Pay back federal student loans

Learn when to make your loan repayments, the procedure to follow, who can help you, tips to handle loans, repayment plans and consequences of Default and delinquency

Updated by Aparna A on 17th July 2020

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Payments of your student loans can start immediately after the grace period provided to you. It is important to understand the repayment plans and the ways you can save money to start your repayment process. Ideally, you must start paying your loans after the grace period ends. In most cases, it starts after 6 months of your graduation. But, not all loans you borrow comes with a grace period. Hence it is crucial to know when your repayments start? and if you are eligible for various loan relief programs to complete paying your loans faster. 

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When and how to start repayments for student loans? 

Being aware of repayment time can help your loans not go in default. Paying your loans faster can help reduce the burden of demanding financial situations. Managing your loans smartly comes with lowering your monthly payments and checking if you are eligible for student loan forgiveness, loan discharge, and loan cancellation. 

The grace period is usually given for making arrangements to start your loan repayments. Ideally, the grace period comes with 6 months gap after your graduation or drop out. During this period you can make financial arrangements like finding yourself a job to repay your loans. During the grace periods, you can also explore student loan repayment loans, contact your loan servicer to enquire about repayment options, date to pay your loans and relief programs. It is advised to enroll for automatic payments so you don’t miss payments and avoid paying penalties. 

Not all loans provide 6 months of grace periods. The loans that provide 6 months grace period are: 

  1. Few private student loan providers help you with grace periods while you search for a job. 

  2. The direct subsidized/unsubsidized federal Stafford loans 

  3. Direct Subsidized/Unsubsidized Loans

  4. PLUS loans do not have any grace period and are to be paid once disbursed.

  5. For Federal Perkins Loans, you must enquire at your school, as they decide the grace period to be provided.

When it comes to paying your bills, you can make manual payments online, or pay them by cheque. But enrolling for autopay has its advantages. 

  1. You receive a discount (0.25% ) on the interest rates.

  2. You will never face any issue with late payments. And also please ensure you have the right amount of balance in your account to avoid overdraft fees. 

Your loan servicer will provide you a guide to help you start your repayments with them, and in return, they process and handle the billing and act as a mediator between the ED and the loan borrower. Any queries related to payments, for any specific queries you can always contact your loan servicer. And if you are not sure of loan servicer, check the loan details on StudentAid.gov/servicer. 


Measures to be taken to handle your loans

If you receive grants, scholarships you do not have to pay back as they are a form of merit. So if you can produce financial need proof you can qualify for receiving grants and scholarships. If you receive them, you can reduce the loans you borrow for your studies. Types of grants are : 

1.Federal Pell Grants

2.Federal Supplemental Educational Opportunity Grants

3.Teacher Education Assistance for College and Higher Education

4.Iraq and Afghanistan Service Grants

5.State-issued grants

If you qualify for the above you can apply for these grants.

If you can score good grades in your semesters, you can be eligible to receive Scholarships. But unlike grants, scholarships can come in small amounts and usually sponsored by large organizations. To receive these grants, loans, or scholarships you will have to fill the FAFSA form. Grants can work in a first come first serve manner and also considering your grades. 

It’s a smart decision to start paying your loans earlier to save money in the long run. Or you will lose money paying interest rates. Make extra payments by enrolling for automatic and biweekly payments. If you want to reduce your interest rates, you can choose to refinance your loans. Though refinancing to private loans can limit you from taking advantage of relief programs like income-driven repayment and loan forgiveness. If you have direct loans you can apply for loan forgiveness after years of 120 consecutive repayments. Submitting Employment Certification Form to ED will help you change your servicer with other benefits. 


Repayment plans

If you have federal student loans and a low income, you are advised to choose income-driven repayment plans. As these repayments consider your income, residence, and size of the family to calculate and fix the interest rates than to prioritizing the money you owe.10% and 20% of your discretionary income is to be paid for about 20-25 years depending on the repayment plans you choose. The income-driven repayment plans are as follows:

  • Income-based repayment plan

  • income-contingent repayment plan

  • pay as you earn

  • revised pay as you earn

Benefits of choosing repayment plans : 

The payment made under income-driven plans and standard repayment plans is eligible for Public Service Loan Forgiveness. They are also eligible for forgiveness programs. If you face any financial difficulty for a short period of time. Your federal loans can be temporarily suspended although your interest rates accrue.


Default and delinquency

When you ignore to pay your loans on time, your loans are moving into Delinquency. Even further, if the loans are not paid for above 270 days, your loans are moving to default. Loans in default have poor consequences in the long run. Default and delinquency on loans have penalities like - your credit scores decrease as missed payments will be shown on your credit report, it also affects your financial stability as they demand repayment of your balance and interest. You will lose eligibility for federal financial aid, deferment, forbearance, and other repayment plans. You will also face issues while claiming for a tax refund, as the government may deduct up to 25% that will cost you crucially. Therefore it is advised to never fail in making your payments on time.