There are two broad categories:

• Federal - funded by the federal government
• Private - made by a lender such as a bank, credit union, state agency, or a school

In turn, Federal student loans can be subdivided as follows:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans
• Federal Perkins Loans

Direct Subsidized Loans are available to undergraduate students with financial need. Your school determines the amount you can borrow, and the amount may not exceed your financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you are in school at least half-time, for the first six months after you leave school, and during a period of deferment.

Direct Unsubsidized Loans are available to undergraduate and graduate students. There is no requirement to demonstrate financial need. Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive. You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods. If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will continue accumulating and will be added to the principal amount of your loan.

Direct Plus Loans are available to graduate or professional degree students enrolled at least half-time at an eligible school in a program leading to a degree or certificate, or be the parent (biological, adoptive, or in some cases, stepparent) of a dependent undergraduate student enrolled at least half-time at a participating school. You must meet the general eligibility requirements for federal student aid. If you are borrowing on behalf of your child, your child must also meet these requirements. The U.S. Department of Education is the lender. The borrower must not have an adverse credit history.

Federal Perkins Loans are available to undergraduate, graduate, and professional students with exceptional financial need. Not all schools participate in the Federal Perkins Loan Program. You should check with your school's financial aid office to see if your school participates. Your school is the lender. Funds depend on your financial need and the availability of funds at your college.

The amount of funds that you could borrow will depend on the following factors:

• Financial need, as evidenced in the FAFSA application
• Cost of attending that particular university or college
• Type of student loan that you are requesting
• Whether you are an undergraduate or a graduate student
• Whether you are a Freshman, Sophomore, Junior, or Senior (for Undergraduates)
• Whether you are a dependent or independent student
• Whether you are the parent of an dependent undergraduate student
• Your credit history (for PLUS or private loans)
• Availability of funds at your particular college (for Perkins loans)

You may concurrently request subsidized, unsubsidized, PLUS and private loans if you meet certain criteria. This could be counterproductive and should be thoroughly analyzed and discussed beforehand with a credit counselor.

Federal student loans may be seen as a long-term investment that could help you earn more money in the future. Even though you should be wary of requesting more money than you really need for your education, federal student loans may represent a viable option for families who have not been able to save enough for college for reasons beyond their control.

The following are some benefits compared to other options you may consider when paying for college: 

• The interest rate on federal student loans is almost always lower than that on private loans —and much lower than that on a credit card!
• You do not need a credit check or a cosigner to get most federal student loans.
• You do not have to begin repaying your federal student loans until after you leave college or drop below half-time.
• If you demonstrate financial need, you can qualify to have the government pay your interest while you are in school.
• Federal student loans offer flexible repayment plans and options to postpone your loan payments if you are having trouble making payments.
• If you work in certain jobs, you may be eligible to have a portion of your federal student loans forgiven if you meet certain conditions.

Before you consider requesting a student loan, apply for as many scholarships and grants as possible and consider working part time while you study. Remember that student loans represent a legal obligation that you will need to repay in the future and that there will be interest charges that will be added to the principal and which you will also need to pay.

Even though you might think it is too early to think about student loan repayment, we highly recommend that you follow these suggestions: 

• Keep track of how much you have borrowed so far. Think about how this figure will affect your budget, and how much you will realistically be able to pay each month. Your student loan payments should be only a small percentage of your salary after you graduate, so it is crucial not to borrow more than necessary for your school-related expenses. 
• Research starting salaries in your field. Ask your school for starting salaries of recent graduates in your field of study to get an idea of how much you are likely to earn after you graduate.
• Understand the terms of your loan and keep copies of your loan documents. When you sign your promissory note, you are agreeing to repay the loan according to the terms of the note even if you do not complete your education, cannot get a job after you complete the program, or you did not like the education you received.
• Make payments on time. You are required to make payments on time even if you don’t receive a bill, repayment notice, or a reminder. You must pay the full amount required by your repayment plan, as partial payments do not fulfill your obligation to repay your student loan on time.
• Keep in touch with your loan servicer. Notify your loan servicer when you graduate; withdraw from school; drop below half-time status; transfer to another school; or change your name, address, or Social Security number. You also should contact your servicer if you’re having trouble making your scheduled loan payments. Your servicer has several options available to help you keep your loan in good standing.

When a student is no longer enrolled at least half-time at a four-year college or university, community college, or trade career, or technical school, and after the grace period has expired, they will need to start repaying their student loan(s) – unless he/she requested and was granted a deferment or a forbearance.

The following are the repayment options available:

Standard Repayment Plan – under this plan, your monthly payments may be slightly higher than payments made under other plans, but you will pay off your loan in the shortest time (10 years). For this reason, you will pay the least amount of interest over the life of the loan.

Graduated Repayment Plan – under this plan, your monthly payments start out low and increase every two years, are made for a period of between 10 and 30 years, will never be less than the amount of interest that accrues between your payments, and will not be more than three times greater than any other payment.

Extended Repayment Plan – under this plan, your monthly payments are a fixed or graduated amount, made for up to 25 years, and generally lower than payments made under the Standard and Graduated Repayment Plans.

Income-Based Repayment Plan – under this plan, your monthly payments are based on your income and family size; adjusted each year, based on changes to your annual income and family size; usually lower than they are under other plans; never more than the 10-year standard repayment amount; and made over a period of 25 years.

Consolidation Plan – if you have multiple federal student loans, you can consolidate them into one. This may simplify repayment if you are currently making separate loan payments to different loan holders or servicers, as you will only have one monthly payments to make.

If you are unable to comply with your programmed payments, you will need to work with your loan servicer to seek options, such as deferment, forbearance, or a repayment plan that is feasible based on your current financial situation. Be sure to keep making payments on your loan until the deferment or forbearance is in place.

With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans).

There are two types of forbearances:

Discretionary - your lender decides whether to grant forbearance or not. It may be granted if you are experiencing financial hardship or illness.

Mandatory – if you meet the eligibility criteria for the forbearance, your lender is required to grant the forbearance. You may request one if you meet the following criteria:

• You are serving in a medical or dental internship or residency program, and you meet specific requirements.
• The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income.
• You are serving in a national service position for which you received a national service award.
• You are performing teaching service that would qualify for teacher loan forgiveness.
• You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
• You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.

Receiving loan forbearance is not automatic. You must apply by making a request to your loan servicer. In some cases, you must provide documentation to support your request.

Interest will continue to be charged on all loan types, including subsidized loans. 

You can pay the interest during forbearance or allow the interest to accrue accumulate. If you do not pay the interest on your loan during forbearance, it may be added to your principal balance, and the amount you pay in the future will be higher

Even if you do not complete your education, cannot find a job related to your program of study, or are unhappy with the education you paid for with your loan, you are legally required to repay your student loans – unless you meet certain criteria. 

The following are special cases in which your student loans might be forgiven, canceled, or even discharged:

• Total and Permanent Disability – your student loans will be discharged if you prove that you are a veteran who is unemployable due to a service-connected disability, are currently receiving SSDI or SSI, or if your physician certifies that you are unable to engage in any substantial gainful activity.

• Death – If you, the borrower, die, your federal student loans will be discharged.  If you are a parent PLUS loan borrower, then the loan may be discharged if you die, or if the student on whose behalf you obtained the loan dies. 

• Bankruptcy Discharge – If the bankruptcy court finds that repayment would impose undue hardship on you and your dependents, your student loan debt will be discharged. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request. The court uses this three-part test to determine hardship: if you are forced to repay the loan, you would not be able to maintain a minimal standard of living; there is evidence that this hardship will continue for a significant portion of the loan repayment period; you made good-faith efforts to repay the loan before filing bankruptcy.

• False Certification of Student Eligibility – your student loans will be discharged if your school incorrectly certified your eligibility to receive the loan based on your ability to benefit from its training, and you did not meet the ability to benefit student eligibility requirements; the school signed your name on the application or promissory note without your authorization or the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge, unless the proceeds of the loan were delivered to you or applied to charges owed by you to the school; your loan was falsely certified because you were a victim of identity theft; the school certified your eligibility, but because of a physical or mental condition, age, criminal record, or other reason you are disqualified from employment in the occupation in which you were being trained.

• Unpaid Refund Discharge – You may be eligible for a discharge of a portion of your Direct Loan if you withdrew from school, but the school didn’t pay a refund that it owed to the U.S. Department of Education or to the lender, as appropriate. Only the amount of the unpaid refund will be discharged. You may qualify for this partial discharge whether the school is currently open or not. You should contact your loan servicer for additional information.

• Teacher Loan Forgiveness – If you are a teacher who meets certain requirement, you may be able to have as much as $17,500 of your subsidized or unsubsidized loans forgiven. Your PLUS loans cannot be included.

• Public Service Loan Forgiveness – if you are employed in certain public service jobs and have made 120 payments on your Direct Loans (after Oct. 1, 2007), the remaining balance that you owe may be forgiven. Only payments made under certain repayment plans may be counted toward the required 120 payments. You must not be in default on the loans that are forgiven.

• Perkins Loan Cancellation and Discharge – The following Federal Perkins Loan Program cancellations apply to individuals who perform certain types of public service or are employed in certain occupations. For each complete year of service, a percentage of the loan may be canceled. The total percentage of the loan that can be canceled depends on the type of service performed. Depending on the type of loan you have, and when that loan was taken out, you may be eligible to cancel part of or your entire loan if you have served as one of the following:

♦  Volunteer in the Peace Corps or ACTION program (including VISTA)

♦  Teacher

♦  Member of the U.S. armed forces (serving in area of hostilities)

♦ Nurse or medical technician

♦  Law enforcement or corrections officer

♦ Head Start worker

♦  Child or family services worker

♦  Professional provider of early intervention services

If you qualify for a complete discharge of your loan, you are no longer obligated to make loan payments. Depending on the type of loan discharge program for which you may be eligible, the U.S. Department of Education may be required to refund to you some or all of the payments you made on the loan.

 CONSUMER has certified counselors who may provide advice regarding your best course of action for your student loans. In the “Services” section, you will find more information about how to request an appointment. You may contact us at (787) 722-8835 or 1-800-717-2227.