Borrower's Rights and Responsibilities
As a student loan borrower, it's important for you to understand your rights and responsibilities.
It's your right to:
- Have a grace period
- Prepay your loan without penalty
- Request a copy of your Master Promissory Note (MPN) and documentation that your loan is paid in full
- Choose a repayment plan
- Be informed of your repayment date
- Be informed of and provide consent to any changes in the terms of your loan.
It is your responsibility:
- to complete an exit counseling session
- repay your loan
- notify your lender with current contact information
- make timely monthly payments
- notify your lender of your eligibility of a deferment or cancellation of loan and/or payments
- use proceeds of loans for educationally related purposes
- make payment even if you do not receive a payment statement.
If you're not sure where to begin on your budget, use the budget calculator.
Exit Loan Counseling
As a student loan recipient, you are required to complete an exit counseling session. Exit counseling helps you to understand your rights and responsibilities as a student loan borrower. Exit counseling is required when you graduate, drop below a half-time (6 hours) enrollment status, withdraw from all of your classes, stop attending, or transfer to another school.
You may complete your exit counseling session at the Federal Student Aid website.
Repaying Your Loans
After you graduate, leave school, or drop below a half-time (six hours) enrollment status, your loan(s) enters a grace period. This one time grace period lasts for six months. Your repayment period begins the day after your grace period ends. Your first payment will be due once your repayment period begins.
Your loan servicer will notify you with information about repayment. When it comes to repaying your student loans, you can select a repayment plan that is right for your financial situation. Generally, you'll have from 10 to 25 years to repay your loans.
With the standard plan, you'll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50 and you'll have up to 10 years to repay your loans.
With this plan, your payments start out low and increase every two years. The length of your repayment period will be up to ten years.
Under the extended plan, you'll pay a fixed annual or graduated repayment amount over a period not to exceed 25 years. You must have more than $30,000 in direct loan debt to qualify. Your fixed monthly payment is lower than it would be under the standard plan, but you'll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.
Income Based Repayment (IBR)
This is a new repayment plan for the major types of federal loans made to students. Under IBR, the required monthly payment is capped at an amount that is intended to be affordable based on income and family size. You must submit annual income documentation to set your payment amount each year. Under this plan, loans can be forgiven for certain situations. For more information, please visit IBR Plan Information.
Income Contingent Repayment (ICR) (Direct Loans only)
Under this plan, your payment is calculated annually based on your household adjusted gross income, family size, and the total amount of your Direct Loans.
Pay as You Earn
This is a repayment plan for eligible direct loans that is designed to limit your required monthly payment to an amount that is affordable based on your income and family size. You must be a new borrower. You are a new borrower if you had no outstanding balance on a Direct Loan Program loan as of Oct. 1, 2007, or if you had no outstanding balance on a Direct Loan Program loan when you received a new Direct Loan Program loan on or after Oct. 1, 2007. In addition, you must have received a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan for graduate or professional students on or after Oct. 1, 2011, or you must have received a Direct Consolidation Loan based on an application that was received on or after Oct. 1, 2011.
In addition to your being a new borrower, your federal student loan debt must be high relative to your income. While your loan servicer will perform the calculation to determine your eligibility for Pay As You Earn, you can use the U.S. Department of Education’s Pay As You Earn calculator to estimate whether you would likely qualify for the Pay As You Earn plan. The calculator looks at your income, family size, and state of residence to calculate your Pay As You Earn monthly payment amount. If that amount is lower than the monthly payment you would be required to pay on your eligible loans under a 10-year Standard Repayment Plan, then you are eligible to repay your loans under the Pay As You Earn plan.
Under this program, you could combine all of your student loans under one lender and one monthly payment. A consolidated loan can reduce monthly payments; however, the interest rate could increase and your repayment period may be extended. Contact your loan servicer if you cannot make payments. Your loan servicer will work with you to determine the best option for you.
Tips for Struggling Borrowers
Contact your loan servicer if you cannot make payments. Your loan servicer will work with you to determine the best option for you. Your options include:
- Finding a repayment plan that works for you. Please visit our Repaying Your Loans menu for a full list of repayment options.
- Postponing your payments through deferment if certain conditions are met. Deferment suspends payments and the interest from accruing on your subsidized student loan.
- Postponing your payments through forbearance if you do not meet conditions for a deferment. Your loan servicer can temporarily postpone payments on your student loan for a certain period of time; however, interest continues to accrue on your student loan.
- Cancelling all or part of your loan if you meet certain conditions. Visit Federal Student Aid for more information on loan discharge or cancellation options.
If you stop making payments on your student loan, your account will become delinquent. A delinquent loan can result in late fees, affect your credit, and prevent you from receiving future financial aid funding.
We have some tips to help you manage your money wisely and be a responsible student borrower: create a spending budget, remember that loan payments are fixed payments just like your rent, credit cards and store charge cards are loans too, read all of your mail and e-mail, set up an online account with your lender/servicer-many provide automatic notification options and apps for smartphones.
Certain education costs can be used as tax benefits. You can also use your student loan interest as a deduction. Tuition and fees can be deducted too. Visit the IRS website for more information. If you're not sure where to begin on planning your budget, register with CashCourse to learn about creating a smart spending budget.
Defaulted Student Loan Resolution
Default is a legal term used when a borrower fails to repay a loan according to the terms of the signed promissory note. For a Federal Direct Student or Parent Loan, default occurs when the borrower fails to make a payment for 270 days under the normal repayment plan, and has not requested deferment of payment according to the Department of Education's standards.
A student loan will go into default when you fail to make payments and your account is 270 days delinquent. Once the loan is considered in default, the entire balance (principal, interest, and collection fees) is immediately due and payable.
- If you default, it means you failed to make payments on your student loan according to the terms of your promissory note, the binding legal document you signed at the time you took out your loan. In other words, you failed to make your loan payments as scheduled. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe. Here are some consequences of default:
- National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
You will be ineligible for additional federal student aid if you decide to return to school.
- Loan payments can be deducted from your paycheck.
State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You will have to pay late fees and collection costs on top of what you already owe.
Options after Default
You have three options to remove the default status: paying the loan in full, rehabilitation or consolidation.
- You can pay your loan in full. This is the fastest way to resolve your defaulted loan status.
- You can rehabilitate a loan by making nine voluntary, consecutive monthly payments on time. During rehabilitation, you can regain eligibility for financial aid after making six voluntary, consecutive monthly payments on time.
- You can consolidate by combining all your federal education loans. Consolidating is an option as long as the loans are currently in a grace period or repayment status. Visit Federal Student Aid's website to learn more about consolidation.
Please use these resources to find out more information on your student loan.