A majority of students have student loans, but few of them know what to do if their current education status or financial situation changes. Learn how to steer student loan borrowers in the right direction as they transfer schools, drop out, face difficulties making payments, or contemplate going to graduate school.
What if a borrower doesn't know how to make their loan payments?
What happens when a borrower transfers to another school?
What happens to federal student loans when a borrower drops out of school?
What if a borrower can't afford to make their monthly payments?
What if a borrower wants to go to graduate school?
What if a borrower doesn't know how to make their loan payments?
A common question among newly graduated student loan borrowers is, “ How/when/where do I make my federal student loan payments?” If you hear this question from a borrower, the short answer is, “ Find out from your federal loan servicer.” Here are a couple of places you can suggest the borrower find more information:
- Before they enter repayment, borrowers will receive information about their payment amount and due date from their federal loan servicer.
- To find out who services their loan, as well as what the loan balance is, the borrower should check Dashboard at StudentAid.gov/login.
- Borrowers can contact their federal loan servicer if they have questions about repayment.
- To learn about loan repayment, explore the details of repayment options, and try out Loan Simulator to compare repayment plans, the borrower should visit StudentAid.gov/repay.
Loan Simulator(Result Type: General)
Description: Online tool helping borrowers calculate federal student loan payments and choose a loan repayment option that best meets their needs and goals.
Resource Type: Web Resource or Tool
What happens when a borrower transfers to another school?
When students transfer schools, they frequently assume that just like their grades, their federal student loans will “transfer” with them. Students also forget to notify the original school and the loan servicer.
If the student attends the new school at least half-time, then the federal student loan doesn't enter repayment immediately. What will likely change is the amount of federal student aid the student receives, because aid is recalculated taking into account the cost of attending the new school.
The student's current loan doesn't “transfer” to the new school, but it does count against the allowed federal student loan limits.
What happens to federal student loans when a borrower drops out of school?
When a borrower drops below half-time enrollment, their loan usually enters a grace period—a set period of time before repayment begins. (Not all federal student loans have grace periods.) The grace period gives the student time to get financially settled and select a repayment plan. Interest will accrue for some federal student loan types during the grace period.
There are financial consequences to dropping out of school. For instance, a student might not be able to obtain a refund of tuition or fees from the school (the student should check with the school's financial aid office).
Talking points:
- While the school may inform the loan servicer that the student has left school, the student must ensure that they are in touch with the loan servicer as well, to choose a repayment plan, find out when payments are due and in what amount, etc.
- A borrower must pay back a loan even if they drop out of school or don't find a job after leaving school. If the borrower doesn't repay the loan, their credit record will be affected, and they might not be able to buy a car or a house, get credit cards, or get certain types of jobs.
What if a borrower can't afford to make their monthly payments?
As with any other type of loan or credit obligation, falling behind or defaulting on a federal student loan can wreak havoc on a borrower's credit. If you are advising a borrower who is in danger of falling behind on student loan payments, suggest they investigate the following:
- Income-driven repayment plans may lower monthly payments making them more affordable, although they may result in a higher total amount paid over the life of the loan.
- Deferment and forbearance offer temporary relief on student loan repayments, but they don't offer a long-term solution. Enrolling in an income-driven repayment plan may be a better option.
Talking points:
- A borrower must notify their loan servicer as soon as they anticipate having trouble making payments. The loan servicer will be able to help the borrower decide on repayment options that are feasible for the borrower's financial situation.
- Ignoring calls from the loan servicer about outstanding student loan debt will only make matters worse and force the servicer to take action against the borrower.
Tip: Before students leave school, provide them with information about the Public Service Loan Forgiveness program and encourage them to consider income-driven repayment plans for their federal student loans.
What if a borrower wants to go to graduate school?
Graduate school is a financial commitment, and an especially daunting one for those who need to borrow money in addition to existing loans from their undergraduate education. If a borrower has federal student loans that are in repayment when they start graduate or professional school, the borrower may be eligible for an in-school deferment if enrolled at least half-time.
