Repay Student Loans

Under the Federal Family Education Loan (FFEL) Program, after your student loan is placed in default by the holder of the loan, an insurance claim for the amount of the loan is paid by the guaranty agency (the organization that administers the FFEL Program for your state) to the holder of the loan. To find out more about your repayment options for your loan held by a guaranty agency, please call the agency servicing your loan.  You can call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243), to find out which guaranty agency holds your loan.

Source: U.S. Department of Education

The following federal education loans are eligible for consolidation into a Direct Consolidation Loan:

• Direct Subsidized and Unsubsidized Loans
• Federal Subsidized and Unsubsidized Stafford Loans
• Direct PLUS Loans and Federal PLUS Loans
• Direct Consolidation Loans and Federal Consolidation Loans
• Guaranteed Student Loans
• Federal Insured Student Loans
• Supplemental Loans for Students
• Auxiliary Loans to Assist Students
• Federal Perkins Loans
• National Direct Student Loans
• National Defense Student Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Nursing Student Loans

*  Your student loan may be discharged (forgiven) if you become totally and permanently disabled. If a physician (doctor of medicine or osteopathy) certified that you are totally and permanently disabled and you meet other requirements during a 3 year conditional discharge period your loan(s) may be discharged. It is important to note that: You may receive Social Security, VA or other disability benefits and still not meet the definition of total and permanent disability that applies to student loan discharges.

* You do not qualify for discharge if the medical condition or impairment existed at the time you applied for the loan, unless after that time, the condition significantly deteriorated and then you became totally and permanently disabled. In other words, an individual who was already totally and permanently disabled when he or she applied for a loan cannot have that loan discharged for that condition.

Note that PLUS loans obtained by a parent on behalf of a student are not dischargeable on the basis of the student’s disability.

What to Do:

If you believe you qualify for a disability discharge, you and your doctor must complete, and sign, a discharge application form. You can request this form from the party that holds your loan, or you can download it now. Check a recent demand letter or bill for this loan; if the address to which you are requested to send payment is the National Payment Center in Greenville, TX, you should submit your completed form to:

U.S. Department of Education
P.O. Box 5609
Greenville, Texas 75403-5609

You may request a copy of the discharge application form by calling 1-800-621-3115. Note: in order to guard against fraud, the U.S. Department of Education (Department) will contact your doctor directly to confirm the nature and severity of your disability if you apply for a disability discharge.

Source: U.S. Department of Education

A Federal Pell Grant, unlike a loan, does not have to be repaid. Pell Grants are awarded usually only to undergraduate students who have not earned a bachelor’s or a professional degree. (In some cases, however, a student enrolled in a post-baccalaureate teacher certification program might receive a Pell Grant.) Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and nonfederal sources might be added.

How much can I get?

The maximum Pell Grant award for the 2008-09 award year (July 1, 2008 to June 30, 2009) is $4,731. For the 2009-10 award year (July 1, 2009 to June 30, 2010), the maximum award is $5,350. The maximum amount can change each award year and depends on program funding. The amount you get, though, will depend not only on your financial need, but also on your costs to attend school, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less.

If I am eligible, how will I get the Pell Grant money?

Your school can apply Pell Grant funds to your school costs, pay you directly (usually by check), or combine these methods. The school must tell you in writing how much your award will be and how and when you’ll be paid. Schools must disburse funds at least once per term (semester, trimester, or quarter). Schools that do not use semesters, trimesters, or quarters must disburse funds at least twice per academic year.

The ICR Plan is designed to keep payments affordable. Generally, borrowers pay the lesser of:
the amount they would pay if they repaid their loan in 12 years, multiplied by an income percentage factor that varies with their annual income, or
20 percent of their discretionary income (AGI minus the poverty level for their family size)
Under the ICR plan, the monthly payment is $0 for borrowers with family incomes that are less than or equal to the U.S. Department of Health and Human Services poverty level for their family size. Borrowers whose calculated monthly payment is greater than $0 but less than $5 are required to make a $5 monthly payment. Other borrowers must pay the calculated monthly payment.
Until the Department receives income information from the IRS or alternative documentation of income, borrowers’ monthly payments are equal to the interest that accrues each month. If they are unable to make the interest -only payments, borrowers may request a forbearance until the first scheduled Income Contingent Repayment (ICR) plan payment is due.

The monthly payment in  Example E is calculated as follows:

Step 1:
Multiply the principal balance by the constant multiplier for 8.25 percent interest (0.0109621)
$15,000 x 0.0109621 = $164.4315

Step 2:
Multiply the result by the income percentage factor that corresponds to the borrower’s income.
88.77 (0.8877) x 164.4315 = $146

Step 3:
Determine 20 percent of discretionary income (based on the poverty guidelines for a family of one).
($30,000 – $10,210) x 0.20 / 12 = $329.83

Step 4:
Payment is the amount determined in step 2 because it is less than 20 percent of discretionary income.

NOTE: This example is based on the 2007 income percentage factors and U.S. Department of Health and Human Services (HHS) poverty level guidelines.

Source: U.S. Department of Education

The ICR Plan gives borrowers the flexibility to meet their obligations without causing them financial hardship. Monthly payments are based on borrowers’ annual Adjusted Gross Incomes (AGI), loan balance and family sizes. Income is obtained from the Internal Revenue Service (IRS) or from an  Alternative Documentation of Income Form  (discussed below) submitted by the borrowers.

To participate in the ICR Plan, borrowers (and if married, their spouse) must sign the Income Contingent Repayment Plan Consent to Disclosure of Tax Information Form. This authorizes the IRS to release borrowers’ income information to the Department of Education to calculate monthly payments. Monthly payments are adjusted annually to reflect inflation, family size and income.

Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Direct Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.

Under this plan, it is possible a borrower will not make payments large enough to pay off his or her loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.

Source: U.S. Department of Education

When repaying a Direct Consolidation Loan, you may choose from as many as four repayment plans with various term selections.

* Standard Repayment Plan:

You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness.

* Graduated Repayment Plan:

Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness

* Extended Repayment Plan:

To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s). You have two payment options:

* Fixed Monthly Payment Option -You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50.
* Graduated Monthly Payment Option – Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years.

* Income Contingent Repayment Plan (ICR):

Monthly payments that are based on a borrower’s annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years.

If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) you will have one Direct Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.

If (1) you have not chosen a repayment plan, (2) you are not required to pay using ICR, and (3) we determine that you currently have other active Direct Loans, we may assign your new Direct Consolidation Loan(s) to the same repayment plan as your active loan(s). If you do not currently have active

Direct Loan(s), we may assign your new Direct Consolidation Loan(s) to the Consolidation Standard Repayment Plan. You can change at a later date to other plans for which you may be eligible.

Source: U.S. Department of Education

Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.

• A borrower may change to the ICR plan at any time. After the change, the borrower’s repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. (The ICR Plan is NOT available if you have a Direct PLUS Consolidation Loan(s) made before July 1, 2006 and/or a Direct PLUS Loan(s). However, you are eligible to repay any Direct Consolidation Loan(s) made on/after July 1, 2006 under the ICR Plan even if it includes a PLUS Loan(s).)
• A borrower may change to another plan as long as the new plan has a repayment term that is longer than the amount of time the borrower has already spent in repayment. The new repayment term is determined by subtracting the amount of time a borrower has spent in repayment from the term allowed under the new plan.

Source: U.S. Department of Education

Borrowers who fail to make a payment on time are considered  delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default.  Defaulting has severe and long-lasting consequences, as follows:

* The Department of Education can immediately demand repayment of the total loan amount due.
* The Department of Eduction will attempt to collect the debt and may charge collection costs.
* The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
* Borrowers with loans in default are ineligible for Title IV student aid.
* Borrowers with loans in default are ineligible for deferments
* The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
* Borrowers’ wages may be garnished.

It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.

Source: U.S. Department of Education

Yes, you can delay the processing of your Direct Consolidation Loan until closer to the end of your grace period end date if any of the loans you want to consolidate are in a grace period.
Normally, when you consolidate your existing loan(s) into a new Direct Consolidation Loan, you will be required to start repayment of your new loan immediately.

However, if any loan you want to consolidate is still in a grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date by entering your expected grace period end date (month and year) in the space provided on the application. We will start processing your application about 45 days before the expected grace period end date that you provide. If you leave the expected grace period end date blank on your consolidation application, your Direct Consolidation Loan will enter repayment immediately.

You can select a date up to nine (9) months into the future. If your grace end date is more than 9 months away, wait to submit your application.

Source: U.S. Department of Education