Before you or your parents borrow, make sure you understand all of the terms of
the loan. The following questions and answers will give you a basic understanding
of FFELs and Direct Loans.
Other than interest, is there a charge for loans?
You or your parents will pay a fee of up to 4 percent deducted proportionately from
each disbursement of a loan. A portion of this fee goes to the federal government
to help reduce the cost of the loans. Also, if you or your parents don't make loan
payments when they're scheduled, you might be charged late fees and collection costs.
How are loans repaid?
There are several ways to repay your loan. Your choices are:
- a 10-year plan with a minimum monthly payment of $50;
- a graduated plan with a monthly payment that starts out low and then increases gradually
during the repayment period; or
- a plan that bases the monthly payment amount on how much money you make.
Your parents can repay a PLUS Loan using either
of the first two plans. Under the Direct Loan Program, you or your parents can also
choose a plan with a minimum monthly payment amount of $50 and a repayment period
of more than 10 years.
What if someone has trouble repaying?
Under certain circumstances, you can receive a deferment or forbearance on your
loan. During a deferment, no payments are required. If you have a subsidized loan,
the federal government will pay the interest that accrues during the deferment.
If your loan is unsubsidized, you'll be responsible for the interest on the loan
during the deferment. Your parents will be responsible for the interest on their
PLUS Loan during a deferment. No borrower can receive a deferment if his or her
loan is in default (that is, if he or she doesn't repay the loan according to its
terms).
During forbearance, payments are postponed or reduced. The government does not pay
the interest; you are responsible for paying it on your student loan, and your parents
are responsible for paying it on their PLUS Loan.
Neither deferment nor forbearance periods count as part of the repayment period.
For more details on deferments and forbearance, see The Student Guide 2006-07 which
also explains our loan programs and the loan application process in greater detail.
You can access the Guide online at
http://studentaid.ed.gov/students/attachments/siteresources/StudentGuide.pdf
(pdf).
You can also get a paper copy of The Student Guide 2006-07; check with your college
or career school or call our Federal Student Aid Information Center:
(1-800-433-3243)
A FFEL or Direct Loan (including a
PLUS Loan) can be canceled under the following conditions:
- The borrower dies, or the student on whose behalf a parent borrowed dies.
- The borrower becomes totally and permanently disabled.
- The loan is discharged in bankruptcy (in rare cases).
- The student's school closes before the student completes the program.
- The school falsely certifies the loan.
In addition, if a school does not make a required return of loan funds to the lender,
a portion of the FFEL or Direct Loan — up to the amount the school was required
to return — can be canceled.
Even if you don't complete the program of study at the school, don't like the school
or the program of study, or don't obtain employment after completing the program
of study, these loans must be repaid. No cancellation is available for these reasons.
Repayment assistance (not a cancellation, but another way to repay) may be available
if you serve in the military. For more information, contact your recruiting officer.