Loans

Taken from The Student Guide of the U.S. Department of Education

Your Rights & Responsibilities
When you take out a student loan, you have certain responsibilities. Here are a few of them: When you sign a promissory note,* you’re agreeing to repay the loan according to the terms of the note. The note is a binding legal document and states that, except in cases of discharge (see page 28), you must repay the loan—even if you don’t complete your education (unless you were unable to complete your program of study because the school closed); aren’t able to get a job after you complete the program; or are dissatisfied with, or don’t receive, the education you paid for. Think about what this obligation means before you take out a loan. If you don’t repay your loan on time or according to the terms in your promissory note,* you may go into default,* which has very serious consequences.

You must make payments on your loan even if you don’t receive a bill or repayment notice. Billing statements (or coupon books) are sent to you as a convenience, but you’re obligated to make payments even if you don’t receive any notice. If you apply for a deferment or forbearance, you must continue to make payments until you are notified that the request has been granted. If you don’t, you may end up in default.* You should keep a copy of any request form you submit, and you should document all contacts with the organization that holds your loan.

You must notify the appropriate representative (school, agency, lender, or the Direct Loan Servicing Center) that manages your loan when you graduate, withdraw from school, or drop below half-time* status; change your name, address, or Social Security Number; or transfer to another school. If you borrow a Perkins Loan, your loan will be managed by the school that lends you the money or by an agency that the school assigns to service the loan. If you borrow a Direct Loan, it will be managed by the Direct Loan Servicing Center. If you borrow a FFEL Program Loan, it will be managed by your lender or its servicing agent. During your loan counseling session, you’ll be given the name of the representative that manages your loan.

Regardless of the type of loan you borrow, you must receive entrance counseling before you’re given your first loan disbursement, and you must receive exit counseling before you leave school. These counseling sessions will be administered by your school and will provide you with important information about your loan. Your lender or the Direct Loan Servicing Center will provide you with additional information about your loan. If you default* on your loan, your school, the lender or agency that holds your loan, the state, and the federal government may all take action to recover the money, including notifying national credit bureaus of your default. This may affect your credit rating for a long time. For example, you may find it very difficult to borrow from a bank to buy a car or a house. In addition, the lender or agency holding your loan may ask your employer to deduct payments from your paycheck. Also, you may be liable for expenses incurred in collecting the loan. If you decide to return to school, you’re not entitled to receive any more federal student aid. The U.S. Department of Education may ask the U.S. Internal Revenue Service to withhold your income tax refund, and the amount of your refund will be applied toward the amount you owe.

Before you leave school, you’ll. receive the following information about your loan from your school, lender, and/or the Direct Loan Servicing Center:

  • the amount of your total debt (principal and estimated interest), what your interest rate is, and the total
  • interest charges on your loan
  • if you have FFEL Program Loans, the name of the lender or agency that holds your loan, where to send your payments, and where to write or call if you have questions.
  • if you have Direct Loans, the address and telephone number of your Direct Loan Servicing Center.
  • the fees you might be charged during the repayment period, such as late charges and collection or litigation
  • costs if you’re delinquent or in default.*
  • an explanation of available options for consolidating or refinancing your loan.
  • a statement that you can prepay your loan without penalty at any time.

If you borrow a Federal Perkins Loan, the previous information will be provided to you by your school. If you borrow a Direct Loan or a FFEL Program Loan, this information will be provided to you by the Direct Loan Servicing Center or your lender, as appropriate.

If you have Direct or FFEL Stafford loans, your school will also provide you with the following information during your exit counseling session:

  • a current description of your loans, including average monthly anticipated payments.
  • a description of applicable deferment, forbearance, and discharge provisions.
  • repayment options.
  • advice about debt management that will help you in making your payments.
  • notification that you must provide your expected permanent address, the name and address of your expected employer, and any corrections to your school’s records concerning your name, Social Security Number, references, and driver’s license number (if you have one).

You have certain rights as a borrower. Listed below are some of them. Before your school makes your first loan disbursement, you’ll receive the following information about your loan from your school, lender, and/or the Direct Loan Servicing Center:

  • the full amount of the loan.
  • the interest rate.
  • when you must start repaying the loan.
  • a complete list of any charges you must pay (loan fees) and information on how those charges are collected.
  • the yearly and total amounts you can borrow.
  • the maximum repayment periods and the minimum repayment amount.
  • an explanation of default* and its consequences.
  • an explanation of available options for consolidating or refinancing your loan.
  • a statement that you can prepay your loan at any time without penalty.

Your school must notify you (or your parents for a PLUS Loan) in writing whenever it credits your account with Stafford Loan, PLUS, or Perkins Loan funds. This notification must be sent no earlier than 30 days before, and no later than 30 days after the school credits your account. You (or your parents for a PLUS Loan) may cancel all or a portion of the loan by informing your school within 14 days after the date that your school sends this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you or your parents receive loan funds directly by check, the funds may be refused by not endorsing the check.

You have the right to a grace period before your repayment period begins. (Your parents do not receive a grace period for a PLUS Loan.) Your grace period begins when you leave school or drop below half-time* status. The exact length of your grace period is shown on your promissory note.*

During exit counseling, your school, lender, and/or the Direct Loan Servicing Center as appropriate must give you a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.

You must be given a summary of deferment and discharge (cancellation) provisions, including the conditions under which the U.S. Department of Defense may repay your loan.

If you or your parents borrow a FFEL Program Loan, you (or your parents for a PLUS Loan) must be notified when the loan is sold if the sale results in making payments to a new lender or agency. Both the old and new lender or agency must notify the borrower of the sale; the identity of the new lender or agency holding the loan; the address to which the borrower must make payments; and the telephone numbers of both the old and new lender or agency.

Loan Deferment Summary

Deferment Condition Direct Loans1,2 FFEL Program Loans1,3 Perkins4
At least half-time study at a post-secondary school YES YES YES
Study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled YES YES YES
Unable to find full-time employment Up to 3 Years Up to 3 Years Up to 3 Years
Economic hardship Up to 3 Years Up to 3 Years Up to 3 Years
Engaged in service listed under discharge/cancellation conditions (see page 28) NO5 NO5 YES
  1. For PLUS Loans and unsubsidized student loans, only principal is deferred. Interest continues to accrue.
  2. Direct Loan borrowers who have outstanding balances on FFEL Loans disbursed prior to July 1993 will be eligible for additional deferments.
  3. Applies to loans first disbursed on or after July 1, 1993 to borrowers who have no outstanding FFEL Program Loan, Federal SLS loan or consolidation loan on the date they signed their promissory note. (Note that the SLS Program was repealed beginning with the 1994-95 award year.)
  4. Applies to loans first disbursed on or after July 1, 1993.
  5. Many Peace Corp and VISTA Volunteers will qualify for a deferment based on economic hardship.


    NOTE: You must formally request a deferment through the procedures established by the holder of your loan, and you must continue making payments until you're notified that the deferment has been granted.

Discharge/Cancellation Summary

Cancellation Condition Direct Loans FFEL Program Loans Perkins
Borrower's total and permanent disability or death 100%1 100%1 100%
Full-time teacher in a designated elementary or secondary school serving students from low-income families NO NO3 Up to 100%2
Full-time special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school) NO NO Up to 100%3
Full-time qualified professional provider of early intervention services for the disabled NO NO Up to 100%4,2
Full-time teacher of math, science, foreign languages, bilingual education, or in other fields designated as teacher shortage areas NO3 NO3 Up to 100%4,2
Full-time employee of a public or non-profit child- or famliy-service agency providing services to high-risk children and their families from low-income communities NO NO Up to 100%4,2
Full-time nurse or medical techinician NO NO3 Up to 100%4,2
For loans made on or after November 29, 1990, service as a full-time law enforcement or corrections officer NO NO Up to 100%3
Full-time service as a staff member in the educational component of a Head Start Program NO NO Up to 100%2
Service as a Vista or Peace Corps Volunteer NO3 NO3 Up to 70%2
Service in the Armed Forces NO NO Up to 50% in areas of hostilities or imminent danger2
Bankruptcy In some cases5 In some cases5 In some cases5
Closed school (before student could complete program of study) or false loan certification8 100%8 100%8 NO

  1. Includes death but not disability of the student for whom the parents borrowed. This additional provision applies to any such student who dies on or after July 23, 1992.
  2. Service qualifies for deferment also.
  3. No funding available for this benefit at this time. Does not apply to PLUS Loans.
  4. This benefit applies to Perkins Loans made on or after July 23, 1992.
  5. Seven years must have passed between the date the loan became due and the date the borrower files for bankruptcy (not counting deferment or forbearance periods). If seven years have not passed, cancellation is possible only if the bankruptcy court rules that repayment would cause undue hardship.
  6. For loans received on or after January 1, 1993.
  7. Service qualifies for deferment also for loans made on or after July 1, 1993.
  8. School falsely certified student's ability to benefit from the school's training or there is an unauthorized signature on the student's loan documentation.




      

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The information presented on the NYSFAAA Website is provided as a service from the New York State Financial Aid Administrators Association to our constituents and represents our best efforts to assist students and their families in pursuing funding for higher education. NYSFAAA is a volunteer association of financial aid professionals representing the various institutions of higher education in New York State. We have collected information we believe to be important and reputable in finding and obtaining financial aid resources; however, we assume no liability for the use of this information. The New York State Financial Aid Administrator's Association, Inc (NYSFAAA) does not receive any money, gifts or compensation, related to educational lending activities, from any "lending institution" as defined in S620(8)a and S620(8)b of New York State Education Law. Hence, NYSFAAA does not meet the definition of "lending institution" as defined in S620(8)c of New York State Education Law. Therefore, institutions of higher education in New York and employees of those institutions are not subject to any potential conflicts of interest or legal restrictions under NYS Education Law in their interactions with NYSFAAA.*
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