Faqs About Student Loans - the Law Offices of Robert J Nahoum

The United States Department of Education is a Cabinet-level department of the United States government. The Department of Ed. is administered by the United States secretary of education.

The function of the Department of Ed. is to “establish policy for, administer and coordinate most federal assistance to education, collect data on US schools, and to enforce federal educational laws regarding privacy and civil rights.”

As of July 1, 2010, included in this mandate is providing student loans to secondary education students through a program called the William D. Ford Federal Direct Loan Program (sometimes referred to as “Direct Loan” or “FDL”). Before July 1, 2010, federal student loans were originated by private banks who gave out loans that were guaranteed by the federal government.

Under the Direct Loan program, the U.S. Department of Education is the originator of federal student loans including (1) Direct Subsidized Loans, (2) Direct Unsubsidized Loans, (3) Direct PLUS Loans, and (4) Direct Consolidation Loans.

The Department of Education hires companies called “loan services” to administer the federal student loans and debt collectors to collect defaulted loans.

The administration of federal student loans includes repayment programs designed to keep borrowers out of default. Some of these programs include income driven repayment programs where a borrower’s monthly student loan payment is determined based upon a percentage of the borrower’s income.

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What Role Do Student Loans Servicers Play In Federal Student Loans?

What Role Do Student Loans Servicers Play In Federal Student Loans?

The United States Department of Education is responsible for policy, administration and coordination of most federal assistance to education. This includes providing student loans to secondary education students through a program called the William D. Ford Federal Direct Loan Program (sometimes referred to as “Direct Loan” or “FDL”). Before July 1, 2010, federal student loans were originated by private banks who gave out loans that were guaranteed by the federal government under the Federal Family Education Loan Program (“FFEL”).

The Department of Education hires companies called “loan services” to administer the both Direct loans and FFDL loans. These loan servicers are who borrowers in good standing deal with regarding their federal student loans. The loan servicers send billing statements, accept payments and offer deferments and forbearances. Federal student loan servicers are, by law, obligated to help borrowers avoid default. For this reason, the loan servicers will assist borrowers with repayment options and programs. Some of these programs include income driven repayment programs where a borrower’s monthly student loan payment is determined based upon a percentage of the borrower’s income.

Federal student loan servicers only deal with loans in good standing. Defaulted federal student loans are transferred from the loan servicers to debt collectors.

The following is a list of federal student loans servicers:

CornerStone	1-800-663-1662
FedLoan Servicing (PHEAA)	1-800-699-2908
Granite State (GSMR)	1-888-556-0022
Great Lakes Educational Loan Services Inc.	1-800-236-4300
HESC/Edfinancial	1-855-337-6884
Higher Education Loan Authority of the State of Missouri (commonly referred to as “MOHELA”)	1-888-866-4352
Navient	1-800-722-1300
NelNet	1-888-486-4722
OSLA Servicing	1-866-264-9762

It is not uncommon for the Department of Education to transfer a loan from one servicer to another. This is not a sale of the loan, in the case of FDL loans the loan is still owned by the Department of Education, the loan is just transferred for servicing purposes.

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What Role Do Private Banks Play in Federal Student Loans?

Prior to July 1, 2010, federal student loans were not funded by the department of education and the federal government. Under the Federal Family Education Loan Program (“FFEL”), private lenders used their own funds to make federal student loans to borrowers to pay for secondary education (college). These Loans were guaranteed by “guaranty agencies” that insured the funds, which were, in turn, reinsured by the federal government.

The FFEL loan program was discontinued as of July 1, 2010 by enactment of the Health Care and Education Reconciliation Act of 2010. No new FFEL loans have been made since July 1, 2010.

The largest originator of FFEL loans was Sallie Mae (now called Navient). FFEL loans are serviced by the guarantors, nonprofit companies that provide support for the administration of the FFEL Loans. The most well know of these guarantors:

Educational Credit Management Corporation (“ECMC”),
Higher Education Loan Authority of the State of Missouri (commonly referred to as “MOHELA”); and
Great Lakes Educational Loan Services, Inc. (“Great Lakes”); and
Nelnet Diversified Solutions, LLC.

Because FFEL loans are federal loans, all the benefits of federal loans like income driven repayment and loan forgiveness are available to FFEL borrowers.

Like most other private bank loans, FFEL student loans are sold from the originator to other institutions. It is not uncommon for FFEL student loans to have been sold multiple times over the years. While borrowers are notified of the sale of the loan, the process can be confusing, and it is not unreasonable for a borrower to be unsure who really owns their FFEL student loan.

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What Role Do Collection Agencies Play in Federal Student Loans?

The United States Department of Education administers and coordinates most federal assistance to education including directly providing student loans to secondary education students through a program called the William D. Ford Federal Direct Loan Program (sometimes referred to as “Direct Loan” or “FDL”). Before July 1, 2010, federal student loans were originated by private banks who gave out loans that were guaranteed by the federal government under the Federal Family Education Loan Program (“FFEL”).

The Department of Education hires companies called “loan services” to administer the federal student loans in good standing. Federal student loans that are in default, are transferred from the loan servers to collection agencies. These collection agencies contact borrowers through written letters and phone calls to collect defaulted federal student loans. Collection agencies also verify borrower employment for administrative wage garnishments. Collection agencies will work with borrowers to rehabilitate their loans and get out of default.

Collection agencies are private debt collectors who are subject to debt collection laws and regulations. The federal Fair Debt Collection Practices Act (FDCPA for short) regulates the behavior of third-party debt collectors. Congress enacted the FDCPA to eliminate abusive debt collection practices by debt collectors.

The FDCPA is a comprehensive statute that prohibits a catalog of activities in connection with the collection of debts by third parties. The FDCPA imposes civil liability on any person or entity that violates its provisions and establishes general standards of debt collector conduct, defines abuse, and provides for specific consumer rights.

The FDCPA includes a private right of action under which a consumer may sue a debt collector for FDCPA violations. If a debt collector is found to have violated the FDCPA, the consumer may recover up to $1,000.00 in statutory damages, plus actual damages (for example pain and suffering) and most importantly, your reasonable attorneys’ fees. Like many other consumer protection laws, the FDCPA is what is called “fee shifting” – meaning that the obligation to pay the consumers attorneys’ fees shifts to the debt collector.

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What is the NSLDS and What Does It Tell You?

The National Student Loan Data System (NSLDS) is the U.S. Department of Education’s central database for student aid and student loan information. NSLDS receives data from schools, guaranty agencies, the Direct Loan program, and other Department of Education programs.

NSLDS Student Access provides a centralized, integrated view of federal student loans and grants so that recipients of federal student loans can access and inquire about their loans through their entire cycle; from aid approval through closure.

What Information is Available Through NSLDS?

Borrowers can use NSLDS to make inquiries about the borrower’s federal student loans. The site displays information including:

Loan amounts,
Outstanding balances (current principal and interest),
Loan statuses,
Loan disbursements;
Interest rates,
Current lender,
Current Servicer,
Current guaranty agency (does not list debt collector for defaulted loans);
Historical status of the loan (dates of repayment, default, forbearance/deferments).

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What is Income Driven Student Loan Repayment Plan?

If federal student loan payments are high compared to a borrower’s income, the borrower may qualify to repay his or her loans under an income-driven repayment plan.

An income-driven repayment plan sets the borrowers monthly student loan payment at an affordable amount based on the borrower’s income and family size. The Unites States Department of Education offers four income-driven repayment plans:

Pay as You Earn Repayment Plan (PAYE Plan)
Revised Pay as You Earn Repayment Plan (REPAYE Plan)
Income-Based Repayment Plan (IBR Plan)
Income-Contingent Repayment Plan (ICR Plan)

Most federal student loans are eligible for at least one income-driven repayment plan. If the borrower’s income is low enough, the payment could be as low as $0 per month.

What Federal Student Loans Are Eligible for Income-Driven Repayment Plans?

Loan Type	REPAYE Plan	PAYE Plan	IBR Plan	ICR Plan
Direct Subsidized Loans	Eligible	Eligible	Eligible	Eligible
Direct Unsubsidized Loans	Eligible	Eligible	Eligible	Eligible
Direct PLUS Loans made to graduate or professional students	Eligible	Eligible	Eligible	Eligible
Direct PLUS Loans made to parents	Not eligible	Not eligible	Not eligible	Eligible if consolidated*
Direct Consolidation Loans that did not repay any PLUS loans made to parents	Eligible	Eligible	Eligible	Eligible
Direct Consolidation Loans that repaid PLUS loans made to parents	Not eligible	Not eligible	Not eligible	Eligible
Subsidized Federal Stafford Loans (from the FFEL Program)	Eligible if consolidated*	Eligible if consolidated*	Eligible	Eligible if consolidated*
Unsubsidized Federal Stafford Loans (from the FFEL Program)	Eligible if consolidated*	Eligible if consolidated*	Eligible	Eligible if consolidated*
FFEL PLUS Loans made to graduate or professional students	Eligible if consolidated*	Eligible if consolidated*	Eligible	Eligible if consolidated*
FFEL PLUS Loans made to parents	Not eligible	Not eligible	Not eligible	Eligible if consolidated*
FFEL Consolidation Loans that did not repay any PLUS loans made to parents	Eligible if consolidated*	Eligible if consolidated*	Eligible	Eligible if consolidated*
FFEL Consolidation Loans that repaid PLUS loans made to parents	Not eligible	Not eligible	Not eligible	Eligible if consolidated*
Federal Perkins Loans	Not eligible	Not eligible	Not eligible	Eligible if consolidated*

*“eligible if consolidated,” means that if the borrower consolidates that loan type into a Direct Consolidation Loan, the borrower can then repay the consolidation loan under the income-driven plan. However, if the borrower consolidates a FFEL Program Loan or Federal Perkins Loan into a Direct Consolidation Loan, the borrower may then be able to repay the Direct Consolidation Loan under the REPAYE, PAYE, and ICR Plan (depending on the type of loan consolidated).

Only federal student loans can be repaid under the income-driven plans. Private student loans are not eligible.

How are Monthly Payments Payment Amounts Calculated?

The monthly payment amount under an income-driven repayment plan is based upon a percentage of the borrower’s discretionary income. The percentage differs depending on the plan. Depending on the borrower’s income and family size, the borrower may have no monthly payment at all.

How Long is the Repayment Plan?

Income-driven repayment plans have different repayment periods. However, all four plans, forgive any remaining loan balance if the federal student loans are not fully repaid at the end of the repayment period. For any income-driven repayment plan, periods of economic hardship deferment, periods of repayment under certain other repayment plans, and periods when the borrower’s required payment is zero will count toward the total repayment period.

Whether the borrower will have a balance left to be forgiven at the end of the repayment period depends on a number of factors, such as how quickly the borrower’s income rises and how large the borrower’s income is relative to his or her debt. Because of these factors, a borrower may fully repay the loan before the end of the repayment period.

Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?

No, under each of the IDR plans, the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the IDR payment amount. The borrower must do this even if there has been no change in income or family size.

Although recertification is only required once each year, if the borrower income or family size changes significantly before the annual certification date (for example, due to loss of employment), the borrower can submit updated information and ask the loan servicer to recalculate the payment amount at any time. The borrower is not required to report changes in his or her financial circumstances before the annual recertification date. The borrower can wait until the recertification date to report an increase income.

Under the REPAYE Plan, if the borrower does not recertify by the annual deadline, he or she will be kicked off the REPAYE Plan and placed on an alternative repayment plan. Under this alternative repayment plan, the borrower’s monthly payment is no longer based on income. Instead, the payment will be the amount necessary to repay your loan in full by the earlier of (a) 10 years from the date the borrower began repaying under the alternative repayment plan, or (b) the ending date of the borrower’s 20- or 25-year REPAYE Plan repayment period.

Under PAYE Plan, IBR Plan, or ICR, if the borrower does not recertify by the annual deadline, the borrower will remain on the same income-driven repayment plan, but the monthly payment will no longer be based on income. Instead, the required monthly payment amount will be the amount the borrower would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount the borrower owed when he or she initially entered the income-driven repayment plan.

Also, if the borrower does not recertify by the annual deadline under the REPAYE, PAYE, and IBR plans, any unpaid interest will be capitalized (added to the principal balance of the loans). This will increase the total cost of the loans over time, because the borrower will then pay interest on the increased loan’s principal balance.

Under all of the IDR plans, if the borrower does not recertify his or her family size each year, the borrower will remain on the same repayment plan, but the loan servicer will assume that the borrower has a family size of one. If the borrower’s actual family size is larger, but the loan servicer assumes a family size of one because the borrower did not recertify his or her family size, this could result in an increased monthly payment amount or (for the PAYE and IBR plans) loss of eligibility to make payments based on income.

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What is Income Based Student Loan Repayment Plan?

“Income-Based Repayment Plan” (IBR) is an income-driven federal student loan repayment plan which sets the borrower’s monthly student loan payment at an affordable amount based on the borrower’s income and family size.

What Federal Student Loans are Eligible for IBR?

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program) – Eligible if consolidated*
Unsubsidized Federal Stafford Loans (from the FFEL Program)
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents- Eligible if consolidated*
Federal Perkins Loans – Eligible if consolidated*[i]

Only federal student loans can be repaid under the IBR. Private student loans are not eligible.

IBR is not available for Parent PLUS loans or Consolidation loans that include Parent PLUS loans.

How are Monthly Payments Payment Amounts Calculated?

Under IBR, the monthly payment is based upon the lesser of the following:

15 percent of the borrower’s discretionary income or
what the borrower would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to the borrower’s income.

How Long is the IBR Plan?

Under IBR, the repayment period is 20 years if the borrower is a new borrower on or after July 1, 2014 or 25 years if the borrower is not a new borrower on or after July 1, 2014.

IBR Loan Forgiveness

If the borrower is making payments under IBR and also working toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program, the borrower may qualify for forgiveness of any remaining loan balance after only 10-years of qualifying payments, instead the 20- or 25-year payment plan.

Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?

No, under each IBR the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the IBR eligibility and payment amount. The borrower must do this even if there has been no change in income or family size.

Although recertification is only required once each year, if the borrower’s income or family size changes significantly before the annual certification date (for example, due to loss of employment), the borrower can submit updated information and ask the loan servicer to recalculate the payment amount at any time. The borrower is not required to report changes in his or her financial circumstances before the annual recertification date. The borrower can wait until the recertification date to report an increase income.

If the borrower does not recertify by the annual deadline, the borrower will remain on IBR plan, but the monthly payment will no longer be based on income. Instead, the required monthly payment amount will be the amount the borrower would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount the borrower owed when he or she initially entered the income-driven repayment plan.

If the borrower does not recertify his or her family size each year, the borrower will remain on the same repayment plan, but the loan servicer will assume that the borrower has a family size of one.

Eligibility for IBR

Any borrower with eligible federal student loans can apply for IBR. To qualify, the payment the borrower would be required to make under the IBR plan (based on income and family size) must be less than what the borrower would pay under the Standard Repayment Plan with a 10-year repayment period.

If the amount is more than the 10-year Standard Repayment Plan, there would be no benefit from having the monthly payment amount based on income and so the borrower would not qualify.

Generally, the borrower will meet this requirement if his or her federal student loan debt is higher than his or her annual discretionary income or represents a significant portion of that annual income.

[i] *“eligible if consolidated,” means that if the borrower consolidates that loan type into a Direct Consolidation Loan, the borrower can then repay the consolidation loan under the income-driven plan. However, if the borrower consolidates a FFEL Program Loan or Federal Perkins Loan into a Direct Consolidation Loan, the borrower may then be able to repay the Direct Consolidation Loan under the REPAYE, PAYE, and ICR Plan (depending on the type of loan consolidated).

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What is Income Contingent Student Loan Repayment Plan?

Income-Contingent Repayment Plan (ICR) is an income-driven federal student loan repayment plan which sets the borrower’s monthly student loan payment at an affordable amount based on the borrower’s income and family size.

What Federal Student Loans are Eligible for ICR?

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct PLUS Loans made to parents – Eligible if consolidated*
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Direct Consolidation Loans that repaid PLUS loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program) – Eligible if consolidated*
Unsubsidized Federal Stafford Loans (from the FFEL Program) – Eligible if consolidated*
FFEL PLUS Loans made to graduate or professional students – Eligible if consolidated*
FFEL PLUS Loans made to parents – Eligible if consolidated*
FFEL Consolidation Loans that did not repay any PLUS loans made to parents- Eligible if consolidated*
FFEL Consolidation Loans that repaid PLUS loans made to parents – Eligible if consolidated*
Federal Perkins Loans – Eligible if consolidated*[i]

Only federal student loans can be repaid under the ICR. Private student loans are not eligible.

How are Monthly Payments Payment Amounts Calculated?

Under ICR, the monthly payment is based upon the lesser of the following:

20 percent of the borrower’s discretionary income; or
What the borrower would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to the borrower’s income.

How Long is the ICR Plan?

Under ICR, the repayment period is 25-years. If at the end of the 25-year repayment period there is any remaining unpaid loan balance, that loan balance will be forgiven.

If the borrower is making payments under ICR and also working toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program, the borrower may qualify for forgiveness of any remaining loan balance after only 10-years of qualifying payments, instead 25 years.

Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?

No, under each ICR the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the ICR eligibility and payment amount. The borrower must do this even if there has been no change in income or family size.

If the borrower does not recertify by the annual deadline, the borrower will remain on ICR plan, but the monthly payment will no longer be based on income. Instead, the required monthly payment amount will be the amount the borrower would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount the borrower owed when he or she initially entered the income-driven repayment plan.

If the borrower does not recertify his or her family size each year, the borrower will remain on the same repayment plan, but the loan servicer will assume that the borrower has a family size of one.

Eligibility for ICR

Any borrower with eligible federal student loans can make payments under ICR. This plan is the only available income-driven repayment option for parent PLUS loan borrowers. Although PLUS loans made to parents cannot be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).

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What is Federal Student Loan Capitalization?

Understanding the accrual of interest is an important component of understanding student loans and college debt. Like a home mortgage, borrowed money paid back over long periods of time can become exponentially more expensive depending on the rate of interest charged and how the interest is added to the principal of the money borrowed.

What is Interest?

Interest is the cost of borrowing money paid to the lender. Interest is calculated as a percentage of the unpaid amount borrowed (called “principal”). Unlike other forms of debt, such as credit cards and mortgages, Federal Direct Student Loans accrue interest on a daily basis rather than monthly.

What are the Interest Rates on Federal Student Loans?

The interest rate charged on federal student loans varies depending on the type of loan type and the first disbursement date of the loan. The table below provides interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2019, and before July 1, 2020.

TYPE OF LOAN	BORROWER STATUS	FIXED RATE OF INTEREST
Direct Subsidized Loans and Direct Unsubsidized Loans	Undergraduate	4.53%
Direct Unsubsidized Loans	Graduate or Professional	6.08%
Direct PLUS Loans	Parents and Graduate or Professional Students	7.08%

Perkins Loans (regardless of the first disbursement date) have a fixed interest rate of 5%.

Capitalization of Federal Direct Student Loan Interest

Capitalization is the addition of unpaid interest to the principal balance of a loan.

When interest on federal student loans is not paid as it accrues during periods when the borrower is responsible for paying interest, the lender may capitalize the unpaid interest. This increases the outstanding principal amount due on the loan – paying interest on interest. Interest is then charged on that higher principal balance, increasing the overall cost of the loan. Depending on the borrower’s repayment plan, capitalization may cause the monthly payment amount to increase.

During Federal Student Loan repayment periods, monthly loan payments cover all of the interest that accrues between monthly payments leaving no unpaid interest. However, unpaid interest will accrue under a variety of circumstances including:

Unsubsidized loan deferment periods,
Forbearance periods on any all types of Federal student loans,
Repayment under an income-driven repayment plan where the required monthly loan payment is less than the amount of interest that accrues between payments,
When the borrower defaults or voluntarily leaves the Revised Pay as You Earn, Pay as You Earn (PAYE) or Income-Based Repayment (IBR) plans,
When the borrower fails to annually update his/her income for some of the income-driven plans, or
When the borrower is repaying under PAYE or IBR plans and no longer qualifies to make payments based on income.

Interest is never capitalized on Federal Perkins Loans.

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What is “Pay As You Earn” Based Student Loan Repayment Plan?

“Pay as You Earn” -based repayment plan (PAYE) is an income-driven federal student loan repayment plan which sets the borrower’s monthly student loan payment at an affordable amount based on the borrower’s income and family size.

What Federal Student Loans Are Eligible For PAYE?

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program) – Eligible if consolidated*
FFEL PLUS Loans made to graduate or professional students – Eligible if consolidated*
FFEL Consolidation Loans that did not repay any PLUS loans made to parents- Eligible if consolidated*
Federal Perkins Loans – Eligible if consolidated*[i]

Only federal student loans can be repaid under the PAYE. Private student loans are not eligible.

PAYE is not available for Parent PLUS loans or Consolidation loans that include Parent PLUS loans.

How are Monthly Payments Payment Amounts Calculated?

Under PAYE, the monthly payment is based upon 10 percent of the borrower’s discretionary income, but never more than the 10-year Standard Repayment Plan amount.

How Long is the PAYE Plan?

Under PAYE, the repayment period is 20 years.

PAYE Loan Forgiveness

If the borrower is making payments under PAYE and also working toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program, the borrower may qualify for forgiveness of any remaining loan balance after only 10-years of qualifying payments, instead the 20-year payment plan.

Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?

No, under PAYE the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the PAYE eligibility and payment amount. The borrower must do this even if there has been no change in income or family size.

If the borrower does not recertify by the annual deadline, the borrower will remain on the PAYE plan, but the monthly payment will no longer be based on income. Instead, the required monthly payment amount will be the amount the borrower would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount the borrower owed when he or she initially entered the income-driven repayment plan.

If the borrower does not recertify his or her family size each year, the borrower will remain on the same repayment plan, but the loan servicer will assume that the borrower has a family size of one.

Eligibility for PAYE

Any borrower with eligible federal student loans can make payments under PAYE. To qualify, the payment the borrower would be required to make under the PAYE plan (based on income and family size) must be less than what the borrower would pay under the Standard Repayment Plan with a 10-year repayment period.

If the amount was more than the 10-year Standard Repayment Plan, there would be no benefit from having the monthly payment amount based on income and so the borrower would not qualify.

Also, to qualify for PAYE, the borrower must be a new borrower. This means that the borrower must have had no outstanding balance on a Direct Loan or FFEL Program loan when or she received a Direct Loan or FFEL Program loan on or after Oct. 1, 2007, and the borrower must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

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What is Revised “Pay as You Earn” Based Student Loan Repayment Plan?

The “Revised Pay as You Earn” -based repayment plan (REPAYE) is an income-driven federal student loan repayment plan (revised as of December 2015 from the initial Pay as You Earn PAYE Plan) that sets the borrower’s monthly student loan payment at an affordable amount based on the borrower’s income and family size.

REPAYE is virtually the same as the initial PAYE plan but eliminated certain date restrictions.

What Federal Student Loans Are Eligible for REPAYE?

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program) – Eligible if consolidated*
FFEL PLUS Loans made to graduate or professional students – Eligible if consolidated*
FFEL Consolidation Loans that did not repay any PLUS loans made to parents- Eligible if consolidated*
Federal Perkins Loans – Eligible if consolidated*[i]

Only federal student loans can be repaid under the REPAYE. Private student loans are not eligible.

REPAYE is not available for Parent PLUS loans or Consolidation loans that include Parent PLUS loans.

How are Monthly Payments Payment Amounts Calculated?

Under REPAYE, the monthly payment is based upon 10 percent of the borrower’s discretionary income, but never more than the 10-year Standard Repayment Plan amount.

How Long is the REPAYE Plan?

20 years if all loans the borrower is repaying under the plan were received for undergraduate study.

25 years if any loans the borrower is repaying under the plan were received for graduate or professional study

REPAYE Plan Loan Forgiveness

If the borrower is making payments under REPAYE and also working toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program, the borrower may qualify for forgiveness of any remaining loan balance after only 10-years of qualifying payments, instead the 20-year payment plan.

Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?

No, under REPAYE the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the REPAYE eligibility and payment amount. The borrower must do this even if there has been no change in income or family size.

If the borrower does not recertify under the REPAYE Plan by the annual deadline, he or she will be removed from the REPAYE Plan and placed on an alternative repayment plan. Under this alternative repayment plan, the borrower’s required monthly payment is not based on income. Instead, the payment will be the amount necessary to repay the loan in full by the earlier of (a) 10 years from the date repayment begins under the alternative repayment plan, or (b) the ending date of the 20- or 25-year REPAYE Plan repayment period. The borrower may choose to leave the alternative repayment plan and repay under any other repayment plan for which the borrower is eligible.

Eligibility for REPAYE

Any borrower with eligible federal student loans can make payments under REPAYE. REPAYE has an eligibility requirement the borrower must meet to qualify for the plan. To qualify, the payment the borrower would be required to make under the REPAYE plan (based on income and family size) must be less than what the borrower would pay under the Standard Repayment Plan with a 10-year repayment period.

If the amount was more than the 10-year Standard Repayment Plan, there would be no benefit from having the monthly payment amount based on income and so the borrower would not qualify.

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What is the Standard Balance-Based Student Loan Repayment Plan?

The federal standard student loan repayment plan for Direct Loans and Federal Family Education Loan is based on the borrower’s balance (rather than the borrower’s income or other factors). These balance-based plans are fixed and made for up to 10 years (between 10 and 30 years for consolidation loans).

Federal student loan borrowers have options on which repayment plan to choose. The standard balance-based repayment plan is the default plan that the loan servicer will put the borrower in unless the borrower applies and is approved for a different plan.

The standard balance-based plan is cheaper in the long run for the borrower. While monthly payments may be slightly higher than payments made under other plans, the loan will be paid off in the shortest time thereby accruing the lowest amount of interest over the life of the loan.

Eligible Federal Loans

The following loans from the Direct Loan Program and the FFEL Program are eligible for the Standard Repayment Plan:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
Direct Consolidation Loans
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL PLUS Loans
FFEL Consolidation Loans

Monthly Payments

Federal Education Loan (excluding Consolidation Loans) monthly payments are fixed at not less than $50 a month, must at least cover the cost of interest, and be paid for up to 10 years.

Monthly Payments for Consolidation Loans

Consolidation loan payments are fixed at no less than least $50 a month, must at least cover the cost of interest, and be paid for a period of between 10 and 30 years.

The length of the repayment period for Direct Consolidation loan or FFEL Consolidation loans depends on the amount of the borrower’s total education loan indebtedness. This total education loan indebtedness includes the amount of the consolidation loan and the borrower’s other student loan debt. Other student loan debt includes any federal student loans that are not included in the consolidation loan, as well as private education loans that are not eligible for consolidation.

The maximum amount of other student loan debt that may be considered in determining the borrower’s repayment period may not exceed the loan amount the borrower is consolidating.

The following chart shows the maximum repayment period for a Direct Consolidation loan or FFEL Consolidation loan under the Standard Repayment Plan depending on total education loan indebtedness.

If the Total Education Loan Indebtedness is…	The Repayment Period will be
At Least	Less Than
	$7,500	10 years
$7,500	$10,000	12 years
$10,000	$20,000	15 years
$20,000	$40,000	20 years
$40,000	$60,000	25 years
$60,000		30 years

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What is the Graduated Balance-Based Student Loan Repayment Plan?

The graduated balance-based plan starts with lower payments that increase every two years for up to 10 years (between 10 and 30 years for consolidation loans).

Eligible Federal Loans

The following loans from the Direct Loan Program and the FFEL Program are eligible for the Graduated Repayment Plan:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
Direct Consolidation Loans
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL PLUS Loans
FFEL Consolidation Loans

Monthly Payments

For Federal Education Loans (excluding Consolidation Loans), the borrowers’ monthly payments start out low and increase every two years for up to 10 years. Payments will never be less than the amount of interest that accrues between payments and won’t be more than three times greater than any other payment.

Monthly Payments for Consolidation Loans

Monthly payments start out low and increase every two years for a period of between 10 and 30 years for Direct Consolidation Loans and FFEL Consolidation Loans. The payments will never be less than the amount of interest that accrues between payments and won’t be more than three times greater than any other payment.

If the borrower has a Direct Consolidation Loan or FFEL Consolidation Loan, the length of the repayment period will depend on the amount of total education loan indebtedness. This total education loan indebtedness includes the amount of the consolidation loan and the other student loan debt. Other student loan debt includes any federal student loans that are not included in the consolidation loan, as well as private education loans that are not eligible for consolidation. The maximum amount of other student loan debt that may be considered in determining the repayment period may not exceed the loan amount being consolidated.

The chart below shows the maximum repayment period for a Direct Consolidation Loan or FFEL Consolidation Loan under the Graduated Repayment Plan depending on total education loan indebtedness.

If the Total Education Loan Indebtedness is…	The Repayment Period will b
At Least	Less Than
	$7,500	10 years
$7,500	$10,000	12 years
$10,000	$20,000	15 years
$20,000	$40,000	20 years
$40,000	$60,000	25 years
$60,000		30 years

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What is the Extended Graduated Balance-Based Student Loan Repayment Plan?

The federal standard student loan repayment plan for Direct Loans and Federal Family Education Loans is based on the borrower’s balance (rather than the borrower’s income or other factors). These balance-based plans are fixed and made for up to 10 years (between 10 and 30 years for consolidation loans).

The extended/graduated is a hybrid of the graduated and extended balance-based repayment plans which allows eligible borrowers to repay their loans over an extended period of time up to 25 years beginning with lower payments that increase every two years.

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What is the Extended Balance-Based Student Loan Repayment Plan?

The federal standard student loan repayment plan for Direct loans and Federal Family Education loans is based on the borrower’s balance (rather than the borrower’s income or other factors). These balance-based plans are fixed and made for up to 10 years (between 10 and 30 years for consolidation loans).

The extended balance-based plan allows eligible borrowers to repay their loans over an extended period of time up to 25 years.

Eligible Federal Loans

The following loans from the Direct Loan Program and the FFEL Program are eligible for the Graduated Repayment Plan:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
Direct Consolidation Loans
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL PLUS Loans
FFEL Consolidation Loans

Eligibility

Direct Loan borrowers must have had no outstanding balance on a Direct Loan as of October 7, 1998, or on the date the borrower obtained a Direct Loan after October 7, 1998, and the borrower must have more than $30,000 in outstanding Direct Loans.

FFEL borrowers must have had no outstanding balance on a FFEL Program loan as of October 7, 1998, or on the date the borrower obtained a FFEL Program loan after October 7, 1998, and the borrower must have more than $30,000 in outstanding FFEL Program loans.

Monthly Payments

Under this plan, 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.

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What is an Alternative Balance-Based Student Loan Repayment Plan?

Sometimes it can happen where a borrower does not meet the eligibility requirements for any of the Income Driven Repayment Plans or Balance based Repayment Plans but for whom standard repayment is not possible. These borrowers can request to be placed on an Alternative Repayment Plan.

To be considered for an Alternative Repayment Plan, the borrower must show evidence of exceptional circumstance. Currently, alternative repayment options may be customized to fit the borrower’s needs within the following restrictions:

The maximum term is 30 years (including time already spent in repayment, other than periods of deferment or forbearance),
Payments cannot vary by more than three times the smallest payment, and
The minimum payment is $5.

Payments may not be below monthly-accrued interest (negative amortization).

The borrower can specify any fixed payment amount desired as long as the payment is at least $5, and the loan is paid off in 30 years.

The borrower continues to pay the fixed amount, unless the payment is adjusted to avoid negative amortization or to ensure that the loan will be completely paid off within 30 years. This adjustment could occur after the annual interest rate change.

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What is The Federal Student Loan Repayment Grace Period?

The first step to strategizing how to pay your student loans is understanding when your repayment period begins.

Federal student loan repayment begins, for most federal student loans, after the borrower leaves college or drops below half-time enrollment (less than six credits).

For PLUS loans repayment begins once the loan is fully disbursed.

Before repayment begins, the loan servicer or lender will provide the borrower with a loan repayment schedule that states the schedule of payments including the date the first payment is due and the amount of each payment.

Before repayment begins, the loan is automatically placed in a grace period.

The grace period is a short period of time after the borrower graduates, leaves school, or drops below half-time enrollment before repayment begins. The grace period gives the borrower some breathing room to get his or her financial house in order and to select a repayment plan.

Not all federal student loans have a grace period, and for most loans, interest will accrue during the grace period.

What Loans Have a Grace Period?

Direct Subsidized Loans,
Direct Unsubsidized Loans,
Subsidized Federal Stafford Loans, and
Unsubsidized Federal Stafford Loans (six-month grace period).

What Loans Do Not Have a Grace Period?

PLUS loans have no grace period. They enter repayment once the loan is fully disbursed.
Grace periods for Federal Perkins Loans depend on the school where the borrower received the loan.

Can the Grace Period Change?

Under certain situations, the grace period may be extended:

Active duty military – If the borrower is called to active military duty for more than 30 days before the end of the grace period, repayment will begin six-months after the borrower returns from service.
Enrollment in school before the end of the grace period—If the borrower reenrolls in school at least half-time before the end of the grace period, the borrower will receive a full six-month grace period when he or she stops attending school or drops below half-time enrollment.
Loan consolidation—If the borrower consolidates his or her loans during the grace period, the borrower gives up the remainder of the grace period. Repayment then begins immediately after the Direct Consolidation Loan is disbursed. The first bill on the Direct Consolidation Loan is due approximately two months after disbursement.

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What Are Federal Student Loan Repayment Deferments and Forbearances?

Deferments and forbearances allow federal student loan borrowers to temporarily stop making student loan payments or to temporarily reduce the amount of federal student loan payments. Deferments and forbearances may sometimes be advantageous and help the borrower avoid default.

The Difference Between Deferment and Forbearance

The only material difference between a deferment and a forbearance is that with some deferments, the borrower will not be responsible for paying any interest that accrues on certain types of loans during the deferment period. With a forbearance, interest always accrues regardless of the type of loan.

Under What Loans Will Interest Not Accrue During a Deferment Period?

Direct Subsidized Loans
Subsidized Federal Stafford Loans
Federal Perkins Loans
Subsidized portions of Direct Consolidation Loans
Subsidized portions of FFEL Consolidation Loans

Under What Loans Will Interest Accrue During a Deferment Period?

Direct Unsubsidized Loans
Unsubsidized Federal Stafford Loans
Direct PLUS Loans
Federal Family Education Loan (FFEL) PLUS Loans
The unsubsidized portion of Direct Consolidation Loans
The unsubsidized portion of FFEL Consolidation Loans

Accruing Interest During a Deferment or Forbearance Period

Accruing interest during a deferment or forbearance period can either be paid as it accrues or can be capitalized at the end of the deferment or forbearance period. If the borrower chooses not to pay the interest during deferment or forbearance period, it will be added to the loan and further interest will accrue (interest on interest = capitalized). Capitalized interest increases the overall cost of the loan, the total amount to be repaid will be higher than if the deferment or forbearance were not taken.

Unpaid interest is capitalized only on Direct Loans and FFEL Program loans. Unpaid interest is never capitalized on Perkins Loans.

Deferment Eligibility

There are a variety of circumstances in which a federal student loan borrower may be eligible for a deferment or forbearance, including:

In school Deferment – while the borrower is enrolled at least half-time (6 credits) at an eligible college or career school);
Parent PLUS Borrower Deferment – if the borrower is a parent who received a Direct PLUS Loan or a FFEL PLUS Loan, while the student is enrolled at least half-time at an eligible college or career school;
Graduate Fellowship Deferment Request – while the borrower is enrolled in an approved graduate fellowship program;
Cancer Treatment Deferment – while the borrower is receiving cancer treatment;
Rehabilitation Training Program Deferment – while the borrower is enrolled in an approved rehabilitation training program for the disabled;
Unemployment Deferment – while the borrower is unemployed or unable to find full-time employment, for up to three years;
Economic Hardship Deferment – while the borrower is experiencing economic hardship for up to three years;
Peace Corps Deferment – while the borrower is serving in the peace corps, for up to three years;
Military Service Deferment – while the borrower is on active duty military service in connection with a war, military operation, or national emergency and the 13 month period following the conclusion of that service.

Forbearance Eligibility

There are two categories of forbearances – “General” and “Mandatory”. With General Forbearances, the loan servicer decides whether or not to grant a request for a general forbearance. General Forbearances may be granted where the borrower can demonstrate a temporary inability to make scheduled monthly loan payments due to, financial difficulties, medical expenses, change in employment or other acceptable reasons.

General forbearances are available for Direct Loans, FFEL Program loans, and Perkins Loans and may be granted for no more than 12 months at a time. If at the end of 12 months the borrower is still experiencing a hardship, the borrower may request another general forbearance.

For Perkins Loans, there is a three-year cumulative limit on general forbearance.

With Mandatory Forbearance, the loan servicer is required to grant the forbearance. Eligibility for a mandatory forbearance include:

Medical or Dental Internship/Residency – The borrower is serving in a medical or dental internship or residency program. Available only for Direct Loans and FFEL Program loans;
Student Loan Debt Burden – the total amount owed each month for all the student loans the borrower received is 20 percent or more of the borrower’s total monthly gross income, for up to three years. Available for Direct Loans, FFEL Program loans, and Perkins Loans;
AmeriCorps forbearance – the borrower is serving in an AmeriCorps position for which he or she received a national service award. Available for Direct Loans and FFEL Program loans;
Teacher Loan Forgiveness Forbearance – the borrower is performing teaching service that would qualify for teacher loan forgiveness. Available for Direct Loans and FFEL Program loans;
Department of Defense Student Loan Repayment Program – the borrower qualifies for partial repayment of loans under the U.S. Department of Defense Student Loan Repayment Program. Available for Direct Loans and FFEL Program; or
National Guard Duty – the borrower is a member of the National Guard and has been activated by a governor, but the borrower is otherwise not eligible for a military deferment. Available for Direct Loans and FFEL Program loans only.

Mandatory forbearances may be granted for no more than 12 months at a time. If the borrower continues to meet eligibility requirements for the forbearance when the current forbearance period expires, the borrower may request another mandatory forbearance.

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What is the Federal Student Loan Discharge Based on Total and Permanent Disability?

A total and permanent disability (TPD) discharge relieves federal student loan borrowers from payment of qualifying federal student loans upon a showing that the borrower meets certain requirements for being considered totally and permanently disabled.

Qualifying Loans

Direct
FFEL
Perkins
Parent PLUS (Based on parent’s own disabilities, not those of the student’s).

Requirements

To qualify for a TPD discharge, the borrower or the borrower’s representative must complete and submit a TPD discharge application, along with documentation showing that the borrower meets the Department of Education’s requirements for being considered totally and permanently disabled.

Applicants for TPD must provide documentation from one of three qualifying sources:

The U.S. Department of Veterans Affairs (VA)
The Social Security Administration (SSA)
A physician

There are specific requirements for each type of supporting documentation that the borrower may submit to demonstrate eligibility.

VA Documentation

If the borrower is a veteran, the borrower may qualify for a TPD by providing documentation from the VA that shows that that the borrower has received a VA disability determination because he/she (1) has a service-connected disability that is 100 percent disabling; or (2) are totally disabled based on an individual unemployability rating.

SSA Documentation

If the borrower is eligible for Social Security Disability Insurance or Supplemental Security Income, he/she can qualify for a TPD by providing a copy of the SSA Notice of Award or Benefits Planning Query showing that the next scheduled disability review will be five to seven years or more from the date of the last SSA disability determination.

Physician’s Certification

A physician may certify on the TPD discharge application that the borrower is unable to engage in any substantial gainful activity due to a physical or mental impairment that

can be expected to result in death;
has lasted for a continuous period of at least 60 months; or
can be expected to last for a continuous period of at least 60 months.

Substantial gainful activity is a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.

The physician who certifies the borrower’s TPD discharge application must be a Doctor of Medicine (M.D.) or Doctor of Osteopathy/Osteopathic Medicine (D.O.) who is licensed to practice in the United States.

Post Approval Review

If the borrower is approved for TPD under a physician’s certification or SSA, the borrower’s TPD status will be subject to a three-year post-discharge monitoring period that begins on the date the discharge is approved., The borrower’s obligation to repay will be reinstated if the borrower does not meet certain requirements at any time during this monitoring period.

The borrower’s obligation to repay will be reinstated if, at any time during the three-year post-discharge monitoring period, the borrower receives:

Annual earnings from employment that exceed the poverty guideline amount for a family of two in the borrower’s state, regardless of family size;
The borrower is issued a new federal student loan under the Direct Loan Program;
Another disbursement (payment) of a Direct Loan that was first disbursed (paid out) before the borrower’s discharge was approved, and the new disbursement has not been returned to the loan holder within 120 days of the disbursement date; or
A notice from the SSA stating that the borrower is no longer disabled, or that the borrower’s next scheduled disability review will no longer be five to seven years from the date of his/her last SSA disability determination.

During the post-discharge monitoring period, the borrower will be required to submit documentation of his/her annual earnings from employment. If the borrower does not submit this form with the required documentation, the obligation to repay will be reinstated.

Reinstatement

If a TPD is vacated and payment obligations reinstated, the borrower will again be responsible for repaying the loans in accordance with the terms of the promissory note.

If the borrower applied for a discharge of loans, the loans will be returned to the status they were in before you the discharge application. This means that if a loan was in default before the borrower applied for a TPD discharge, it will be returned to default status.

Tax Considerations

If the borrower received a TPD discharge of a loan before January 1, 2018, the loan amount discharged may be considered income for federal tax purposes under Internal Revenue Service rules. If the borrower received a TPD discharge of a loan during the period from January 1, 2018 to Dec. 31, 2025, the discharged loan amount will not be considered income for federal tax purposes.

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What is the Death Based Federal Student Loan Administrative Discharge?

Federal student loans are discharged upon the death of the borrower. This administrative discharge includes Parent PLUS loans where the student on whose behalf the loan was taken dies.

If the parent-borrower of a Parent PLUS loan dies, the Parent PLUS loan is discharged.

In the case of joint consolidation loans (where spouses consolidate their qualifying federal student loans together under one consolidation loan), a partial discharge is allowed for the loans attributable to the deceased spouse.

What proof of death is needed to discharge a loan?

To administer the death-based discharge, a family member or other representative must provide the loan servicer with acceptable documentation of the borrower’s or parent’s death. Acceptable documentation includes an original death certificate, a certified copy of the death certificate, or an accurate and complete photocopy of one of those documents.

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What is a Federal Student Loan Closed School Discharge?

Federal student loans may be discharged if the school the borrower attended closes while the borrower is enrolled or soon after withdrawing.

Closed school discharges are not automatic, the borrower must apply and be approved for the discharge. To qualify, the borrower must meet certain requirements:

What Loans Qualify?

William D. Ford Federal Direct Loans;
Parent PLUS Loans;
Federal Family Education Loans (FFEL);
Federal Perkins Loans.

When Must the School Have Closed?

When the borrower was enrolled;
When the borrower was on an approved leave of absence;
The borrower’s school closed within 120 days after the borrower withdrew.

When is the Discharge Not Available?

The borrower withdrew more than 120 days before the school closed (except under exceptional circumstances);
The borrower is completing a comparable educational program at another school
- through a teach-out[1],
- by transferring academic credits or hours earned at the closed school to another school,
- or by any other comparable means.
The borrower completed all the coursework for the program before the school closed, even if the borrower did not receive a diploma or certificate.

[1] A teach-out is a written agreement between schools that provides for the equitable treatment of students and a reasonable opportunity for students to complete their program of study if a school ceases to operate before all students have completed their program of study.

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What is a False Certification Administrative Discharge Of Federal Student Loans?

Federal student loans may be discharged if the borrower’s school falsely certified the student’s eligibility to receive a loan.

False certification based discharges are not automatic, the borrower must apply and be approved for the discharge. To qualify, the borrower must meet certain requirements:

What Loans Qualify?

William D. Ford Federal Direct Loans;
Parent PLUS Loans;
Federal Family Education Loans (FFEL);

What are the eligibility requirements?

There are three categories of false certification through which a borrower might be eligible for a discharge of his or her Direct Loans or FFEL Program loans:

Ability to Benefit: The school falsely certified the student’s eligibility to receive the loan based on his or her ability to benefit from the school’s training, and the student did not meet the ability-to-benefit student eligibility requirements that were in effect at the time the school determined the student’s eligibility.

Disqualifying Status: The school certified the borrower’s eligibility to receive the loan, but at the time of the certification, the borrower had a status (physical or mental condition, age, criminal record, or other circumstance) that disqualified the student from meeting the legal requirements for employment in his or her state of residence in the occupation for which the program of study was preparing the student.

Unauthorized Signature or Unauthorized Payment: The school signed the borrower’s name on the loan application or promissory note without his or her authorization or the school endorsed the borrower’s loan check or signed the borrower’s authorization for electronic funds transfer without his or her knowledge, and the loan money wasn’t given to the borrower or applied to charges the borrower owed to the school.

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What is an Unpaid Refund Discharge of Federal Student Loans?

If the borrower withdrew from school and the school didn’t make a required return of loan funds to the loan servicer, the borrower might be eligible for a discharge of that federal student loan.

With certain federal student loans, the school may be required under federal regulations to return some or all of the loan money to the loan servicer after the student withdraws from school. If the school didn’t make the required return of the loan funds, the borrower may be eligible for a discharge of the portion of the loan that the school failed to return.

What Loans Qualify?

William D. Ford Federal Direct Loans;
Parent PLUS Loans;
Federal Family Education Loans (FFEL);

How to Apply?

If the school is still open, the borrower should first contact that school to resolve the issue before applying for an unpaid refund discharge. If the school has closed, the borrower should determine if he or she is may be eligible for a closed school discharge instead. Otherwise, the borrower will have to submit the appropriate application to the Department of Education.

How Much will Be Discharged?

Only the portion of the loan that the school should have returned will be discharged.

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What is Student Loan Public Service Student Loan Forgiveness (PSLF)?

Federal student loan borrowers who are employed by a government or not-for-profit organization, may be eligible for loan forgiveness under the Public Service Loan Forgiveness Program (PSLF).

The PSLF Program forgives the remaining balance on federal Direct Loans after the borrower has made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

What federal student loans are eligible for PSLF?

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans

A qualifying loan for PSLF is any loan made under the William D. Ford Federal Direct Loan (Direct Loan) Program in good standing (not in default).

Loans under other federal student loan programs, such as the Federal Family Education Loan (FFEL) Program or the Federal Perkins Loan (Perkins Loan) Program do not qualify for PSLF, but they may become eligible if consolidated into a Direct Consolidation Loan. However, only qualifying payments made on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments made on the FFEL Program loans or Perkins Loans before consolidation do not count.

Only federal student loans can be forgiven under the PSLF. Private student loans are not eligible.

What Are Qualifying Monthly Payments?

A qualifying monthly payment is a payment made”

After Oct. 1, 2007 (the first-time borrowers can qualify for PSLF was 2017);
Under a qualifying repayment plan;
For the full amount due as shown on the bills;
No later than 15 days after the payment due date; and
While the borrower is employed full-time by a qualifying employer.

Qualifying monthly payments can only be made during periods when the borrower is required to make a payment. Therefore, the borrower cannot make a qualifying monthly payment while the loans are in”

In-school status,
A grace period,
A deferment, or
A forbearance.

The 120 qualifying monthly payments do not need to be consecutive.

What is a Qualifying Repayment Plan?

Qualifying repayment plans include all of the income-driven repayment plans (plans that base the borrower’s monthly payment on income).

Even though the 10-year Standard Repayment Plan is also a qualifying repayment plan for PSLF, the borrowers cannot receive PSLF unless he or she enters an income-driven repayment plan. If the borrower is in repayment on the 10-year Standard Repayment Plan during the entire time he or she is working toward PSLF, the borrower will have no remaining balance left to forgive after the 120 qualifying PSLF payments.

What is Qualifying Employment?

Qualifying employment for the PSLF Program looks to the employer not the job title or description. Employment with the following types of organizations qualifies for PSLF:

Government organizations at any level (federal, state, local, or tribal)
Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if they provide certain types of qualifying public services
Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program.

What is Considered Full-Time Employment?

Under PSLF, full-time work is generally considered the greater of at least 30 hours per week or the employer’s definition of “full-time work”.

If a borrower is employed in more than one qualifying part-time job at the same time, the borrower may meet the full-time employment requirement if he or she works a combined average of at least 30 hours per week with both employers.

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What Is Teacher Student Loan Forgiveness?

The Teacher Loan Forgiveness Program gives certain schoolteachers and other educators student loan relief. Under the Teacher Loan Forgiveness Program, if a student loan borrower teaches full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications, the borrower may be eligible for forgiveness of up to $17,500 on Direct Subsidized and Unsubsidized student loans and Subsidized and Unsubsidized Federal Stafford Loans.

What are The Eligibility Requirements?

To qualify for relief under the Teacher Loan Forgiveness Program, the borrower must:

Not have had an outstanding balance on Direct or Federal Family Education Loans as of Oct. 1, 1998, or on the date that the borrower obtained a Direct Loan or FFEL Program loan after Oct. 1, 1998;
Been employed as a full-time, highly qualified teacher for five complete and consecutive academic years, and at least one of those years must have been after the 1997–98 academic year.
Been employed at an elementary school, secondary school, or educational service agency that serves low-income students (a “low-income school or educational service agency”).

Who Qualifies as a Teacher?

To be considered a “teacher” under the Teacher Loan Forgiveness Program, the borrower must be a person who provides direct classroom teaching, or classroom-type teaching in a non-classroom setting including special education teachers.

Who is Considered a Highly Qualified Teacher?

To be considered a “highly qualified teacher” under the Teacher Loan Forgiveness Program, the borrower must have:

attained at least a bachelor’s degree;
received full state certification as a teacher; and
not had certification or licensure requirements waived on an emergency, temporary, or provisional basis.

For elementary school teachers who are new to the profession, the borrower must also have demonstrated subject knowledge and teaching skills in reading, writing, mathematics, and other areas of the basic elementary school curriculum by passing a rigorous state test.

To be considered highly qualified as a middle or secondary school teacher who is new to the profession, the borrower must also have demonstrated a high level of competency in each of the academic subjects in which the borrower teaches. To demonstrate this high level of competency, the borrower may either pass a rigorous state academic subject test in each of the academic subjects in which you teach or successfully complete an academic major, a graduate degree, course work equivalent to an undergraduate academic major, or an advanced certification or credential in each of the academic subjects in which the borrower teaches.

For elementary, middle, or secondary school teachers who are not new to the profession, to be considered “highly qualified” the borrower must meet the applicable requirements for an elementary, middle, or secondary school teacher who is new to the profession or demonstrate competence in all the academic subjects in which the borrower teaches based on a high, objective, uniform state standard of evaluation.

What Qualifies as a Low-Income School or Educational Service Agency?

To be consider a “low-income school or educational service agency” for Teacher Loan Forgiveness Program purposes, the school or educational service agency must be listed in the “Teacher Cancellation Low Income directory” (TCLI), published by the U.S. Department of Education.

State education agencies are responsible for determining which schools or educational service agencies are eligible to be reported to the Department of Education for inclusion in the TCLI directory.

If the borrower’s school or educational service agency is included in the TCLI directory for at least one year of the borrower’s teaching service, but is not included during subsequent years, the borrower’s subsequent years of teaching at the school or educational service agency will still be counted toward the required five complete and consecutive academic years of teaching.

Teaching service performed at an educational service agency may be counted toward the required five years of teaching only if the consecutive five-year period includes qualifying service at an eligible educational service agency performed after the 2007–08 academic year.

How Much Loan Forgiveness Is Available?

The maximum forgiveness amount is either $17,500 or $5,000, depending on the subject area taught. If the borrower has eligible loans under both the Direct Loan Program and the FFEL Program, $17,500 or $5,000 is a combined maximum forgiveness amount for both programs.

The borrower may receive up to $17,500 in loan forgiveness if he or she was a highly qualified full-time mathematics or science teacher who taught students at the secondary school level; or a highly qualified special education teacher (at either the elementary or secondary level) whose primary responsibility was to provide special education to children with disabilities, and he or she taught children with disabilities that corresponded to his or her area of special education training and demonstrated knowledge and teaching skills in the content areas of the curriculum that you taught.

If the borrower did not teach mathematics, science, or special education, he or she may receive up to $5,000 in loan forgiveness if he or she was a highly qualified full-time elementary or secondary education teacher.

Loan Forgiveness Under the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program

Borrowers may potentially receive forgiveness under both the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program, but not for the same period of teaching service.

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What is Delinquency and Default In Federal Student Loans?

When a federal student loan borrower misses a payment a student loan payment, his or her loan becomes past due, or delinquent. The borrower’s loan account remains delinquent until the missed payment is paid or other arrangements, such as deferment or forbearance, or enrollment in a new repayment plan is made.

When a federal student loan borrower remains delinquent for 90 days or more, the loan servicer will report the delinquency to the three major national credit bureaus. If the borrower continues to be delinquent, the loan may go into default.

When a loan is considered to be in default varies depending on the type of loan. For loans made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, default begins when the borrower 270 days after the last missed payment.

For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if the borrower fails to make a scheduled payment by the due date.

Consequences of Default

The entire unpaid balance of the loan and any interest owed becomes immediately due (called “acceleration”).
can no longer receive deferment or forbearance, and loses eligibility for other benefits, such as the ability to choose a repayment plan.
The borrower loses eligibility for additional federal student aid.
The default is reported to credit bureaus.
The borrower’s tax refunds and federal benefit payments may be withheld and applied toward repayment of the defaulted loan (“Treasury offset”).
The borrower’s wages may be garnished.
The loan holder can sue in court.
The borrower may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
The borrower’s school may withhold academic transcripts until the defaulted student loan is satisfied.

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How Does Private Debt Collection on Defaulted Federal Student Loans Work?

Before a defaulted federal student loan is placed with a private collection agency, the Department of Education will notify the borrower and explain what can be done to avoid both the assignment to a private collection agency and the reporting of default status to the credit reporting agencies. If the borrower fails to enter into a repayment agreement, the loan will be accelerated (making the entire balance of the loan immediately due), and administration of the loan will be transferred from a loan servicer to a collection agency.

If the loan is placed with a collection agency, the borrower is responsible for collection costs up to 25%. Private collection agencies earn a commission for any payments made on loans. When the borrower makes a payment, the payment is first applied to the amount of the commission that the collection agency earned, the remainder of the payment will be applied to interest and principal on the loan significantly increasing the total cost of the loan.

In its collection efforts, the collection agency will first offer the borrower the option of entering into a voluntary repayment agreement. If the borrower does not agree, or if the borrower enters into a repayment agreement but fails to make payments, the collection agency will use administrative remedies including wage garnishment and treasury offset. If these efforts fail, the collection agency may recommend that a lawsuit be filed by the U.S. Department of Justice.

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What is A Student Loan Administrative Wage Garnishment?

In the event of a federal student loan borrower’s default on a federal student loan, the Department of Education has the power to garnish the borrower’s wages without first having to go to court as is the case with most other debts. Under the administrative wage garnishment, the government orders the borrower’s employer to withhold up to 15 percent of the borrower’s disposable income. The garnishment will continue until the defaulted loan is paid in full or taken out of default.

Defaulted borrowers are allowed an exemption equal to 30 times the minimum wage. The current federal minimum wage is $7.25 per hour – (30 x 7.25 = $217.50 exempt per week).

Borrowers have some rights with regard to administrative wage garnishments:

30-days advanced notice from Department of Education or guaranty agency in the case of a commercially held FFEL loan before the garnishment begins;
Notice of the borrower’s right to inspect and copy records relating to the loan, and the right to object to the garnishment;
Notice of the borrower’s right to avoid garnishment by voluntary repayment;
An opportunity to enter into a written agreement under terms agreeable to the Department of Education to establish a voluntary repayment agreement;
An opportunity for a hearing to present and obtain a ruling on any objection the borrower has to the existence, amount, or enforceability of the loan,
- that garnishment of 15 percent of the borrower’s disposable pay would produce an extreme financial hardship; or
- an objection stating that garnishment cannot be used at this time because the borrower has been employed for less than 12 months after having previously been involuntarily separated from employment;
Have the garnishment action withheld by filing a timely request for a hearing, until the hearing is completed, and a decision issued;
Not be discharged from employment, refused employment, or subjected to disciplinary action due to the garnishment, and to seek redress in federal or state court if such action occurs;
Initiate any legal action against the employer if the employer discharges, refuses to hire, or takes disciplinary action against the borrower based on the garnishment action; and
Not have any information provided to the employer regarding the garnishment other than what is necessary for the employer to comply with the withholding order.

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What is A Student Loan Social Security Offset?

In the event of a federal student loan borrower’s default on a federal student loan, the Department of Education has the power to offset federal benefits owed to the borrower including from social security. The offset continues until the defaulted loan is paid in full or taken out of default.

There are applicable exemptions – the Department of Education cannot take any amounts due to the borrower below $9,000 per year or $750 per month and no more than 15% of the total benefit can be offset.

Supplemental Security Income (SSI) is fully exempt and cannot be taken.

Before the offset begins, a notice of pending offset will be sent to the borrower’s last known address to notify that the offset is scheduled to begin in 65-days. The notice may only be sent once, and offsets will continue until the debt is paid.

If Social Security disability benefits are being withheld, the withholding of those benefits will be suspended if the Social Security Administration (SSA) makes a determination that the borrower is totally disabled, with medical improvement not expected. However, if the SSA later converts the disability benefits to retirement benefits, the withholding of the Social Security benefits may resume without notice.

The offset process is managed by the Bureau of the Fiscal Service of the Department of Treasury. Before referring a debt to FMS for collection, the Department of Education must provide the borrower with notice.

The borrower may request a review within 20-days of receiving the notice of offset or if the borrower requested documents to review, within 15-days after those documents are received. The borrower has the right to first review and copy relevant documents.

The borrower may also request an oral hearing instead of a written review but must send an explanation of why a written review is inadequate.

A defaulted borrower may also request a reduction or suspension of an offset due to a hardship. It is up to the Department of Education’s discretion whether to grant this such a reduction or suspension.

To consider such a request, the Department of Education requires that the following documents be submitted:

The notification of offset;
The notification letter showing the amount of federal benefit;
Proof of yearly income;
A completed financial statement that must be returned to the Department of Education or guaranty agency within ten days. If the situation is an emergency, the borrower may submit equivalent information such as an eviction notice or a court order of foreclosure in writing with the completed financial statement.
A letter explaining the exceptional circumstances that caused the financial hardship along with any other supporting documents.

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What is A Defaulted Student Loan Tax Refund Intercept?

In the event of a federal student loan borrower’s default on a federal student loan, federal law related to the collection of debts owed to the government allows the Department of Education to request that the U.S. Department of the Treasury withhold money from the borrower’s federal income tax refunds. This withholding, sometimes called a “Treasury offset” or “tax return intercept” will continue until the defaulted loan is paid in full or taken out of default.

Similarly, if the borrower has a defaulted FFEL loan that is held by a guaranty agency, the borrower’s state tax refunds may be also withheld and applied toward repayment of that loan.

The borrower may also request an oral hearing instead of a written review but must send an explanation of why a written review is inadequate.

To consider such a request the Department of Education requires that the following documents be submitted:

The notification of offset;
The notification letter showing the amount of federal benefit;
Proof of yearly income;
A completed financial statement that must be returned to the Department of Education or guaranty agency within ten days. If the situation is an emergency, the borrower may submit equivalent information such as an eviction notice or a court order of foreclosure in writing with the completed financial statement.
A letter explaining the exceptional circumstances that caused the financial hardship along with any other supporting documents.

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What is Defaulted Student Loan Rehabilitation?

Most federal student loan repayment options require that the borrower be out of default before being eligible. One option for getting a borrower out of default is through loan “rehabilitation”.

Rehabilitation of Direct Loans and Federal Family Education Loans

Rehabilitation of Direct and FFEL loans require the borrower to:

(1) Agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by the loan holder),

(2) Made within 20 days of the due date, and

(3) Make all nine payments during a period of 10 consecutive months.

Under loan rehabilitation agreements, the loan holder will determine a reasonable monthly payment amount that is equal to 15 percent of the borrower’s annual discretionary income, divided by 12. Discretionary income is the amount of the borrower’s adjusted gross income (as stated in the borrower’s most recent federal income tax return) that exceeds 150 percent of the poverty guideline amount for the borrower’s state and family size.

As part of the rehabilitation application, the borrower must provide all required income documentation.

If the borrower cannot afford the reasonable monthly payment as determined by the loan holder, the borrower can ask the loan holder to calculate an alternative monthly payment based on the amount of the borrower’s monthly income that remains after allowance for reasonable amounts the borrower’s monthly expenses have been subtracted. The borrower will need to provide documentation of the monthly income and expenses, including a completed “Loan Rehabilitation Income and Expense Information” form. Depending on the individual circumstances, the alternative payment amount may be lower than the payment amount initially offered. To rehabilitate the defaulted loan, the borrower must choose one of the two payment amounts.

The loan holder may be collecting payments on the defaulted loan through wage garnishment or Treasury offset -these involuntary payments may continue even after making payments under a loan rehabilitation agreement, but they CANNOT be counted toward the required nine voluntary loan rehabilitation payments. Involuntary payments may continue to be taken until the loan is no longer in default or until the borrower has made some of the rehabilitation payments. Administrative wage garnishments will stop after the fifth of the nine loan rehabilitation payments has been made.

Rehabilitation of Perkins Loans

For loans made under the Federal Perkins Loan Program, the borrower must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months (as compared to 10 months with direct and FFEL loans). The borrower’s required monthly payment amount is determined by the loan holder.

Why Rehabilitate?

When rehabilitated, the default status will be removed from the loan, and collection of payments through wage garnishment or Treasury offset will stop. The borrower regains eligibility for benefits and repayment plans that were unavailable during default such as deferment, forbearance, choice of repayment plans, and loan forgiveness. Also, the record of default on the rehabilitated loan will be removed from the borrower’s credit history. However, the credit history will still show late payments that were reported by the loan holder before the loan went into default.

Downside to Rehabilitation

Defaulted borrowers can only rehabilitate once per loan for loans made after 2008. Also, the debt collector will recover a 16% collection fee which will be deducted from the monthly payments resulting in an overall slower rate of paydown.

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Cure of Defaulted Federal Student Loan Through Consolidation

Most federal student loan repayment options require that the borrower be out of default before being eligible. One option for getting a borrower out of default is through loan “consolidation”. Loan consolidation allows the borrower to pay off one or more federal student loans with a brand-new loan which consolidates two or more loans together.

To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, the borrower must either:

Agree to repay the new Direct Consolidation Loan under an income-driven repayment plan, or
Make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before it is consolidated.

If the borrower chooses to consolidate under option 2, making “three payments on the defaulted loan before consolidation”, the required payment amount will be determined by the loan holder, but cannot be more than what is reasonable and affordable based on the total financial circumstances of the borrower.

There are special considerations if reconsolidating an existing Direct Consolidation Loan or Federal (FFEL) Consolidation Loan that is in default:

To reconsolidate a defaulted Direct Consolidation Loan, the borrower must also include at least one other eligible loan in the consolidation. If the borrower has no other eligible loans that can be included in the consolidation, the borrower cannot get out of default by consolidating a defaulted Direct Consolidation Loan. The only remaining options are full repayment or loan rehabilitation.

The borrower may reconsolidate a defaulted FFEL Consolidation Loan without including any additional loans in the consolidation, but only if the borrower agrees to repay the new Direct Consolidation Loan under an income-driven repayment plan.

Additionally, if the borrower wants to consolidate a defaulted loan that is being collected through an administrative wage garnishment, or that is being collected through a court order after an entry of a judgment, the borrower cannot consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.

If the borrower chooses to repay the new Direct Consolidation Loan under an income-driven plan, the borrower must select one of the available income-driven repayment plans at the time of application for the consolidation loan and provide income documentation.

If the borrower wants to consolidate a defaulted PLUS loan that was obtained as a parent to pay for their child’s education, the only income-driven plan available is the Income-Contingent Repayment Plan (ICR).

If the borrower chooses to make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before consolidation, the borrower may repay the new Direct Consolidation Loan under any eligible repayment plan.

Why Consolidate?

When consolidated, the defaulted loan is paid off and replaced with a new loan – the defaulted status will be removed from the loan, and collection of payments through wage garnishment or Treasury offset will stop. The borrower regains eligibility for benefits and repayment plans that were unavailable during default such as deferment, forbearance, choice of repayment plans, and loan forgiveness.

Downside to Rehabilitation

The debt collector will recover a 18.5%. The process may take 30-90 days.

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What Is The Difference Between Subsidized And Unsubsidized Student Loans?

Students may be eligible to receive subsidized and unsubsidized loans based on their financial need.

Subsidized Loans:

Direct subsidized student loans are more favorable than unsubsidized student loans because the government kicks in to pay the interest during applicable periods.

The Department of Education pays the interest on a subsidized loans while:

The student is in school at least half-time (six credit hours per semester or more);
The first six months after the student leaves school (referred to as a grace period), and
During a period of deferment (a postponement of loan payments).

Unsubsidized Stafford Loans:

Unsubsidized loans are available to undergraduate and graduate students with no requirement to demonstrate financial need. The school determines the amount the student can borrow based on the “cost of attendance” and other financial aid received.

The student is responsible for paying the interest on all unsubsidized loans during all periods.

If a borrower does not to pay the interest while in school and during grace periods and deferment or forbearance periods, the interest will accrue accumulate and be capitalized adding it to the principal of the loan.

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What Are FFEL Loans Guarantors?

The “FFEL” – Federal Family Education Loan Program – is federal program under which private lenders used their own funds to make federal student loans to borrowers to pay for secondary education (college). These Loans were guaranteed by guaranty agencies that insured these funds, which were, in turn, reinsured by the federal government.

The FFEL loan program was discontinued as of July 1, 2010 by enactment of the Health Care and Education Reconciliation Act of 2010. No new FFEL Program loans have been made since.

“Guarantors” or “guarantee agencies” are not-for-profit companies or state agencies that insure FFEL student loans against default.

Guarantee agencies act as middlemen between the federal government, private FFEL lenders and borrowers. The guarantee agencies charge a 1% default fee (previously called a “guarantee fee”), collected from each disbursement on a federal education loan, to cover the costs of insuring the loan. If the borrower defaults, dies or becomes totally and permanently disabled, the guarantee agency takes ownership of the loan and reimburses the lender for the balance remaining on the loan.

If a borrower defaults on a FFEL loan, the private lender can file a default claim with the guaranty agency to purchase the remainder of the loan. The federal government will reimburse the guarantee agency up to 95 percent of the purchase amount. However, before the federal government will purchase the loan, it must determine that the guaranty agency did everything it could to prevent default. For this reason, guarantee agencies are incentivized to work with borrowers to avoid default.

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What Are Stafford Loans?

Direct Stafford Loans are student loans originated by the United States Department of Education to both undergraduate and graduate students.

Stafford loans come in two types:

Subsidized Stafford loan
Unsubsidized Stafford loan.

Subsidized Stafford Loans:

Direct Subsidized Stafford Loans are more favorable than unsubsidized Stafford loans because the government kicks in to pay the interest during applicable periods. Stafford loans have loan limits and subsidized loans have lower lending limits than do unsubsidized Stafford loans.

Direct Subsidized Stafford Loans are only available to undergraduate students with a “demonstrated financial need”. The school determines the amount a student can borrow which may not exceed the student’s financial need.

The U.S. Department of Education pays the interest on a Direct Subsidized Loan while:

The student is in school at least half-time (six credit hours per semester or more);
The first six months after the student leaves school (referred to as a grace period), and
During a period of deferment (a postponement of loan payments).

Unsubsidized Stafford Loans:

Unsubsidized Stafford Loans are available to undergraduate and graduate students with no requirement to demonstrate financial need. The school determines the amount the student can borrow based on the “cost of attendance” and other financial aid received.

The borrower is responsible for paying the interest on all Unsubsidized Loans during all periods.

If a borrower does not to pay the interest while in school and during grace periods and deferment or forbearance periods, the interest will accrue, accumulate and be capitalized adding it to the principal of the loan.

Stafford Loan Lending Limits

Stafford loans have the following lending limits which vary depending on whether the borrower is a dependent (tied to a parent) or independent:

YEAR OF SCHOOL	DEPENANT	INDEPENDENT
First-Year Undergrad Annual Loan Limit	$5,500—No more than $3,500 of this amount may be in subsidized loans.	$9,500—No more than $3,500 of this amount may be in subsidized loans.
Second-Year Undergrad Annual Loan Limit	$6,500—No more than $4,500 of this amount may be in subsidized loans.	$10,500—No more than $4,500 of this amount may be in subsidized loans.
Third-Year and Beyond Undergraduate Annual Loan Limit	$7,500—No more than $5,500 of this amount may be in subsidized loans.	$12,500—No more than $5,500 of this amount may be in subsidized loans.
Graduate or Professional Students Annual Loan Limit	N/A (all graduate and professional students are considered independent)	$20,500 (unsubsidized only)
Subsidized and Unsubsidized Aggregate Loan Limit	$31,000—No more than $23,000 of this amount may be in subsidized loans.	$57,500 for undergraduates—No more than $23,000 of this amount may be in subsidized loans. $138,500 for graduate or professional students—No more than $65,500 of this amount may be in subsidized loans. The graduate aggregate limit includes all federal loans received for undergraduate study.

While Stafford Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, federal Stafford loans are transferred to a collection agency for collection.

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What Are Direct Consolidation Loans?

A federal Direct Consolidation Loan allows borrowers to combine multiple federal education loans into one singe loan. The result for the borrower is a single monthly payment made to a single loan servicer instead of multiple payments made to multiple servicers. Loan consolidation also gives borrowers access to additional loan repayment plans and forgiveness programs that might not otherwise be available.

A Direct Consolidation Loan has a fixed rate of interest for the life of the loan. This fixed rate is calculated as the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. There is no cap on the interest rate of a Direct Consolidation Loan.

Pros of Direct Consolidation Loans

Borrowers with federal student loans that are with different loan servicers can simplify loan repayment by consolidating into a single loan, serviced by one servicer with just one monthly payment. The consolidation loan pays off and replaces the prior loans.
Consolidation can lower the borrower’s monthly payment by providing a longer period of time (up to 30 years) to repay the Consolidation loan.
Variable-rate loans may be consolidated into a fixed interest rate.
If a borrower consolidates loans other than Direct Loans (Perkins, Stafford, PLUS, FFEL), consolidation gives access to income-driven repayment plan and loan forgiveness options that were otherwise unavailable including Public Service Loan Forgiveness (PSLF).
Direct consolidated loans can be re-consolidated if combined with other qualifying loans.

Cons of Direct Consolidation Loans

Because consolidation usually increases the repayment period, borrowers will likely make more payments and pay more in interest than would be the case if the loans were not consolidated.
Any outstanding interest on the loans that are consolidated become part of the original principal balance on the consolidation loan, which means that interest may accrue on a higher principal balance than might have been the case if not consolidated (“Capitalized” = interest on interest).
Consolidation may result in the loss of certain borrower benefits—such as interest rate discounts, principal rebates, or some loan cancellation benefits—that are associated with the current loans.
If current loans are being paid under an income-driven repayment plan, or if the borrower has made qualifying payments toward Public Service Loan Forgiveness (PSLF), consolidation will result in the loss of credit for any payments made toward income-driven repayment plan forgiveness or PSLF. However, any such loans can be excluded from a Direct Consolidation Loan preserving credit for any payments made toward income-driven repayment plan forgiveness or PSLF.

What Loans Are Eligible for Consolidation?

Generally, most federal student loans are eligible for consolidation including the following:

Subsidized Federal Stafford Loans
Unsubsidized and Nonsubsidized Federal Stafford Loans
PLUS loans from the Federal Family Education Loan (FFEL) Program
Supplemental Loans for Students
Federal Perkins Loans
Nursing Student Loans
Nurse Faculty Loans
Health Education Assistance Loans
Health Professions Student Loans
Loans for Disadvantaged Students
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
Federal Insured Student Loans
Guaranteed Student Loans
National Direct Student Loans
National Defense Student Loans
Parent Loans for Undergraduate Students
Auxiliary Loans to Assist Students

What Loans Are Not Eligible for Consolidation?

Private student loans are not eligible for consolidation. However, for some Direct Consolidation Loan repayment plans, the total amount of the borrower’s education loan debt—including any private education loans—determines how long the borrower has to repay the Direct Consolidation Loan.

How to Qualify for a Direct Consolidation Loan

The loans to be combined must be in repayment or in the grace period (not in default).

Existing consolidation loans cannot be re-consolidated unless an additional eligible loan is included in the consolidation.

To consolidate a defaulted loan, the borrower must either make satisfactory repayment arrangements (three consecutive monthly payments) on the loan before consolidation, or the borrower must agree to repay the new Direct Consolidation Loan under the Income-Based Repayment Plan, Pay As You Earn Repayment Plan, Revised Pay As You Earn Repayment Plan, or Income-Contingent Repayment Plan.

To consolidate a defaulted loan that is being collected through garnishment, or that is being collected in accordance with a court order after a judgment was obtained, the borrower cannot consolidate until the wage garnishment order has been lifted or the judgment has been vacated.

Repayment of a Direct Consolidation Loan

Repayment of a Direct Consolidation Loan begins within 60 days after the loan is disbursed.

If any of the loans included in the consolidation are still in the grace period, the borrower has the option of indicating on the Direct Consolidation Loan application the application should be delayed until the end of grace period. Repayment on the new Direct Consolidation Loan will begin at the end of the grace period.

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What Are Federal Plus Federal Student Loans?

Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for college or career school (commonly referred to as a “parent PLUS” loan when made to a parent). PLUS loans are intended to help pay for education expenses not covered by other financial aid.

The U.S. Department of Education makes Direct PLUS Loans to eligible parents and graduate or professional students through schools participating in the Direct Loan Program.

To qualify for a PLUS loan, the borrower must qualify through a credit check. A borrower with poor credit history may still qualify if other requirements are met including a co-signor or documenting, to the satisfaction of the Department of Education, that there are extenuating circumstances explaining the adverse credit history.

Under PLUS Loans, the Department of Education is the lender. While PLUS Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, federal PLUS Loans are transferred to a collection agency for collection.

The maximum PLUS loan that can be borrowed equals the “cost of attendance” (determined by the school) minus any other financial aid received. The “cost of attendance” (also referred to a as “COA”) includes “tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care, costs related to a disability, and miscellaneous expenses, including an allowance for the rental or purchase of a personal computer, costs related to disability, or costs for eligible study-abroad programs.”

Direct PLUS loans have a fixed rate of interest and are not subsidized, which means that interest accrues while the student is enrolled in school. Borrowers are charged a fee to process a Direct PLUS Loan, called an “origination fee”. An origination fee is deducted from the loan disbursement before the borrower or the school receives the funds.

There are two types of Direct PLUS loans: the “Grad PLUS” loan and the “Parent PLUS” loan.

Grad PLUS Loans

Grad PLUS loans allow graduate and professional students to borrow money to pay for their own education. Graduate students can borrow Grad PLUS loans to cover any costs not already covered by other financial aid or grants, up to the full cost of attendance.

Grad PLUS loans are eligible for income-based repayment (IBR), pay-as-you-earn repayment (PAYER) and income-contingent repayment (ICR).

Parent PLUS Loans

Parent PLUS loans allow parents of dependent students to borrow money to cover any costs not already covered by the student’s financial aid package, up to the full cost of attendance. The program does not set a cumulative limit to how much parents may borrow. Parent PLUS loans are the financial responsibility of the parents, not the student.

Parent PLUS loans have a fixed rate of interest and are not subsidized, which means that interest accrues while the student is enrolled in school. The borrower is charged an origination fee which is deducted from the loan disbursement before the borrower or the school receives the funds.

Parent PLUS loans have no “grace period”. Parent PLUS loan repayment begins as soon as the borrower or the school receives the loan funds. However, parents may be able to delay making payments while their child is in school or for an additional six months after their child graduates, leaves school, or drops below half-time enrollment.

Parent PLUS loans are not eligible for income-based repayment. They are, however, eligible for income-contingent repayment if they are included in a Federal Direct Consolidation Loan and the borrower entered repayment on or after July 1, 2006.

Parent PLUS loans are eligible for the standard 10-year repayment, graduated repayment and extended repayment. Graduated repayment starts off with monthly payments at or slightly above an interest-only payment and increases the monthly payment every two years. The final payment is no more than three times the initial payment. Extended repayment is a level repayment plan like standard repayment, but may use a repayment term of 12, 15, 20, 25 or 30 years, depending on the amount owed.

While PLUS Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, PLUS loans are transferred to a collection agency for collection.

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What Are Perkins Loans?

The Federal Perkins Loan Program provided money for undergraduate, graduate, and professional students with financial need. Perkins Loans are low-interest federal student loans for undergraduate and graduate students with “exceptional financial need”.

The Perkins Loans program ended on Sept. 30, 2017. As a result, students can no longer receive Perkins Loans.

Unlike other student loans, in the case of Perkins Loans the student’s school is the lender not a bank or the government. The loan is made with government funds, but the school contributes a share of the loan. This means that the student applied for the loan through the school and repaid to the school usually through a loan servicer. Different loan servicers may be hired to service Perkins Loans than for other federal loans.

Perkins Loans repayment typically begins nine months after the student graduates or drops below half-time enrollment in school. The longest repayment term for Perkins Loans is 10 years.

Perkins Loans are only eligible for income-based repayment if they are consolidated into a Direct Loan.

With Perkins loans, undergraduate students were allowed to borrow a maximum of $5,500 annually and $27,500 over the course of their undergraduate career.

Perkins Loan maximums:

Undergraduate student per year: $5,500
Undergraduate student total: $27,500
Graduate student per year: $8,000
Graduate student total: $60,000

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What Are FFEL Student Loans?

“Federal Family Education Loan Program” (“FFEL”)- is a federal program under which private lenders used their own funds to make federal student loans to borrowers to pay for secondary education (college). These Loans were guaranteed by guaranty agencies that insured these funds, which were, in turn, reinsured by the federal government.

The FFEL loan program was discontinued as of July 1, 2010 by enactment of the Health Care and Education Reconciliation Act of 2010. No new FFEL Program loans have been made since then.

The largest originator of FFEL loans was the well-known student loan company Sallie Mae (now called Navient). FFEL loans are serviced by the guarantors, nonprofit companies that provide support for the administration of FFEL Loans. The most well know of these guarantors are:

Educational Credit Management Corporation (“ECMC”),
Higher Education Loan Authority of the State of Missouri (commonly referred to as “MOHELA”); and
Great Lakes Educational Loan Services, Inc. (“Great Lakes”); and
Nelnet Diversified Solutions, LLC.

Because FFEL loans are federal loans, all the benefits of federal loans like income driven repayment and loan forgiveness are available to FFEL borrowers.

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What Are “Direct” or “FDL” Student Loans?

After July 1, 2010, the federal government became the direct lender of federal student loans under a program called the “William D. Ford Federal Direct Loan Program” (sometimes referred to as “Direct Loans” or “FDL”). Before July 1, 2010, federal student loans were originated by private banks and guaranteed by the federal government.

Under the Direct Loan program, the U.S. Department of Education is the lender, not private banks.

There are four types of Direct Loans available:

Direct Subsidized Loans – loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
Direct Unsubsidized Loans – loans made to eligible undergraduate, graduate, and professional students. Eligibility is not based on financial need.
Direct PLUS Loans – loans made to graduate or professional students and to the parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but credit worthiness as determined by a credit application is considered.
Direct Consolidation Loans – loans which allow the borrower to combine all eligible federal student loans into a single loan with a single loan servicer.

What is a Direct Loan Servicer?

While Direct Loans are originated by the Department of Education, the loans are serviced by “loan servicers”. Loan services are companies hired by the Department of Education to service Direct loans including sending regular billing statements, offering and administering forbearances and deferments, assisting with repayment options, helping to keep borrowers out of default and assisting borrowers in getting out of default through rehabilitation.

The most common Direct Loan Services include:

Aspire Resources Inc.
CornerStone
ESA/EdFinancial
FedLoan Servicing (PHEAA)
Granite State (GSMR)
Great Lakes Educational Loan Services Inc.
Higher Education Loan Authority of the State of Missouri (commonly referred to as “MOHELA”)
Navient
NelNet
OSLA Servicing
Sallie Mae
VSAC Federal Loans

What is a Student Loan Debt Collector?

If a federal student loan is in default, the account is transferred from the loan servicer to a debt collector. Federal student loan debt collectors are tasked with collecting defaulted federal student loans. Debt collectors do not work on accounts that are not in default, even if they are delinquent.

Debt collectors make demand for payments through written letters and telephone calls. They collect payments and assist borrowers in getting out of default through rehabilitation.

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What Are the Differences Between Private And Federal Student Loans?

Generally speaking, there are two broad categories of student loans – private student loans and federal or government student loans. The two categories of loans have many similarities, but it is the differences between them that are crucial to borrowers.

Federal student loans are funded or guaranteed federal government.

Private student loans are nonfederal loans, made by a lender other than the federal government such as banks, credit unions, state agencies, and schools. Private loans are not guaranteed by the federal government.

The terms and conditions for federal student loans are made by the government and set by law. Some of these laws include many benefits to borrowers such as fixed rates of interest, income-driven repayment plans and loan forgiveness.

In contrast, private student loans are made by private organizations and the terms and conditions for private student loans are not set by law but directly by the lender. For this reason, many of the benefits of federal loans like income-driven repayment plans and loan forgiveness are not available under.

The following table details the key differences between federal and private student loans:

SUBJECT	FEDERAL LOAN	PRIVATE LOAN
When payments become due	Repayments does not begin until the borrower (1) graduates, (2) leaves school, or (3) change status to less than half-time.	Many private student loans require payments while the borrowers are still in school. Some lenders allow in-school deferments.
Interest Rates	Rates are fixed (they don’t change). Rates are often lower than private loans and much lower many some credit cards.	Private student loans can have variable or fixed interest rates depending on the terms of the loan.
Subsidies	Qualifying borrowers who have demonstrated a financial need, may qualify for a loan for which the government pays the interest while the borrower is still in school called a “subsidized loan.”	Private student loans are rarely not subsidized. Borrowers are responsible to pay all the interest despite financial need.
Credit Checks	Except for “Plus Loans” borrowers do need to get a credit check to qualify for federal student loans.	Private lenders generally require a credit check to qualify for a loan. If the borrower does not qualify, the lender may require a cosigner.
Consolidation and Refinancing	Federal loans may be can be consolidated into a “Direct Consolidation Loan” and retain the benefits of like income-driven repayment plans, debt forgiveness, and total and permanent disability.	Private student loans cannot be consolidated into a “Direct Consolidation” Loan but may be refinanced through the lender or another lender.
Payment Postponement	If a borrower is having trouble making loan payments, the borrower may be able to temporarily postpone or lower payments through deferment and forbearance.	Some but not all private lenders make deferment and forbearances available to borrowers.
Repayment Plans	There are a variety of repayment plans available to federal loan borrowers including income-driven repayment plans.	Some but not all private lenders offer repayment plans, but they are generally not obligated to do so.
Prepayment Penalties	There are no prepayment penalties.	There may be prepayment penalties depending on the terms of the loan.
Loan Forgiveness	Some borrowers may be eligible to have some portion of their loans forgiven if the borrower works in public service.	Private lenders generally do not offer loan forgiveness. However, some state funded programs do offer public sector forgiveness programs.

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What Are the Different Kinds of Federal Student Loans?

The U.S. Department of Education originates or guarantees four different kinds of student loans:

Stafford Loans (Needs based subsidized and unsubsidized with lending limits).
PLUS Loans (Requires credit application and approval, can be made to the student and/or to the parents of students, available for graduate school tuition).
Perkins Loans (Needs based financial aid, must qualify, administered through the school).
Consolidation (Combine two or more federal loans into one consolidated loan).

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The Law Offices of Robert J. Nahoum, P.C. – A New York Consumer Protection Law Firm

What Role Does The Department of Education Play In Student Loans?

What Role Do Student Loans Servicers Play In Federal Student Loans?

What Role Do Private Banks Play in Federal Student Loans?

What Role Do Collection Agencies Play in Federal Student Loans?

What is the NSLDS and What Does It Tell You?

What is Income Driven Student Loan Repayment Plan?

What is Income Based Student Loan Repayment Plan?

What is Income Contingent Student Loan Repayment Plan?

What is Federal Student Loan Capitalization?

What is “Pay As You Earn” Based Student Loan Repayment Plan?

What is Revised “Pay as You Earn” Based Student Loan Repayment Plan?

What is the Standard Balance-Based Student Loan Repayment Plan?

What is the Graduated Balance-Based Student Loan Repayment Plan?

What is the Extended Graduated Balance-Based Student Loan Repayment Plan?

What is the Extended Balance-Based Student Loan Repayment Plan?

What is an Alternative Balance-Based Student Loan Repayment Plan?

What is The Federal Student Loan Repayment Grace Period?

What Are Federal Student Loan Repayment Deferments and Forbearances?

What is the Federal Student Loan Discharge Based on Total and Permanent Disability?

What is the Death Based Federal Student Loan Administrative Discharge?

What is a Federal Student Loan Closed School Discharge?

What is a False Certification Administrative Discharge Of Federal Student Loans?

What is an Unpaid Refund Discharge of Federal Student Loans?

What is Student Loan Public Service Student Loan Forgiveness (PSLF)?

What Is Teacher Student Loan Forgiveness?

What is Delinquency and Default In Federal Student Loans?

How Does Private Debt Collection on Defaulted Federal Student Loans Work?

What is A Student Loan Administrative Wage Garnishment?

What is A Student Loan Social Security Offset?

What is A Defaulted Student Loan Tax Refund Intercept?

What is Defaulted Student Loan Rehabilitation?

Cure of Defaulted Federal Student Loan Through Consolidation

What Is The Difference Between Subsidized And Unsubsidized Student Loans?

What Are FFEL Loans Guarantors?

What Are Stafford Loans?

What Are Direct Consolidation Loans?

What Are Federal Plus Federal Student Loans?

What Are Perkins Loans?

What Are FFEL Student Loans?

What Are “Direct” or “FDL” Student Loans?

What Are the Differences Between Private And Federal Student Loans?

What Are the Different Kinds of Federal Student Loans?