Author: LegalEase Solutions 

Questions Answered:

1. What are the different federal/private educational loans available to students? Provide summary of each one.
2. What are the options available for student borrowers to lower the interest, consolidate loans, reduce monthly payments and reduce principle on their existing loans with respect to both private and federal loans.
3. Provide any paperwork that needs to be filed for requesting such loan interest, principle, payment decreases or consolidation related to these loans.

RESEARCH FINDINGS

Introduction:

Student loans are different from other forms of financial assistance to students such as scholarships and grants.  Student loans can be classified into federal and private student loans.  Federal loans are funded by the federal government and the interest rates on these loans are set by the government.  On the other hand, private student loans comprise of loans by state affiliated non-profits, institutional loans provided by schools, and private companies.

1. WHAT ARE THE DIFFERENT FEDERAL/PRIVATE EDUCATIONAL LOANS AVAILABLE TO STUDENTS? PROVIDE SUMMARY OF EACH ONE.

Types of Federal Educational Loans

The following are the federal student loan programs provided by the U.S. Department of Education.

1. The William D. Ford Federal Direct Loan Program, which is also referred as “Direct Loan,” is the largest federal student loan program available in the country.  Under this direct loan program, the money lender is the U.S. Department of Education.
2. The Federal Family Education Loan (FFEL) Program. The borrower’s eligibility is the same under Federal Direct Loan Program but the procedures are different because funds for Direct Loans are provided directly to the school by the federal government, whereas the loan funds under FFEL are usually provided by a private lender and are guaranteed by a state agency.  The federal guaranty on the FFEL loans replaces the security (the collateral) usually required for long-term loans from banks and credit unions.

The following types of loans are available through both the Direct Loan and FFEL programs:

1. Direct Subsidized Loans  (Federal Direct Stafford/Ford Loans)
2. Direct Unsubsidized Loans (Federal Direct Unsubsidized Stafford/Ford Loans)
3. Direct PLUS Loans (Federal Direct Plus Loans)
4. Direct Consolidation Loans (Federal Direct Consolidation Loans)
1. The Federal Perkins Loan Program is the other student loan program provided by the U.S. Department of Education.  This is a school-based loan program available for undergraduates and graduate students with exceptional financial need.  Under this program, the school becomes the lender.

Federal Stafford/Ford Loans:

Federal Stafford loans are fixed-rate student loans for undergraduate and graduate students attending college at least half-time.  The terms of the loans are described in Title IV of the Higher Education Act of 1965 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.

Direct Subsidized Loans (Federal Direct Stafford/Ford Loans)

The characteristics of the loan are as follows:

• The loan is provided to undergraduate students who are enrolled, at least half-time, and demonstrate financial need.
• Interest rate for the loan is 3.4%, for loans made between July 1, 2012 and June 30, 2013.
• In Direct Subsidized Loans the students are not charged interest on the loan while attending the school and during deferment periods.
• As the lender is the U.S. Department of Education (UDE), the payment is made to UDE.
• The annual award limit of the loan is between $3,500 and $5,500 which depends on the student’s year in school.
• First Disbursed on or after July 1, 2013 is fixed at 6.8%.

Direct Unsubsidized Loan (Federal Direct Unsubsidized Stafford/Ford Loans)

The characteristics of the loan are as follows:

• This loan is available to undergraduate and graduate students who are enrolled at least half-time.
• Interest rate for the loan is at the rate of 6.8% and the students are responsible for interest during all periods.
• Again, as the lender is the UDE, the payment is made to UDE.
• The annual award limit is between $5,500 to $20,500, (this shall be excluding any subsidized amount received for the same period) and this shall depend on the years in school and dependency status.
• First Disbursed on or after July 1, 2013 is fixed at 6.8%.

Direct Plus Loans

PLUS loans are federal loans that graduate or professional degree students and parents of dependent undergraduate students can use to help pay education expenses.  The UDE makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program.

Direct Plus Loans for Parents

The characteristics of the loan are as follows:

• The loan is made available to parents of dependent students.
• The dependent students should be enrolled for at least halftime.
• The loan interest rate comes to 7.9%.
• However, the parents must not have any negative credit history and the parents shall be responsible for interest during all periods.
• As UDE is the lender, the payment is made to UDE.
• Maximum amount may be the cost of attendance minus any other financial aid the students receive.
• First Disbursed on or after July 1, 2013 is fixed at 7.9%

Direct Plus Loan for Graduate or Professional Students

The characteristics of the loan are as follows:

• The loan is available to graduate or professional degree students who are enrolled at least half-time.
• Here, if the students has not applied for the annual maximum Unsubsidized Stafford Loan amount they are eligible for, the school must notify the students of this eligibility and give them the opportunity to request it.
• The students must not have negative credit history.
• The interest rate is 7.9% and the students shall be responsible for interest during all periods.
• Payment is owed to UDE.
• Annual award limit is the cost of attendance minus any other financial aid the students receive.
• First Disbursed on or after July 1, 2013 is fixed at 7.9%

Direct Consolidation Loans

In a Direct Consolidation Loan program, a student is allowed to consolidate or combine one or more of his/her eligible federal education loans into one loan.  The consolidation of loans allows a student to extend the time period to repay his/her loans and to combine different loan debts into a single monthly payment.  Consolidation of loans may make it easier for students to repay their loans.   However, the total interest to be paid would increase if the time period of repayment is extended through consolidation.

The Federal Supplemental Loans for Students (SLS) Program under the FFEL encourages making loans to graduate, professional, independent undergraduate, and certain dependent undergraduate students.

The Federal Guaranteed Student Loan (GSL) programs (Robert T. Stafford Student Loan program) include:

• Within the Stafford Loan Program, loans made under Federal Insured Student Loan (FISL) Program;
• Within the PLUS Program, loans made under the Federal PLUS Program
• Within the SLS Program, loans made under the Federal Supplemental Loans for Students (SLS) Program.
• Within the Consolidation Loan Program, loans made under the Federal Consolidation Loan Program.

The Guaranteed Student Loan Program: When the federal government takes over a defaulted FFEL loan, it uses a “guarantee agency” to do the work of servicing the loan.  Guaranty agencies are non-profit groups that contract with the federal government.

The Federal Nursing Student Loan (NSL) is awarded to nursing students with financial need and is funded by repayments from prior Federal NSL recipients.  Nursing students must be enrolled for at least 6 credit hours (5 or more for the Graduate College and School of Public Health) to receive the Federal NSL.  Unlike Federal Direct Stafford Loans, in a Federal NSL, the money lender is the institution.

Federal Perkins Loan Program

(Also known as formerly National Defense Student Loans, National Direct Student Loan, and Perkins Loan Program).

The loan provides low interest loans to help needy students finance the costs of postsecondary education. Students attending any one of approximately 1,700 participating postsecondary institutions can obtain Perkins loans from the school.  Perkins borrowers are eligible for loan cancellation for teacher service at low-income schools and under certain other circumstances specified in the Higher Education Act.  Students may defer repayment of the loan while enrolled (at least half-time) at a postsecondary school.  A student borrower who has difficulty repaying a Perkins Loan should contact the school where he/she received the loan to find out if he/she is eligible for a deferment or forbearance based on economic hardship or other circumstances.

Individuals and Institutions of Higher Education (IHE) may apply for a Federal Perkins Loan.  IHE may apply for an allocation of funds to be awarded to undergraduate, vocational, and graduate students enrolled or accepted for enrollment at participating schools.

Characteristics of the loan:

In the case of undergraduate and graduate students:

• Funds depend on student’s financial need and availability of funds at the college.
• The rate of interest is at 5%.
• College is the lender and so payment is owed to the college that made the loan.

Annual award limits

• For undergraduate students is up to $5,500.
• For graduate and professional degree students is up to $8,000.
• First Disbursed on or after July 1, 2013 is fixed at 5%

Amount of money that can be borrowed through federal student loans

Undergraduate student borrower:

• Up to $5,500 per year in Perkins Loans depending on the student borrower’s financial need, the amount of other aid the student borrower receive, and the availability of funds at the student borrower’s college or career school.
• $5,500 to $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans depending on certain factors, including the student borrower’s year in college.

Graduate student borrower:

• Up to $8,000 each year in Perkins Loans depending on the student borrower’s financial need, the amount of other aid the student borrower receive, and the availability of funds at the student borrower’s college or career school.
• Up to $20,500 each year in Direct Unsubsidized Loans.
• The remainder of the student borrower’s college costs not covered by other financial aid in Direct PLUS Loans. Note: A credit check is required for a PLUS loan.

Parent of a dependent undergraduate student:

• The remainder of the student’s college costs that are not covered by other financial aid.

Calculation of interest in federal loans is as follows:

Simple daily interest formula:

Outstanding principal balance

x number of days since last payment

x interest rate factor

= interest amount

PRIVATE STUDENT LOANS

Private student loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.  There are usually two types of private student loans:

1. Student loans through schools
2. Student loans direct to consumer

Private student loans include state affiliated non-profits and institutional loans provided by schools.  The following are some of the features of private student loans:

• Many private student loans require payments while the student borrower is still in school.
• Private student loans can have variable interest rates and some are greater than 18%. Such variable interest rates may substantially increase the total repayment amount.
• Private student loans are not subsidized. Therefore, the interest payment would be the student’s own responsibility.
• An established credit record may be a requirement for a private student loan. Therefore, the cost of a private student loan will depend on the student’s credit score and other factors.
• The student may need a cosigner to obtain a private student loan.
• The interest may not be tax deductable.
• Private student loans cannot be consolidated into a Direct Consolidation Loan.
• Private student loans may not offer options like forbearance or deferment.
• May have different repayment options and need to make sure that there are no repayment penalty fees.
• Most private student loans will not offer a loan forgiveness program.

The following are some private student loan providers:

1. SUNTRUST

The SunTrust Graduate Business School Loan

This is a private student loan provided by SunTrust.

Interest Rate: Low

Variable Option: 1-month LIBOR (London Interbank Offered Rate) + 2.25%, currently a 2.501% APR

Fixed Option: 4.50%, a 4.501% APR

Interest Rate: High

Variable Option: 1-month LIBOR + 6.70%, currently a 6.625% APR

Fixed Option: 8.25%, a 7.796% APR

Grace Period is generally six months and there exists Repayment Options of Immediate Repayment, Interest-Only Repayment, Partial Interest Repayment and Full Deferment.

SunTrust Private Student Loan Consolidation

Consolidating allows for one payment with the option of a fixed or variable rate and choice of repayment term.

Interest Rate: Low

Choice of fixed or variable rate

Variable Option: 1-month LIBOR2 + 4.60%, currently a 4.850% APR

Fixed Option: 7.00%, a 7.000%4 APR

Interest Rate: High

Choice of fixed or variable rate

Variable Option: 1-month LIBOR + 7.71%, currently a 7.960% APR

Fixed Option: 10.25%, a 10.250% APR

Monthly payments of principal and interest begin approximately 45 days after disbursement and there is Choice of several repayment terms.

The Custom Choice Loan

This is also a Suntrust loan.

Interest Rate: Low

Variable Option: 1-month LIBOR + 2.25%, currently a 2.501% APR

Fixed Option: 4.50%, a 4.501% APR

Interest Rate: High

Variable Option: 1-month LIBOR1 + 9.61%, currently a 9.286% APR

Fixed Option: 12.70%, a 11.738% APR

Grace Period   of six months is provided. Repayment Options are Immediate Repayment, Interest-Only Repayment, Partial Interest Repayment and Full Deferment.

1. DISCOVER STUDENT LOANS

This private student loan provider has:

Undergraduate Loans: These private student loans complement federal student loans and other financial aid to help students pay for college.

Fixed rates as low as 5.49% APR, Variable rates as low as Prime Index + 0.00% (currently 3.25% APR), Zero fees, No payments required while in school at least half-time and 0.25% Auto Debit Reward.

Process involves applying online or over the phone. Consider adding a cosigner and sign the loan documents online or mail them.

            Discover Graduate School Loans:

• Discover Health Professional Loans: for graduate students in Allopathy, Dentistry, Nursing, Occupational Therapy, Optometry, Osteopathy, Pharmacy, Physical Therapy, Physician Assistant, Podiatry, or Veterinary Medicine. An undergraduate student enrolled in a pre-medical program or other health-related field can also apply.

Features:

• Fixed rates as low as 5.49% APR
• Variable rates as low as Prime Index + 0.00% (currently 3.25% APR)
• Zero fees
• No payments required while in school at least half-time
• 25% Auto Debit Reward
• Discover Law Loans: These student loans are for graduate students in law school. Features are same as Health Professional Loans.
• Discover MBA Loans: student loans available for MBA and other graduate students in business school.  Features are same as mentioned above.
• Graduate Loans are also offered for masters’ and doctoral degree candidates.

Some other loans include:

• Bar Exam Loans
• Residency Loans

1. SALLIE MAE

Smart Option Student Loan

They offer Smart Option Student Loan for Degree Granting Institutions.  This loan allocates money needed for attending degree-granting institutions.

Benefits Offered:

• Low variable interest rates – 2.25% APR to 9.37% APR1 (Competitive fixed interest rates also available).
• No origination fees.
• Receive a 0.25 percentage point interest rate reduction while enrolled to make scheduled monthly payments by automatic debit.
• Borrow up to 100% of the student’s school-certified education costs (minimum $1,000)
• Applying with a creditworthy cosigner may help lower the interest and give a better chance of approval.
• Apply to release the cosigner once the student graduate and make 12 consecutive on-time principal and interest payments.

1. PNC SOLUTION LOAN

They offer private student loans with the following benefits:

Benefits

• Choose variable or fixed interest rate option:
• No application or origination fees
• Save 0.50% off interest rate when establishing automated payments from any checking or savings account
• Enjoy flexible payment options: defer until graduation or leaving school, or start paying right away and save on interest
• Receive a preliminary credit decision in minutes
• Stress less about repaying the loan – take up to 15 years
• A co-signer release option is available after the initial 48 consecutive on-time monthly payments and is subject to credit approval
• Satisfactory academic progress is not required
• Apply for the PNC Solution Loan

Qualifications

• Enrolled at least half-time in a degree program at an approved school
• Party and/or co-signer must be creditworthy:
• Must have a satisfactory credit history and employment history of at least two years
• Must have proof of current income
• Must be U.S. citizens or permanent residents who have resided in the U.S. for at least two years
• Credit ready option available for graduate students who qualify

Loan Terms

• $1,000 minimum loan amount
• Monthly interest payments are not required during the in-school period and during the 6-month grace period, but by doing so, the party can avoid capitalized interest.

1. CUSCHOLAR PRIVATE STUDENT LOAN

This is a private student loan with the following features and benefits:

Features

• No prepayment penalties.
• Fast pre-approval once the student borrower’s completed application is received.
• Use the funds for any qualified educational expense, including past due tuition bills.

Loan Terms

• Borrow up to 100% of the student borrower’s cost of attendance (max. $120,000 for undergraduates, $160,000 for graduate student borrowers).
• Use the funds for any qualified educational expense, including past due tuition bills.
• Loan cancellation available within 30 days of disbursement with no fees or interest due

Benefits

• Variable rates as low as 3-Month LIBOR + 2.99%
• No origination fee
• 1% interest rate reduction available once 10% of the loan principal is repaid during the full repayment period
• Cosigner release available for creditworthy borrowers after 24 on-time, consecutive payments

Eligibility

• Student must be enrolled in an eligible school and pursuing a degree program.
• Student must be a member or join a participating credit union during the online application process.
• Student must be a U.S. Citizen or permanent resident.
• Creditworthy student borrowers can apply without a cosigner.

2. OPTIONS FOR STUDENTS TO LOWER THE INTEREST, CONSOLIDATE LOANS, REDUCE MONTHLY PAYMENTS AND REDUCE PRINCIPLE ON THEIR EXISTING LOANS (PRIVATE AND FEDERAL)

FEDERAL

Loan Consolidation (Federal)

Borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status in order to qualify for Direct Consolidation Loans. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.  Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan or Income Based Repayment Plan.

Most federal student loans are eligible for consolidation.  Federal Loans eligible for consolidation include the following loans

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• Direct PLUS Loans
• PLUS loans from the Federal Family Education Loan (FFEL) Program
• Supplemental Loans for Students (SLS)
• Federal Perkins Loans
• Federal Nursing Loans
• Health Education Assistance Loans
• some existing consolidation loans

A Direct Consolidation Loan allows student borrowers to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments.

Loan consolidation can greatly simplify loan repayment by centralizing the student borrower’s loans to one bill and can lower monthly payments by giving the student borrower up to 30 years to repay the loans.  The student borrower might also have access to alternative repayment plans he/she would not have had before, and the student borrower would be able to switch the variable interest rate loans to a fixed interest rate.  The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. However, the rate will not exceed 8.25%.

However student borrowers should be aware that they may lose any borrower benefits offered with the original loans when they consolidate loans.  Borrower benefits from the student borrower’s original loan, which may include interest rate discounts, principal rebates, or some loan cancellation benefits, can significantly reduce the cost of repaying of the loans.

If a student borrower is in default, he/she must meet certain requirements before they can consolidate the loans.  A PLUS loan made to the parent of a dependent student cannot be transferred to the student through consolidation. Therefore, a student who is applying for loan consolidation cannot include the PLUS loan the parent took out for the dependent student’s education.

One may become eligible for consolidation after s/he graduates, leaves school, or drops below half-time enrollment.  There is no application fee to consolidate a student borrower’s federal student loans into a Direct Consolidation Loan.  One can prepay his/her consolidation loan at any time without penalty.  If a student borrower is contacted by someone offering to consolidate the loans for a fee, the student borrower is not dealing with the U.S. Department of Education’s loan consolidation servicer.  To apply for a Direct Consolidation Loan, visit the Direct Consolidation Loans website at www.loanconsolidation.ed.gov.

Deferment

A deferment is a period during which repayment of the principal and interest of a student borrower’s federal student loan is temporarily delayed.  This may help student borrowers avoid default.

During a deferment, student borrowers do not need to make payments.  Further, depending on the type of loan they have, the federal government may pay the interest on the loan during a period of deferment.  The government may pay the interest on a student borrower’s Federal Perkins Loan, Direct Subsidized Loan, and/or Subsidized Federal Stafford Loan.  The government does not pay the interest on a student borrower’s unsubsidized loans (or on any PLUS loans).

Student borrowers are responsible for paying the interest that accrues (accumulates) during the deferment period, but a student borrower’s payment is not due during the deferment period.  If a student borrower doesn’t pay the interest on his/her loan during deferment, it may be capitalized (added to the student borrower’s principal balance), and the amount the student borrower pays in the future will be higher.

Situations when one may apply for Deferment

One may apply for Deferment during a period of at least half-time enrollment in college or career school, during study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled, during active duty military service during a war, military operation, or national emergency, during the 13 months following the conclusion of qualifying active duty military service, or until the student borrower return to enrollment on at least a half-time basis, whichever is earlier, if the student borrower is a member of the National Guard or other reserve component of the U.S. armed forces and were called or ordered to active duty while enrolled at least half-time at an eligible school or within six months of having been enrolled at least half-time.  In these above referenced situations, deferment is available for Direct Loans, FFEL loans and Perkins Loans.  Further, deferment is available during a period of unemployment or inability to find full-time employment and economic hardship (includes Peace Corps service) and in this situation it is available for Direct Loans, FFEL loans and Perkins Loans only for up to 3 years.  After 3 years, deferment is available only to Perkins loans borrowers during a period of service qualifying for Perkins Loan discharge/cancellation.

Loan forbearance

If students can’t make their scheduled loan payments, but don’t qualify for a deferment, they can apply for loan forbearance by making a request to their loan servicer.  Student borrowers may be able to stop making payments or reduce their monthly payment for up to 12 months.  Interest will continue to accrue on the student borrower’s subsidized and unsubsidized loans (including all PLUS loans).  In some cases, the student borrower must provide documentation to support the request.  A student borrower can pay the interest during forbearance or allow the interest to accrue (accumulate).  If the student borrower doesn’t pay the interest on his/her loan during forbearance, it may capitalize (added to the student borrower’s principal balance), and the amount he/she pay in the future will be higher.

There are discretionary and mandatory forbearance.  In Discretionary Forbearance,

a lender decides whether to grant forbearance or not due to the student borrower’s financial hardship or illness.  For mandatory forbearances, if the student borrower meets the eligibility criteria for the forbearance, the student borrower’s lender is required to grant the forbearance.  Mandatory forbearance will be granted for the following reasons:

• The student borrower is serving in a medical or dental internship or residency program, and he/she meets specific requirements.
• The total amount the student borrower owes each month for all the student loans he/she received is 20 percent or more of the student borrower’s total monthly gross income (additional conditions apply).
• The student borrower is serving in a national service position for which the student borrower received a national service award.
• The student borrower is performing teaching service that would qualify for teacher loan forgiveness.
• The student borrower is qualifying for partial repayment of his/her loans under the U.S. Department of Defense Student Loan Repayment Program.
• The student borrower is a member of the National Guard and has been activated by a governor, but the student borrower is not eligible for a military deferment.

Forgiveness, Cancellation, and Discharge

There are certain circumstances that might lead to the student borrower’s loans being forgiven, canceled, or discharged. Forgiveness, cancellation, and discharge of the student borrower’s loan means that the student borrower is no longer expected to repay the loan.  Some or all of the student borrower’s certain federal loans may be discharged in the following circumstances: if the student borrower dies; if the student borrower is a parent PLUS borrower, the child for whom the student borrower borrowed dies; or if the student borrower dies or becomes totally and permanently disabled.  The loans may be discharged if the school closed before the student completed the program, the school forged the signature on the student borrower’s promissory note or falsely certified that the student borrower was eligible for aid, the loan was falsely certified through identity theft, the student borrower withdrew from school, but the school didn’t pay a refund that it owed, or the loan was discharged in a bankruptcy claim.  To be discharged in bankruptcy, one must prove to the bankruptcy court that repaying the loan would cause undue hardship.  Certain types of cancellations are available to military personnel, teachers, nurses, child care providers, or borrowers affected by the closure of a school. Provisions differ depending on the type of loan the student borrower has.

Repayment Plans available to Federal Direct Loan and FFEL Loan Program

Standard Repayment Plan

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, and all PLUS loans. Payments are a fixed amount of at least $50 per month and time frame is up to 10 years. Under this plan the student borrower will pay less interest for the loan over time than the student borrower would under other longer-term plans.

Graduated Repayment Plan

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, and all PLUS loans. Payments are lower at first and then increase, usually every two years and the time frame is up to 10 years. Under this plan the student borrower will pay more for the loan over time than under the 10-year standard plan.

Extended Repayment Plan

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, and all PLUS loans. Payments may be fixed or graduated and the timeframe is up to 25 years.

Under this plan, the student borrower’s monthly payments would be lower than the 10-year standard plan.  To be eligible to choose this plan, if the student borrower is a Direct Loan borrower, he/she must have more than $30,000 in outstanding Direct Loans.  If the student borrower is an FFEL borrower, he/she must have more than $30,000 in outstanding FFEL Program loans.  For both programs, the student borrower must also be a new borrower as of Oct. 7, 1998.  The student borrower will pay more for his/her loan over time than under the 10-year standard plan.

Income-Based Repayment Plan (IBR)

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, all PLUS loans made to students and Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents. Under this plan, the student borrower’s maximum monthly payments will be 15 percent of discretionary income, the difference between the student borrower’s adjusted gross income and 150 percent of the poverty guideline for the student borrower’s family size and state of residence (other conditions apply).  The student borrower’s payments change as his/her income changes and the timeframe is up to 25 years.

To be eligible, the student borrower must have a partial financial hardship.  Under this plan the student borrower’s monthly payments will be lower than payments under the 10-year standard plan.  The student borrower will pay more for his/her loan over time than the student borrower would under the 10-year standard plan.  If the student borrower has not repaid the loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on the loan will be forgiven.  The student borrower may have to pay income tax on any amount that is forgiven.

Pay As You Earn Repayment Plan

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Direct PLUS loans made to students and Direct Consolidation Loans that do not include (Direct or FFEL) PLUS loans made to parents.  Under this plan, the student borrower’s maximum monthly payments will be 10 percent of discretionary income, the difference between the student borrower’s adjusted gross income and 150 percent of the poverty guideline for the student borrower’s family size and state of residence (other conditions apply).  The student borrower’s payments change as the income changes and the timeframe is up to 20 years.

To be eligible for this plan, a student borrower must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. Further, the student borrower must have a partial financial hardship.  Under this plan, the student borrower’s monthly payments will be lower than payments under the 10-year standard plan.  The student borrower will pay more for his/her loan over time than he/she would under the 10-year standard plan.  If the student borrower has not repaid the loan in full after he/she made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on the loan will be forgiven.  The student borrower however may have to pay income tax on any amount that is forgiven.

Under this plan, the student borrower’s monthly payments are based on his/her income and family size. Further, monthly payments are adjusted each year, based on changes to the student borrower’s annual income and family size; usually lower than they are under other plans; never more than the 10-year standard repayment amount; and made over a period of 20 years.

The Pay As You Earn Repayment Plan helps keep the student borrower’s monthly student loan payments affordable and if the student borrower needs to make lower monthly payments, this plan may be for them.

Partial Financial Hardship is an eligibility requirement for the Income-Based Repayment (IBR) and Pay As You Earn plans.  For IBR eligibility, the annual amount due on the student borrower’s eligible loans, as calculated under a 10-year Standard Repayment Plan, needs to exceed 15 percent of the difference between the student borrower’s adjusted gross income (AGI) and 150 percent of the poverty line for the student borrower’s family size in the state where he/she lives.

For Pay As You Earn eligibility, the annual amount due on the student borrower’s eligible loans, as calculated under a 10-year Standard Repayment Plan, needs to exceed 10 percent of the difference between the student borrower’s adjusted gross income (AGI) and 150 percent of the poverty line for the student borrower’s family size in the state where he/she lives.

For both plans, the amount that would be due under a 10-year Standard Repayment Plan is calculated based on the greater of the amount owed on the student borrower’s eligible loans when the student borrower originally entered repayment, or the amount owed at the time the student borrower selected the IBR or Pay As You Earn plan.

Income-Contingent Repayment Plan

Loans eligible for repayment under this plan are Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students and Direct Consolidation Loans.  Payments are calculated each year and are based on the student borrower’s adjusted gross income, family size, and the total amount of the student borrower’s Direct Loans.  The student borrower’s payments change as his/her income changes and timeframe is up to 25 years.

Under this plan, the student borrower will pay more for the loan over time than under the 10-year standard plan.  If the student borrower does not repay the loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven.  The student borrower may have to pay income tax on the amount that is forgiven.

Income-Sensitive Repayment Plan

Loans eligible for repayment under this plan are Subsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans and FFEL Consolidation Loans.  Under this plan, the student borrower’s monthly payment is based on annual income, the student borrower’s payments change as his/her income changes and the timeframe is up to 10 years.

If a student is having trouble making loan payments they can contact their loan servicer as the loan servicer may be able to change the student borrower’s repayment plan to one that will allow the student borrower to have a longer repayment period or to one that is based on his/her income.  Also loan servicers can assess and determine the student borrower’s options for a deferment, forbearance, or loan consolidation.

PRIVATE

Private student loans cannot be consolidated into a direct consolidation loan.  Students should check with the lender to find out about the student borrower’s repayment options. It is not likely that all private lenders will offer a loan forgiveness program.  However, there are private lenders who offer forbearance or deferment options. The terms for repayment, interest rates, forbearance or deference differ from lender to lender.

Generally, Private lenders offer repayment options of immediate repayment, interest-only repayment, partial interest repayment and full deferment.  Private lender Sun Trust offers private student loan consolidation.

Immediate Repayment

Under an Immediate Repayment option, there is a demand for immediate repayment of the student borrower’s entire student loan.  Here, the entire unpaid amount of student borrower’s student loan becomes due and payable.  This may occur if the student borrower make a false statement that causes them to receive a student loan that he/she is not eligible to receive; or may cause default on the student loan.

Interest-Only Repayment

Interest-Only Repayment is a repayment plan in which the student borrower will only make such monthly payments covering only the interest that has accrued that month on his/her loan.  These interest-only plans are designed primarily so that the student borrower will have to pay only the interest while they are in school before beginning to make the higher payments.  This may be, for instance, the income obtained from the student borrower’s new job.  Here, the “interest-only” payment lasts only for some fixed amount of time (as per the lender’s plan), then when that period is over, the borrower’s payment will increase significantly, as it begins to make the payments on both the principle (i.e., the amount borrowed) and the interest.

Partial Interest Repayment

Under a partial interest repayment option, the student borrower will be required to pay a certain amount per month while in school, which will be applied to any accrued and unpaid interest.  This option will reduce the amount of interest the student borrower would pay after graduation and can help him/her build good bill-paying habits.  The interest-only payment begins approximately 45 days (may differ) after the first loan disbursement and is required throughout the deferment period (for eg: a maximum of five years) and grace period.  During the in-school period, the partial interest payments may not cover the entire amount of interest due each month.  The accrued and unpaid interest that is not covered by this partial payment will be capitalized (i.e., added to the principal balance) as of the last day of the deferment period.

Full Deferment

In a full deferment option, the student borrower may defer all payments until the earlier of graduation, or 66 months (may change according to the lender) after the first loan disbursement.  This means the student borrower would make no payments while enrolled at least half time at an eligible school for up to five years, plus a six-month grace period.  At that time, all of the accrued interest will be capitalized (i.e., would be added to the principal balance) at repayment.  Some plans may state that if the student borrower’s graduation date is more than 66 months after the first disbursement date, the estimated monthly principal and interest payment disclosed would be made for the remainder of his/her indicated in-school period after the allowed 66-month deferment period expires.

3. ANY PAPERWORK THAT NEEDS TO BE FILED FOR REQUESTING REDUCTION IN LOAN INTEREST, PRINCIPLE, PAYMENT DECREASES OR LOAN CONSOLIDATION

Application for Loan Modification

With regard to loan modification, there are different ways to apply for it.  Borrowers can apply online at the Direct Consolidation Loans website at www.loanconsolidation.ed.gov.  Borrower can also apply over the phone at 1-800-557-7392 if Borrower has only Direct Loans.  For paper application, Borrower can download a paper copy of the application and promissory note at the Direct Consolidation Loans website or request an application package be mailed to them by calling 1-800-557-7392 (TDD 1-800-557-7395) or 334-206-7400 (outside the USA) or sending an e-mail at the website address above.

Documents for Loan Modification are:

• Dear Borrower Letter – This guides borrower through the package content.
• Application and Promissory Note – This form is the one a borrower will need to complete (online or in paper) and submit to apply for a Direct Consolidation Loan. The application also includes Borrower’s Rights and Responsibilities.
• Instructions for Application and Promissory Note – Guidance and tips to complete the application.
• Additional Loan Listing Sheet – This form can be used if all loans do not fit into the space provided on the Application/Promissory Note.
• Repayment Plan Selection – Complete this form to select a repayment plan for a Direct Consolidation Loan.
• Request for Transcript of Tax Return – This form is to be completed only if borrower has chosen to repay the consolidation loan under the Income Contingent Repayment (ICR) Plan or the Income-Based Repayment (IBR) Plan, AND borrower does not have recently filed federal tax returns AND chooses not to submit borrower’s income to the Department using the previously received “Alternative Documentation of Income form”.
• Mailing Instructions – This document shows the address to which application and promissory note and other forms related to the consolidation application are to be mailed.
• Request to Add a Loan to an Existing Federal Direct Consolidation Loan – complete this form within 180-days from the date of the first disbursement of the consolidation loan to add any additional eligible loans to borrower’s existing consolidation loan. Borrower must complete a new application for any loans added after 180-days.

Application for IBR/ICR repayment plans

In order to apply for repayment plans, Borrower should go to StudentLoans.gov website, sign in, and complete the electronic Income-Based (IBR)/Pay As You Earn/Income-Contingent (ICR) Repayment Plan Request.  In order to complete an electronic IBR/Pay As You Earn/ICR Request, borrower will need: Federal Student Aid PIN, Personal Information including, Permanent Address, Email Address, Home Number, Work Number, Cell Number, Best Time To Reach and Financial Information.

Borrower must contact each of the servicers that service borrower’s loans to apply for IBR/ICR. If borrower is unsure who holds borrower’s loans or who borrower’s loan servicer is, borrower can access the U.S. Department of Education’s National Student Loan Data System (NSLDS) website at www.nslds.ed.gov or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913).

Application for Deferment

To apply for deferment, a borrower needs to submit a request to the loan servicer, the organization that handles borrower’s loan account. If borrower is enrolled in school at least half-time and borrower would like to request an in-school deferment, borrower will need to contact school’s financial aid office as well as borrower’s loan servicer. Borrower’s deferment request should be submitted to the organization to which borrower makes loan payments.

Application for Forbearance

To request a loan forbearance, borrowers must apply by making a request to their loan servicer. In some cases, borrowers must provide documentation to support their request.

PRIVATE

Private Student Loan Consolidation can help a borrower better manage repayment of borrower’s private student loan debt.  Certain private student loan lenders have plans for student borrowers to consolidate their loans. However, the terms and conditions vary from lender to lender. Most providers have online applications to apply for these services. A borrower can complete an online application and if the online application is approved, it will provide multiple loan options such as rate type and repayment term length alongside the interest rates associated with both. A borrower can compare the rates and payments of borrower’s existing private student loans with the options presented for the consolidation loan to help borrower determine the right consolidation option.