If you are thinking about taking a leave of absence, leaving your school, or transferring schools, you might be concerned about what will happen to your student loans. Below is some basic information about options for student loans.
Background Information about Student Loans
- Federal versus Private: Federal education loans are loans from the government. Private education loans are loans from private entities. Federal loans are subject to many rules, so that all federal loans of the same type are treated the same. The information below is only about federal loans. For private loans, however, there is a huge variation in what rules apply and how they are treated. So, for private loans, the student should contact the loan servicer (this should be listed on any statements you receive) to find out loan status and terms.
- National Student Loan Data System: All federal loans are listed on the National Student Loan Data System (NSLDS). The first step for anyone who is worried about their loans is to log on to the NDSDS portal to see a list of all your federal loans and their current status.
In-School Deferment and the “Grace Period”
- Students who are enrolled in school (for a course load of at least half-time) receive an in-school deferment for all federal direct student loans. An in-school deferment means that the student does not have to repay those loans while they are in school.
- When a student graduates, drops below half-time enrollment, or withdraws from school, their in-school deferment ends.
- However, most federal direct loans have a “grace period” of six months after the in-school deferment ends before the student is obligated to begin repaying the loan. So, if a student takes a leave of absence from school but re-enrolls (for a course load of at least half-time) within six months, they will not incur any obligations to repay their loans during their time out of school.
- When students re-enroll in school (for at least half-time course load), they are eligible to receive in-school deferment again for all federal loans. This is true whether they enroll in the same school that the loans are from or in a different school.
- For most loans, each student only gets one six-month grace period. So, if a student takes a six-month leave of absence and uses their six-month grace period, and then re-enrolls in school, they will not receive another six-month grace period when they graduate.
Options for Borrowers Who Are “In Repayment”
You have several options if you are a borrower “in repayment,” which means you will be required to begin making payments on your loans. Here are some options for making this feasible:
Enter Standard Repayment: When a student’s grace period has expired, they “enter repayment”—that is, they are required to begin making payments on their loans. If they can afford to, the student can begin making the loan payments as scheduled.
Enroll in a Repayment Plan with Lower Payment Rates Tied to Income: Depending on the total amount of loans and repayment schedule, the amount of payments may seem completely out of reach. However, there are a number of repayment plan options that are designed to make repayment affordable by tying the amount of repayment to the amount of income you are making. Entering one of these plans may be a good option for borrowers who are unable to afford the loan payments on a standard plan. These plans include Income Based Repayment (IBR), Income Contingent Repayment (ICR), and Pay As You Earn (PAYE). Although the details of these three income-driven plans differ, they generally work in the same way. Borrowers pay between 10 and 20 percent of their discretionary income toward their loans (discretionary income is calculated as total income minus 150% of the federal poverty guidelines). After 20 to 25 years of making these payments, the loans are forgiven, even if the borrower has not paid the total amount owed. More details about income-driven plans is available on the federal student aid website.
Deferment: A borrower can apply for a short-term deferment for unemployment or economic hardship. For example, an economic hardship deferment is possible if you receive food stamps or welfare and an unemployment deferment is possible if you receive unemployment benefits. Students do not have to repay loans if they have received a deferment.
Forbearance: A borrower can apply for forbearance due to poor health. These are discretionary, and are given for one year at a time. There are some other limited circumstances where forbearance might be possible, such as enrollment in a national service program like Americorps.
Default: If a student stops making payment on their loans, they will go into default. Default has a number of consequences that are bad for a borrower: they can be subject to a lawsuit, they can no longer receive new federal loans, and it will negatively impact their credit score. Students should try as hard as possible to avoid default. A student who has to go into default should try to get out of default as soon as possible. One good option for students in default is to rehabilitate the loan by making a limited number of on-time payments; once the loan is rehabilitated, the borrower can enter a repayment plan with affordable payments tied to income, as explained above.
Everyone’s situation is different, but hopefully this information has been useful to making your options clearer. If you need specific information about your loans, the best place to start is by calling your loan servicer, which should be listed on any loan documents that you have or on the National Student Loan Data System.
What We’re Doing
- In September 2016, we worked with Rep. Jackie Speier to send a letter to OCR that proposed reforms to make the student loan process more survivor-centered. You can read OCR’s response here.
- In 2014, we wrote a letter to OCR asking them to clarify whether or not survivors should be charged for the accommodations they need to access education. The Office for Civil Rights responded and concurred that schools should pay for interim remedies and reimburse survivors for lost tuition in certain instances.
- In 2016, our co-founder Dana Bolger published a Feature in the Yale Law Journal that proposed reforms to how schools address their financial obligations under Title IX.
- Student Loan Borrower Assistance Project: This site is run by the National Consumer Law Center and has a ton of information that is designed for borrowers who are trying to figure out information about their loans.
- National Student Loan Data System: This government website lists the status of all your federal loans.
- Studentaid.ed.gov: The federal website about federal loans
- Repayment Estimator on studentloans.gov: This shows estimated payments under the income-driven plans: Income Based Repayment (IBR), Income Contingent Repayment (ICR) and Pay As You Earn (PAYE).
Although these resources have been written with the guidance of legal experts, we are not lawyers, and the information on this website does not constitute legal advice. We encourage you to contact a lawyer to discuss your complaint or suit.