whether you are eligible for a loan. Private loans are a different story—the interest rate you get will depend on your credit score. More info.
How do I know if I should consolidate?
Consolidation is used to reduce and simplify monthly payments by rolling multiple loans into one. However, it also lengthens the period of repayment, and increases the total amount you will pay in interest over the life of the loan. Learn more about the pros and cons of consolidation.
Can I consolidate with the government more than once?
Only in very rare cases.
Is it a good idea to get a private consolidation loan?
Consolidating private loans into a private consolidation loan may be a good idea if you think you can get a better deal. However, it is very dangerous to consolidate federal loans into a private consolidation loan. You will lose your rights under the federal loan programs once you choose to consolidate with a private lender.
Will I still be able to get the student loans I need during this turbulent economic period and tight credit market?
Yes for federal loans. The biggest problem you may face is if the lender you used last year is not making loans this year. In those cases, you can still get the federal student loans you need, but you will have to choose a different lender. Most borrowers with good credit scores should still be able to get private student loans as well. You may have more trouble getting a private loan if you have a low credit score or cannot find a co-signer.
REPAYMENT
Can I switch to a more affordable repayment plan?
Yes. FFEL lenders must allow you to switch at least once each year, but most will let you change more often if necessary. Borrowers with Direct Loans may change plans at any time by notifying the Department of Education. Learn more.
Your payment goes first to accrued late charges or collection costs, then to any outstanding interest, and finally to outstanding principal. More info.
Interest on all federal loans is calculated on a simple daily basis.
How can I make payments relative to my income?
The Direct Loan program has an income contingent repayment plan. There is no minimum payment under this plan. The FFEL program has an income sensitive repayment plan. Payments under this plan must at least cover the interest that accrues every month. Both programs will have a new income-based repayment option (IBR) beginning in July 2009.
Do private loans have flexible repayment plans?
Most do not, but it depends on the lender.
The waiting period after graduation or withdrawal from school and before repayment begins. More info.
The government programs and some private lenders allow you to either get a deferment or forbearance to postpone repayment.
This is a postponement of repayment that is available only if you are not in default. The government has deferment programs for specific circumstances such as military service and unemployment. Interest does not accrue on subsidized loans during deferment periods.
This is a temporary postponement of repayment. Learn more.
Does interest accumulate during forbearance?
Yes.
Does interest accumulate during deferment and grace periods?
For subsidized loans, no. For unsubsidized loans, yes.
Is repayment relief available for military service?
There is a government deferment program for certain military service members as well as other special rights for members of the military or National Guard serving on active duty.
How do I pay extra to reduce principal?
You must request in writing that the extra amount be applied to principal. Learn more.
How do I get back into repayment from default?
The best ways are through consolidation or rehabilitation.
DEFAULT AND DELINQUENCY
What is the difference between default and delinquency?
Delinquency means that you are behind on payments. Once you are delinquent for a certain period of time (usually nine months for federal loans), your lender will declare the loan to be in default. The entire loan balance will become due at that time. More info.
What are the consequences of defaulting on student loans?
You are not eligible for new loans and grants. The government can also seize tax refunds, garnish wages without a court order, take a portion of Social Security payments, and charge very large collection fees. Learn more.
How many payments to I have to miss before I default on a federal loan?
In most cases, you have to miss nine months of payments before you will be in default.
How does default occur on a private loan?
It depends on the grounds for default listed in the loan agreement. You can usually go into default on a private loan as soon as you miss a payment. More info.
How can I avoid going into default?
You can postpone repayment through deferment or forbearance — or with a private loan, through any other way you can negotiate with your lender. You can also try to switch to a more affordable repayment plan.
How do I get back into repayment from default?
The best ways are through consolidation or rehabilitation.
Will the government or private lenders ever agree to settle student loan debt?
Sometimes, but they usually require a large lump sum. More info.
Will a default or delinquency show up on my credit report?
Yes. More info.
LOAN CANCELLATION
Is it possible to discharge a federal student loan?
Yes, in limited circumstances. More info.
Can I discharge my student loans if I am dissatisfied with the school I attended?
No, but you may qualify for a school-related discharge if the school closed while you were there or if you were falsely certified for admission. You may have other remedies if you were dissatisfied with your school, including state student tuition recovery funds.
Is there a discharge for military service?
Only in the Perkins loan program. More info on special programs for military.
Does it matter what type of loan I have?
Yes. Some discharge options are only for certain federal loans. More info.
How do I apply for a loan discharge?
The government has developed forms for different types of discharge for you to fill out and send to your loan holder. Learn more.
How long does it take to get a response on a discharge application?
It depends on the type of discharge, but you should expect to wait at least six months and possibly up to a year or more.
Can I stop collection while I’m waiting for a reply to a discharge application?
Yes. In most cases, loan holders are required to stop collecting once they receive a completed discharge application. You can also request forbearance so that collection stops while you are gathering information for your application.
What are the new disability discharge rules and will they affect me?
The Department of Education has made some important changes to the disability discharge program, effective July 1, 2008. Until then, the current rules still apply. The most important change is that doctors will no longer have to certify when a borrower’s disability began. Instead, the doctor will only have to certify that the borrower is totally and permanently disabled as of the date of application for discharge. This means that after July 1, 2008, there will no longer be any retroactive discharges. If the Department agrees with the doctor, the three year conditional period will begin from the date the doctor certifies the disability.
Will my student loan be discharged if I die?
If you have federal government loans, yes. This means that your estate will not have to pay back those student loans. Also, the death of both parents with a PLUS loan (assuming both took out the loan) is grounds for the “death discharge.” The death of only one of the two obligated parents does not cancel a PLUS loan. There is no administrative discharge for private student loans if you die. Private loan debts will be handled the same way as other debts. That means that they will be part of your estate. This estate settlement process (also called probate) varies by state.
Can private student loans be canceled?
Yes, but only if the private lender has a cancellation program. Most do not.
Am I eligible for loan forgiveness programs?
There are several career-related discharges that will cancel all or a portion of your loan if you work in certain professions, such as teaching. Some states also have loan forgiveness programs.
Can I cancel my loan if I’m working in a public service job?
Yes, if you are eligible for the new public service loan forgiveness program. The Department of Education will be administering this program. Final rules will not be available until later in 2008, but you can get an idea now about whether you will qualify. You must have a Direct Loan to be eligible. Borrowers with other federal government loans can consolidate with Direct Loans in order to obtain this benefit. If you have a FFEL consolidation loan, you cannot re-consolidate for this purpose until July 1, 2008. In order to qualify, you must not be in default and you must have made 120 monthly payments (10 years of payments) on your loans AFTER October 1, 2007. You must be employed in a public service job at the time of the forgiveness and must have been employed in a public service job during the period in which you made each of the 120 payments.
STUDENT LOANS AND BANKRUPTCY
Is it possible to discharge student loans in bankruptcy?
Yes, but it is much more difficult than discharging other types of unsecured debt like credit cards. You have to prove “undue hardship.”
Are all student loans treated the same in bankruptcy?
Most student loans are not dischargeable in bankruptcy unless you can prove “undue hardship”, but there are a few exceptions to this rule. More info.
Should I consider Chapter 13 bankruptcy?
In some cases, yes. More info.
How do I apply to discharge student loans in bankruptcy?
In addition to filing the regular bankruptcy petition in court, you also have to file a separate case, called an adversary proceeding. Learn more.
What if I already filed bankruptcy, but my student loans weren’t discharged?
You can reopen your bankruptcy case at any time to try to discharge the student loans.
How long does bankruptcy information stay on my credit report?
The fact that you filed for bankruptcy will be on your credit report for ten years.
COLLECTIONS
What special powers does the government have to collect student loans?
The government can seize tax refunds, wages, and even certain federal benefits like Social Security, all without first getting a judgment in court. In some states they can revoke professional licenses. More info.
Is there anything I can do to challenge government collection actions?
Yes. You have the right to request an administrative hearing. You may also be able to reduce or suspend collection if you can prove that collection will cause great hardship. More info.
Do private loan lenders have the same collection powers?
No. Private loan lenders have less collection powers than the government.
Is there a time limit on how long student lenders can come after me to collect?
Not for collection of federal loans, but there is a time limit on private loan collection.
What rights do I have if a collector is bothering me?
You have the right to be free from harassment and abuse and to send a letter to request that the collector stop contacting you. More info.
Can collection fees be added to my loan balance?
Yes, but there are limits on how much government lenders can charge you. The amount of private loan collection fees must be described in the loan contract. More info.
Will I be sued for collection on my student loan?
The government has the right to sue, but rarely does so because there are so many ways the government can come after you without suing. Private lenders also have the right to sue and may be more likely to do so because they have fewer collection powers than the government. Learn more.
If I am sued and lose my case, do I have to repay the debt?
It depends on whether you are “collection proof.” This means that your assets and income are small enough to be protected by federal and state law from seizure by creditors.
Are there special protections against collection for for military service members?
Yes. Learn more.
Can the government take my economic stimulus tax rebate to collect a federal student loan?
Yes.
WHERE TO GO FOR HELP
How can I find a lawyer to help me?
Click here.
Does the Department of Education offer assistance?
The Department of Education has an ombudsman office to help borrowers and a number of helpful publications.
Are there books about student loan problems?
The National Consumer Law Center’s Student Loan Law book contains a very detailed analysis of legal issues and student loans. More info.
What are some other web sites with helpful information?
Click here.
Where can I go for more information about shopping for student loans and comparing different types of loans?
Click here.
How can I contact the Student Loan Borrower Assistance Project?
Student Loan Borrower Assistance
A Project of the National Consumer Law Center
77 Summer St., 10th Floor
Boston, MA 02110
617/482-0850
info@studentloanborrowerassistance.org