Federal Direct Student Loan Repayment

Exit Counseling for Federal Direct Student Loans

The Financial Aid Office contacts all students who received Federal Direct Student loans at LHU by letter upon graduation, withdrawing or dropping below half-time. The letter advises the student to complete the Exit Counseling requirement with the Department of Education at https://studentloans.gov/myDirectLoan/index.action.

All student borrowers of Direct Loans are required to complete exit counseling upon graduation and/or dropping below half-time status. Exit counseling covers all subjects that were covered in the entrance counseling, with an emphasis on repayment strategies.

Not only can a student borrower complete exit counseling on this site, but he can use the “Repayment Estimator” to calculate what his loan payments will be.

Grace Period

When a student graduates, drops below half time, or withdraws from an academic program, he will receive a six-month grace period for the Federal Direct Subsidized and Unsubsidized Loans. The grace period begins the day after the student has stopped attending school on at least a half-time basis. Once the grace period ends, loan repayment begins.

Student borrowers should make sure to notify the loan servicer when they are no longer enrolled. Students who fail to make required loan payments will possibly lose repayment incentives received or even go into default.

Choosing a Repayment Plan

Student borrowers have the choice of several repayment plans, and the loan servicer will send notification of the date the first payment is due. If a specific repayment plan is not elected, a standard repayment plan will be automatically selected. Most Direct Loan borrowers choose to stay with the standard repayment plan, but there are other options for borrowers who may need more time to repay or who need to make lower payments at the beginning of the repayment period.

Consolidation

Student borrowers, who have multiple federal education loans, can consolidate their loans into a single Direct Consolidation Loan. This may simplify repayment for those who are currently making separate loan payments to different loan holders. There may be tradeoffs, so student borrowers are urged to review the advantages and possible disadvantages of consolidation before consolidation is chosen.

While in Repayment

Upon receipt of the first bill, the student borrower will learn how to sign up for the electronic debit account (EDA) option and have the bank automatically make the monthly loan payments from a personal checking or savings account. With EDA a person doesn’t have to write checks, use stamps, or worry if payment will arrive by the due date. In addition, persons with EDA receive a 0.25% reduction in the interest rate on their loans during any period when the payments are made through EDA.

Persons having trouble making loan payments should contact the loan servicer as soon as possible. Their staff will work to determine the best option available. Options include:

  • Changing repayment plans.
  • Deferment, if certain requirements are met. A deferment allows a borrower to temporarily stop making payments on the loan.
  • Forbearance, if deferment eligibility requirements are not met but the person is temporarily unable to make loan payments. Forbearance temporarily stops payments on the loan, temporarily make smaller payments, or extend the time for making payments.
  • Forgiveness, under certain circumstances, the federal government will cancel all or part of an educational loan. More information can be found online at https://studentaid.ed.gov/repay-loans/forgiveness-cancellation
  • If a borrower stops making payments and doesn’t get a deferment or forbearance, the loan could go into default, which has serious consequences—see below.

An unpaid loan first becomes "delinquent" if the monthly payment is not received by the due date. If a person fails to make a payment, they'll receive a reminder that the payment is late. If the account remains delinquent, they'll receive warning notices reminding of the consequences of default and of the obligation to repay the loans.

Upon becoming delinquent on loan payments, borrowers are urged to contact the loan servicer immediately to find out how to bring the account current. Late fees may be added, and the delinquency will be reported to one or more national consumer reporting agencies (credit bureaus), but this is much better than remaining delinquent on payments and going into default.

Loan Default

If a student borrower defaults on a Direct Student Loan:

  • The Loan Servicer will require immediate repayment of the entire unpaid amount of the loan.
  • The Loan Servicer may sue the borrower, take all or part of the federal and state tax refunds and other federal or state payments, and/or garnish wages.
  • The Loan Servicer will require a borrower to pay reasonable collection fees and costs, plus court costs and attorney fees.
  • A borrower may be denied a professional license.
  • A borrower will lose eligibility for other federal student aid and assistance under most federal benefit programs.
  • A borrower will lose eligibility for loan deferments.
  • The Loan Servicer will report the default to national consumer reporting agencies (credit bureaus).
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