• Loan Repayment Options


  • Deferments

    What is Deferment?

    If you qualify for a deferment, you have a right to have it set up on your student loans. Deferment is a postponement of repayment under various, specific circumstances such as:

    • being at least a half time student;
    • receiving public assistance, such as food stamps or cash welfare;
    • being unemployed and actively seeking full-time work;
    • receiving social security benefits.

    For Federal Perkins Loans and subsidized Stafford Loans, you don't have to pay principal or interest during deferment.

    For unsubsidized Stafford Loans and PLUS Loans, you can postpone paying principal, but you (or your parents, for PLUS Loans) are responsible for paying the interest. You can pay the interest during the deferment period or the loan holder can capitalize the interest when the deferment ends. Remember that capitalization will increase the loan balance.

    The deferments listed apply to all Federal Perkins Loan borrowers and FFEL borrowers who received their first loan on or after July 1, 1993. Other deferments might also be available if you have an outstanding balance on a federal student loan made before July 1, 1993. For more information, Stafford Loan borrowers should contact their lenders or the Financial Aid Office at MHCC at 503-491-6963.

    Forbearance

    What is forbearance?

    If you find you can't meet your student loan payments but you're not eligible for a deferment, you might be granted forbearance for a period of time. During forbearance, your payments are temporarily postponed. Unlike deferment, whether your loans are subsidized or unsubsidized, you'll be charged interest during forbearance. If you don't pay the interest as it accrues, it will be capitalized.

    As is true with deferment, you aren't just granted forbearance automatically; you must formally request one from your loan holder. You might have to provide documentation to support your request. You might be granted forbearance if you are:

    • unable to pay due to poor health or other unforeseen personal problems;
    • serving in a medical or dental internship or residency;
    • serving in a position under the National Community Service Trust Act of 1993 (forbearance can be granted for this reason for a Direct or FFEL Stafford Loan, but not for a PLUS Loan);
    • obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.
    • borrowers who are serving in AmeriCorps.

    For more information, contact your lender.

    Unlike deferment, which you're entitled to receive, the loan holder does not have to grant forbearance except in certain mandatory circumstances (check with your loan holder for details). In most cases, however, lenders are willing to work with you if you show you're willing but temporarily unable to repay your debt.

    Forgiveness

    Federal Stafford Loan and Federal Parent Plus Loan Discharge/Cancellation Summary

    Cancellation Conditions Amount Forgiven Notes
    Borrower's total and permanent disability 2 or death 100% For a PLUS Loan, includes death but not disability of the student for whom the parents borrowed.
    Full-time teacher for five consecutive years in a designated elementary or secondary school serving students from low-income families Up to $5,000 of the aggregate loan amount that is outstanding after completion of the fifth year of teaching.

    A borrower might qualify for loan forgiveness under the FFEL Consolidation Loan programs. If so, only the portion of the consolidation loan used to repay Stafford Loans qualifies.
    Stafford Loans received on or after October 1, 1998 , by a borrower with no outstanding loan balance as of that date. At least one of the five consecutive years of teaching must occur after the 1997-98 academic year. (To find out whether your school is considered a low-income school, visit http://www.studentaid.ed.gov.
    Click on "Repaying," then click on "Cancellation and Deferment Options for Teachers." Or, call 1-800-4-FED-AID.)
    Bankruptcy (in rare cases) 100% Cancellation is possible only if the bankruptcy court rules that repayment would cause undue hardship.
    Closed school (before student could complete program of study) or false loan certification 100% For loans received on or after January 1, 1986 .
    School does not make required return of loan funds to the lender Up to the amount that the school was required to return. For loans received on or after January 1, 1986 .

    2 Beginning July 1, 2002 , a borrower who is determined to be totally and permanently disabled will have his or her loan placed in a conditional discharge period for three years from the date the borrower became totally and permanently disabled. During this conditional period, the borrower doesn't have to pay principal or interest. If the borrower continues to meet the total-and-permanent disability requirements during, and at the end of, the three-year conditional period, the borrower's obligation to repay the loan is canceled. If the borrower doesn't continue to meet the cancellation requirements, the borrower must resume payment. Total-and-permanent disability is defined as the inability to work and earn money because of an injury or illness that is expected to continue indefinitely or to result in death. More information on this discharge can be found in the promissory note and by contacting the loan holder.


    Perkins Discharge/Cancellation Summary 1

    Cancellation Conditions Amount Forgiven Notes
    Borrower's total and permanent disability 2 or death 100% Service qualifies for deferment also.
    Full-time teacher in a designated elementary or secondary school serving students from low-income families Up to 100% Service qualifies for deferment also.
    Full-time special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school) Up to 100% Service qualifies for deferment also.
    Full-time qualified professional provider of early intervention services for the disabled Up to 100% Service qualifies for deferment also.
    Full-time teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas Up to 100% Service qualifies for deferment also.
    Full-time employee of a public or nonprofit child- or family-services agency providing services to high-risk children and their families from low-income communities Up to 100% Service qualifies for deferment also.
    Full-time nurse or medical technician Up to 100% Service qualifies for deferment also.
    Full-time law enforcement or corrections officer Up to 100% Service qualifies for deferment also.
    Full-time staff member in the education component of a Head Start Program Up to 100% Service qualifies for deferment also.
    Vista or Peace Corps volunteer Up to 70% Service qualifies for deferment also.
    Service in the U.S. Armed Forces Up to 50% in areas of hostilities or imminent danger Service qualifies for deferment also.
    Bankruptcy (in rare cases) Up to 100% Cancellation is possible only if the bankruptcy court rules that repayment would cause undue hardship.
    Closed school (before student could complete program of study) 100% For loans received on or after January 1, 1986 .

    1 As of October 7, 1998 , all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made or the terms of the borrower's promissory note. However, this benefit is not retroactive.

    2 Beginning July 1, 2002 , a borrower who is determined to be totally and permanently disabled will have his or her loan placed in a conditional discharge period for three years from the date the borrower became totally and permanently disabled. During this conditional period, the borrower doesn't have to pay principal or interest. If the borrower continues to meet the total-and-permanent disability requirements during and at the end of the three-year conditional period, the borrower's obligation to repay the loan is canceled. If the borrower doesn't continue to meet the cancellation requirements, the borrower must resume payment. Total-and-permanent disability is defined as the inability to work and earn money because of an injury or illness that is expected to continue indefinitely or to result in death. For more information on qualifying for this discharge, review your promissory note and contact your loan holder.

    More information on teaching service cancellation/deferment options can be found at www.studentaid.ed.gov. At the site, click on “Repaying,” then on “Cancellation and Deferment Options for Teachers.”

    Consolidation

    What is consolidation?

    Consolidation allows you to simplify the repayment process by combining several types of federal education loans into one loan, so you make just one payment a month. Also, that monthly payment might be lower than what you're currently paying.

    Under the FFEL Program, you can receive a Subsidized and/or an Unsubsidized FFEL Consolidation Loan, depending on the types of loans you're consolidating. (FFEL and PLUS Consolidation Loans are included under the Unsubsidized FFEL Consolidation Loan category.)

    You can also consolidate Federal Perkins Loans and other federal education loans. To get a complete list of the kinds of federal student loans that can be consolidated:

    • contact your Federal Stafford loan lender if you're applying for a FFEL Consolidation Loan.

    Under FFEL consolidation, if the same holder holds all the loans you want to consolidate, you must obtain your consolidation loan from that holder, unless you haven't been able to get a loan with income-sensitive repayment terms.

    Even if you're in default, you might be eligible for a Consolidation Loan if certain conditions are met. Talk to your loan holder(s).


    What is the interest rate of a Federal Consolidation Loan?

    It is a fixed rate set according to a formula established by law. The rate is the weighted average rate of the current rates charged on the loans being consolidated, rounded up to the nearest one-eighth of a percent. This means the rate you'll pay won't be more than one-eighth of a percent more than the effective rate on your individual loans. The rate is fixed for the life of the Consolidation Loan.

    The weighted average interest rate is a single interest rate that is calculated by using the borrower's loan balances and the current annual interest rate for each of the borrower's loans.

    For example: A borrower has two subsidized Federal Stafford Loans, one for $10,000 and the other for $5,000, both with an interest rate of 8.25 percent. The borrower also has a $3,500 unsubsidized Federal Stafford Loan with an interest rate of 7.46 percent and a $3,000 Federal Perkins Loan with a 5.0 percent interest rate. The borrower consolidates these loans.

    The following steps outline one way to calculate the weighted average interest rate:

    • Multiply the balance of each loan being consolidated by the interest rate that applies to that loan at the time the verification certificate is completed.
    • Add the calculated interest amounts for all loans being consolidated ($1,648.60).
    • Add the loan balances for all loans being consolidated ($21,500).
    • Divide the sum of the calculated interest amounts by the sum of the loan balance amounts (7.66%).
    • Round the quotient (the answer to Step 4) to the nearest higher one-eighth of one percent (7.75%).
    • Compare the result in Step 5 to the 8.25% maximum interest rate and determine which is lower. The lower of the two rates is the borrower's fixed interest rate for the Consolidation loan.

    The weighted average interest rate for the borrower in this example is 7.75%.


    What is the repayment period for a Federal Consolidation Loan?

    You'll have from 10 to 30 years, depending on the amount of your debt and the repayment option you choose.


    So, consolidation seems like the way to go.

    It might be, but although consolidation can simplify loan repayment and might lower your monthly payment, you should carefully consider whether you want to consolidate all your loans. For example, you might lose some discharge (cancellation) benefits if you include a Federal Perkins Loan in a FFEL Consolidation Loan. If that's the case, you might want to consolidate only your FFELs and not your Federal Perkins Loan(s). Also, you wouldn't want to lose any borrower benefits offered under your existing non-consolidated loans, such as interest rate discounts or principal rebates, which can significantly reduce the cost of repaying your loans.

    You can have a longer period of time to repay your consolidation loan than you do for the individual student loans you're repaying, but this also means you'll pay more interest over time. In fact, consolidation can double total interest expense. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan. To help you figure the costs, contact your lender or loan servicer.

    Once made, consolidation loans can't be unmade because the loans that were consolidated have been paid off and no longer exist. So, take the time to study your consolidation options before you apply.

    For more details on loan consolidation, contact your loan holder or servicer.