Your Federal

Student Loans

Learn the Basics and Manage Your Debt
Websites and Contact Information

Student Aid on the Web

www.studentaid.ed.gov 

Your source for in-depth information on preparing for and funding education 

beyond high school.

FAFSA on the WebSM

www.fafsa.gov

Apply online for federal student aid.

National Student Loan Data SystemSM (NSLDSSM)

www.nslds.ed.gov 

Use your Federal Student Aid PIN to access your federal student loan records.

Military

www.studentaid.ed.gov/military 

If you are in the armed forces or have a family member in the service, 

visit this site to find out more about grants, repayment, and forgiveness options.

MyMoney.gov

www.mymoney.gov 

Several general government agencies offer advice on how to manage your money.

Office of Inspector General Hotline

To report student aid fraud (including identity theft), waste, or abuse of U.S. Department 

of Education funds.

1-800-MIS-USED (1-800-647-8733)

E-mail: oig.hotline@ed.gov 

Website: www.ed.gov/misused

Federal Student Aid Information Center (FSAIC)

To call or write if you have questions on federal student aid.

1-800-4-FED-AID (1-800-433-3243)

TTY users can call 1-800-730-8913. Callers in locations without access to 

1-800 numbers may call 319-337-5665.

E-mail: studentaid@ed.gov

P.O. Box 84 

Washington, DC 20044-0084 

Cover photos: U.S. Department of Education
U.S. Department of Education 

Federal Student Aid
U.S. Department of Education

Arne Duncan

Secretary

Federal Student Aid

William J. Taggart 

Chief Operating Officer

Student Experience Group

Michele Y. Brown 

Acting General Manager

December 2010

This publication is in the public domain. Authorization to reproduce it in whole 

or in part is granted. While permission to reprint this publication is not necessary, 

the citation should be: U.S. Department of Education, Federal Student Aid, Student 

Experience Group, Your Federal Student Loans: Learn the Basics and Manage Your Debt, 

Washington, D.C., 2010.

To order copies of this publication

Students and Parents

Order online at: www.edpubs.gov 

E-mail your request to: edpubs@inet.ed.gov

Call in your request toll free: 1-877-433-7827 (1-877-4-ED-PUBS)

Those who use a telecommunications device for the deaf (TDD) 

or a teletypewriter (TTY) should call 1-877-576-7734.

Counselors, Mentors, and Other Professionals

Order online at: www.fsapubs.gov

E-mail your request to: orders@fsapubs.gov

Call in your request toll free: 1-800-394-7084

Those who use a telecommunications device for the deaf (TDD) 

or a teletypewriter (TTY) should call 1-877-576-7734.

Online access

This publication is also available at www.studentaid.ed.gov/pubs.

Alternate Formats

On request, this publication is available in alternate formats, such as Braille. For more 

information, please contact Federal Student Aid using the information provided above.

Some of the Web addresses in this publication are for sites created and maintained by organizations other than the 

U.S. Department of Education. They are provided for the reader’s convenience. The U.S. Department of Education 

does not control or guarantee the accuracy, relevance, timeliness, or completeness of this outside information. Further, 

the inclusion of particular Web addresses is not intended to reflect their importance, nor is it intended to endorse 

any views expressed or products or services offered on these outside sites, or the organizations sponsoring the sites.

All website addresses included in this publication were accurate at press time.
iii

CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Why should I read this publication? ..........................................................................................1

PREPARE—Understanding Financial Aid 

and Your Loan Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

How much does college cost? ..................................................................................................3

Table 1. Description of college costs by selected expenditure items . . . . . . . . . . . . . 3

What financial resources are there? .........................................................................................4

What is the federal government’s role in financial aid?.............................................................4

Why should I consider a loan from the federal government?....................................................4

What about grants and work-study from the federal government? ...........................................4

What types of federal student loans are there and how much can I borrow? ...........................5

Table 2. Federal student loan programs for the 2011–12 award year . . . . . . . . . . . . 5

Table 3. Comparison of subsidized and unsubsidized loans: 

interest rates, interest payment, and capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table 4. Annual and aggregate loan limits for Direct Stafford Loans . . . . . . . . . . . . 7

Can I get an estimate on how much aid I will get?....................................................................8

Do all schools participate in the federal loan program? ............................................................8

How are federal student loans different from private loans?.....................................................9

Table 5. Federal student loans vs. private loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Table 6. Sources of financial aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Plan ahead and graduate with less debt.................................................................................10

Always consider what you’ll have to repay and keep track of 

how much you’re borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Manage your money and change your spending habits . . . . . . . . . . . . . . . . . . . . . . 10

APPLY—Learn How to Apply for Aid . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Who can get federal student aid? ...........................................................................................11

How do I apply for federal student aid?...................................................................................11

When should I complete the FAFSASM? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

What information do I need? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

How can I get help completing the FAFSA? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

What if I can’t complete the FAFSA online? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

What about loans? ..................................................................................................................12

Is our income too high to qualify for aid? ................................................................................12

How do I apply for state and school aid? ................................................................................13

I submitted my FAFSASM—what happens next? ......................................................................13
iv

 Your Federal Student Loans

RECEIVE—Learn When and 

How You Will Receive Your Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Your award letter.....................................................................................................................15

Evaluate your award ...............................................................................................................15

Before you accept any aid you need more information . . . . . . . . . . . . . . . . . . . . . . 15

Accepting the loan offered to you............................................................................................16

Think about how much you’re borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Signing a promissory note means you agree to repay the loan . . . . . . . . . . . . . . . . 17

Make payments regardless of receiving billing notices . . . . . . . . . . . . . . . . . . . . . . 17

Receive entrance and exit counseling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

When to notify your loan servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

How and when do I receive the money from my federal student loans?.................................18

What can I use my federal student loan money for?...............................................................18

What is interest? .....................................................................................................................18

What is the interest rate on my federal student loan? . . . . . . . . . . . . . . . . . . . . . . . 19

Interest rate cap for military members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Isn’t my interest subsidized (paid) by the government? . . . . . . . . . . . . . . . . . . . . . . 19

Who sets interest rates for federal student loans? . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

How is interest calculated? .....................................................................................................19

Interest rate factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 7. Calculation of interest rate factor, by select interest rates . . . . . . . . . . . . . 20

Are there any other fees?........................................................................................................20

I don’t need to borrow all this money. What should I do?........................................................21

Loans add up! Watch your finances carefully!.........................................................................21

Keep track of how much you’re borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

What if I need to take a break from school or I just can’t go full-time?....................................22

Table 8. Change in enrollment status: Steps to take to ensure correct loan 

processing, by status change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

REPAY—Learn About the Repayment 

Process and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

What you need to know...........................................................................................................23

Know the details of your loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

You must have access to your loan repayment schedule . . . . . . . . . . . . . . . . . . . . . 24

You will be notified if your loan servicer changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

When do I repay my loans? ....................................................................................................24

Repayment options .................................................................................................................25

When do I choose a repayment plan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Table 9. Types of repayment plans for Direct and FFEL Loans . . . . . . . . . . . . . . . . 25
v

Making your monthly payments ..............................................................................................27

Estimated monthly payments for Direct and FFEL Stafford Loans . . . . . . . . . . . . 27

Table 10. Examples of typical Direct and FFEL Stafford Loan repayments plans, 

by amount of debt and type of repayment plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Table 11. Income-Based Repayment (IBR) Plan maximum monthly payment by 

sample income and family size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Discounts for electronic payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

To whom do I make my loan payments? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

What if I can’t make my monthly payments?...........................................................................29

Why is missing a payment a problem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

What is deferment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

How do I get a deferment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Can I get a deferment while in military service? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Can parents or graduate and professional degree students 

defer repayment of their PLUS Loan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 12. Summary of loan deferment conditions for Stafford and Perkins Loans 

borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

What is forbearance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Consolidation loans.................................................................................................................33

What is loan consolidation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

What kinds of loans can be consolidated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

When can I consolidate my loans? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

What’s the interest rate on a Consolidation Loan? . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Are there any disadvantages to getting a Consolidation Loan? . . . . . . . . . . . . . . . 33

How do I get a Consolidation Loan and where can I get more information? . . . . 34

Loan cancellation ....................................................................................................................34

Is it ever possible to have my federal student loan canceled? . . . . . . . . . . . . . . . . . 34

Total and permanent disability and student death . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Table 13. Perkins loan cancellation and discharge . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Table 14. Conditions for Stafford and PLUS loan cancellation/discharge 

and amount forgiven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

How do I find out if I can get a loan discharge or cancellation? . . . . . . . . . . . . . . . 36

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
vi

 Your Federal Student Loans
1

Introduction

INTRODUCTION

When you’re considering college—or some form of education after high school—

financial aid almost always comes to mind. 

While you have the primary responsibility of paying for college, sometimes those funds 

just aren’t enough and you need to look at other resources. The U.S. Department of 

Education provides more than $150 billion in federal student aid (grants, work-study, 

and loans) each year to students seeking a postsecondary education (a degree after high 

school). About 14 million students currently receive federal student aid with a majority 

receiving federal student loans. In addition to federal student aid, financial aid is also 

available from colleges, companies, private scholarship funds, or the state in which you 

live. So there are resources to help you pay for college, but you have to utilize them!

As you explore your financial aid options, make sure to consider federal student loans. 

These loans are a possibility for everyone because not all federal student loans are based 

solely on financial need. If you have any questions or concerns about getting a federal 

student loan, then make sure to review this publication.

Why should I read this publication?

If you’re thinking about getting a federal student loan, are in the process of obtaining one, 

or already have one, you should read this publication. This booklet will help you understand 

the federal student loan process and help you make informed financial decisions.

REMEMBER: Federal student loans are real loans, just like car loans or mortgage 

loans. You must repay a student loan even if your financial circumstances become 

difficult. Federal student loans usually can’t be written off in bankruptcy. They can’t 

be canceled because you didn’t get the education or job you expected, and they can’t 

be canceled because you didn’t complete your education (unless you couldn’t complete 

your education because your school closed). 

Glossary

Definitions of financial aid terms used in this publication can be found in the Glossary 

on page 37.
2

 Your Federal Student Loans
3

Prepare

PREPARE—Understanding Financial Aid 

and Your Loan Options

Paying for a postsecondary education (college or trade school) is an investment. 

It requires planning. It takes money. So talk with your family openly and early. If you’re 

in high school, you can also talk to a guidance counselor at your school; they often have 

helpful information about planning for a postsecondary education. You also can contact 

a financial aid office at the college you plan to attend or are considering attending.

How much does college cost?

To determine your total college costs, you should get as much detailed information as 

you can from schools you are interested in. These costs are usually listed in the college's 

brochure or on its website. Keep in mind that college costs are not just tuition and 

room and board. Table 1 provides a description of common college costs.

Table 1. 

Description of college costs by selected expenditure items 

Item Description

Tuition The cost of taking a course varies from school to school. To search for tuition costs 

at different colleges, go to www.studentaid.ed.gov/myfsa.

Room and board The cost of lodging and food varies from school to school. Go to 

www.studentaid.ed.gov/myfsa to search for estimated costs.

Books and 

school supplies

Books can be expensive. School supplies can include book bags, notebooks, pens, pencils, 

paper, folders, stapler, desk organizing system (trays, pen holder, etc.), computer paper, etc. 

According to the College Board, the national average cost for textbooks at four-year public 

colleges in 2009–10 was $1,122.

Fees Fees will depend on the school you’re attending. This list can be obtained directly from the 

school. Fees include activity fees, parking decal fees, etc.

Equipment and 

room materials

Equipment may include a computer, printer, etc. Furnishings or room materials may include 

such items as reading lamps, microwave, refrigerator, sheets, towels, etc.

Travel and 

miscellaneous expenses

If you live on campus, you’ll probably need to travel during school breaks. 

Other expenses can include clothing and cell phone use.
4

 Your Federal Student Loans

Prepare

What financial resources are there?

You and your family have the responsibility of planning and paying for college. 

Your financial resources come from

• scholarships,

• prepaid or college savings plans,

• personal savings, and

• money from work (summer, part-time, etc.).

If you still need additional money, turn to

• the federal government, and

• institutional and state aid.

What is the federal government’s role in financial aid?

The federal government is the main provider of financial aid for college. Every 

year, students and parents receive more than $150 billion in federal student aid. 

With all these funds available, applying for aid from the federal government is a 

good option. Federal student aid from the federal government includes:

• grants—free money that doesn’t have to be repaid, except in some cases when 

you withdraw from school;

• work-study—money you earn to pay for your education;

• loans—money you borrow for school, which you must repay with interest.

Why should I consider a loan from the federal government?

Federal student loans usually offer borrowers lower interest rates and have more flexible 

repayment options than loans from banks or other private sources.

What about grants and work-study from the 

federal government?

This publication is focused on loans because they are the largest source of federal 

student aid. For detailed information on our grant and work-study programs, visit 

Student Aid on the Web at www.studentaid.ed.gov/applying. Student Aid on the Web 

also has information on scholarships and other sources of federal and nonfederal aid 

for college.
5

Prepare

What types of federal student loans are there and how 

much can I borrow?

The following tables compare and summarize federal student loan programs offered 

by the U.S. Department of Education.

Table 2. 

Federal student loan programs for the 2011–12 award year

Loan program Eligibility 

(i.e., who can get 

the loan)

Fixed annual 

interest rate

Annual 

loan limit

Maximum loan amount 

allowed when you 

graduate

Details

Federal 

Perkins 

Loans

Undergraduate and 

graduate students 

enrolled 

at least part-time 

and who 

demonstrate 

financial need

5% Undergraduate 

students: Up to 

$5,500 

Graduate students: 

Up to $8,000

Amount actually 

received depends 

on financial need, 

amount of other aid, 

and availability of 

funds at school.

Undergraduate 

students: $27,500 

Graduate 

students: $60,000 

(this amount includes 

undergraduate loans)

Your college 

is the lender.

William D. 

Ford Direct 

Stafford 

Loans

Direct 

Subsidized 

Stafford Loans

Undergraduate 

and graduate 

students enrolled 

at least half-time 

Must demonstrate 

financial need

Undergraduate 

students: 

For loans first 

disbursed on or after 

July 1, 2010 and 

before July 1, 2011: 

4.5%

For loans first 

disbursed on or after 

July 1, 2011 and 

before July 1, 2012: 

3.4%

Graduate students: 

6.8%

$3,500–$8,500, 

depending on year 

in school

A detailed 

breakdown is 

provided in 

Table 4.

Undergraduate 

students: $23,000 

Graduate students: 

$65,500

The U.S. 

Department 

of Education is 

the lender and 

pays interest 

on the loan 

while you are in 

school at least 

half-time and 

during grace 

and deferment 

periods.

Direct 

Unsubsidized 

Stafford Loans

Undergraduate 

and graduate 

students enrolled 

at least half-time

Financial need 

is not required

6.8% $5,500–$20,500 

(less any subsidized 

amount received for 

the same period) 

depending on 

year in school and 

dependency status

A detailed 

breakdown is 

provided in 

Table 4.

Dependent 

undergraduate 

students: $31,000 (no 

more than $23,000 of 

this amount may be in 

subsidized loans)

Independent 

undergraduate 

students: $57,500 (no 

more than $23,000 of 

this amount may be in 

subsidized loans)

Graduate students: 

$138,500 (no more than 

$65,500 of this amount 

may be in subsidized 

loans)—this includes 

loans received for 

undergraduate study

The U.S. 

Department of 

Education is the 

lender.

You are 

responsible 

for paying all 

interest on the 

loan starting 

on the date 

the loan is first 

disbursed.

(Continued on next page)
6

 Your Federal Student Loans

Prepare

Federal student loan programs for 2011–12 (continued from page 5)

For interest rates on loans disbursed before July 1, 2010, go to 

www.studentaid.ed.gov/interestrates.

NOTE: Before July 1, 2010, Stafford, PLUS, and Consolidation Loans also were made by 

private lenders under the Federal Family Education Loan (FFELSM) Program. As a result 

of legislation passed in 2010, no further loans will be made under the FFEL Program. 

All new Stafford, PLUS, and Consolidation Loans will come directly from the U.S. 

Department of Education under the Direct Loan Program.

Loan program Eligibility 

(i.e., who can get 

the loan)

Fixed annual 

interest rate

Annual 

loan limit

Maximum loan amount 

allowed when you 

graduate

Details

Direct 

PLUS Loans

Graduate and 

professional 

students and 

parents of 

dependent 

undergraduate 

students

Student must be 

enrolled at least 

half-time

Financial need is 

not required 

Those qualifying 

must not have 

adverse credit 

history.

7.9% The student's cost 

of attendance 

(determined by the 

school) minus any 

other financial aid 

received

No aggregate limit 

for PLUS Loans

The U.S. 

Department of 

Education is the 

lender. 

The loan is 

unsubsidized 

(i.e., you are 

responsible 

for paying all 

interest).

Direct 

Consolidation 

Loans

Students who 

want to combine 

multiple federal 

student loans into 

one loan

Parent PLUS 

loans cannot 

be transferred 

to the student 

and become 

the student's 

responsibility.

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%.

Cannot exceed 

8.25%

Not applicable Not applicable
7

Prepare

Because you can't borrow more than your cost of attendance minus any other financial aid 

you'll get, you may receive less than the annual maximum amounts. Also, the annual loan 

limits assume that your program of study is at least a full academic year. The maximum 

annual and total loan limits include any Stafford Loans you may have received under the 

FFEL Program.

Table 3. 

Comparison of subsidized vs. unsubsidized loans: interest rates, interest accrual and 

payment, and capitalization

Subsidized Unsubsidized

The federal government pays interest 

on subsidized loans while you are in school 

at least half-time and during grace and 

deferment periods.

Interest starts accruing (accumulating) from the time the funds 

are disbursed to you.

You’re responsible for paying that interest.

You can choose to either pay it while you are in school or let it accrue.

The amount you let accrue will be added to the principal balance 

of your loan (capitalized).

If you let your interest capitalize, it increases your loan principal balance 

and you will then have to pay interest on the increased loan principal amount. The 

total amount you repay over the life of your loan will be greater than if you paid 

interest while you were in school.

Graduate and professional students enrolled in certain health profession programs may receive 

additional Unsubsidized Stafford Loan amounts beyond those shown in table 4. There is also 

an increased aggregate loan limit of $224,000 (maximum $65,500 subsidized).

Table 4. 

Annual and aggregate loan limits for Direct Stafford Loans

Year Dependent undergraduate 

students (except students 

whose parents are unable 

to obtain PLUS Loans)

Independent 

undergraduate students 

(and dependent students 

whose parents are unable 

to obtain PLUS Loans)

Graduate and 

professional degree students

First Year $5,500—No more than 

$3,500 of this amount may 

be in subsidized loans.

$9,500—No more than 

$3,500 of this amount may 

be in subsidized loans. 

$20,500—No more than 

$8,500 of this amount may 

be in subsidized loans.

Second Year $6,500—No more than 

$4,500 of this amount may 

be in subsidized loans.

$10,500—No more than 

$4,500 of this amount may 

be in subsidized loans.

Third Year and Beyond 

(each year)

$7,500—No more than 

$5,500 of this amount may 

be in subsidized loans.

$12,500—No more than 

$5,500 of this amount may 

be in subsidized loans.

Maximum total debt from 

Direct Stafford Loans 

when you graduate

$31,000—No more than 

$23,000 of this amount may 

be in subsidized loans.

$57,500—No more than 

$23,000 of this amount may 

be in subsidized loans.

$138,500—No more than 

$65,500 of this amount may be in 

subsidized loans. The graduate 

debt limit includes Stafford Loans 

received for undergraduate study.
8

 Your Federal Student Loans

Prepare

NOTE: If your parents don’t qualify for a PLUS Loan, you might be able to get additional 

funds up to the amount listed under independent undergraduate student. See your 

financial aid administrator (FAA) for more information.

Can I get an estimate on how much aid I will get?

Yes. FAFSA4casterSM is a calculator that you can use to get an estimate of the federal 

student aid (grants, work-study, and loans) you may receive. You can access FAFSA4caster

at www.FAFSA4caster.ed.gov and www.fafsa.gov.

Do all schools participate in the federal loan programs?

No, they don’t. You need to contact your school to find out if it participates in the 

federal loan programs.

How are federal student loans different from 

private loans?

While every student wants scholarships and grants, not everyone can cover the entire 

cost of college or career school through those options. Loans can make your education 

possible and affordable. 

However, when exploring your loan options, you should consider federal student loans 

before any private loans. Federal student loans have lower and fixed interest rates, generous 

repayment plans, no prepayment penalties, and no credit checks (except for PLUS Loans).

In contrast, private loans, which may be aggressively marketed to students through 

TV ads, mailings, and other media, are substantially more expensive than federal student 

loans. They generally have higher, variable interest rates that may substantially increase the 

total amount you repay and the interest rate you receive might depend on your credit 

score. Private loans also can have prepayment penalty fees.

Table 5 shows why federal student loans are a better option than private student loans.
9

Prepare

Table 5. 

Federal student loans vs. private loans

Federal student loans 

(loans from the federal government through 

the U.S. Department of Education)

Private student loans 

(nonfederal loans from a bank, credit union, 

or other financial institution)

You will not have to start repaying your federal student 

loans until you graduate, leave school, or change your 

enrollment status to less than half-time (see page 24).

Many private student loans require payments while 

you are still in school.

The interest rate is fixed and is almost always lower than private 

loans—and much lower than credit card interest rates. For loans 

first disbursed on or after July 1, 2010, and before July 1, 2011, 

the interest rate is 4.5% for subsidized loans for undergraduate 

students and 6.8% for unsubsidized loans for undergraduate 

and graduate students. The rate for subsidized loans made to 

graduate students is 6.8%.

Private student loans can have variable interest 

rates, some greater than 18%.

Students with greater financial need might qualify for a 

subsidized loan. The government pays the interest.

Private student loans are not subsidized. 

No one pays the interest on your loan but you.

You don’t need to pass a credit check to get a federal 

student loan (except for PLUS Loans). Federal student 

loans can help you establish a good credit record.

Private student loans may require an established credit 

record. The cost of a private student loan depends on your 

credit score, which you may not yet have as a student.

You don’t need a co-signer (except for PLUS Loans) to get 

a federal student loan.

You may need a co-signer to get the best possible deal.

Free help is available at 1-800-4-FED-AID and on our 

websites. You also have 24/7 access to your loan account 

information via the Internet.

You need to find out if there is free help.

Some interest is tax deductible. Interest may not be tax deductible.

Loans can be consolidated into a Direct Consolidation Loan. 

See www.loanconsolidation.ed.gov or page 33 for more 

information on Consolidation Loans and to see if this option will 

benefit you.

Private student loans can’t be consolidated into 

the federal loan consolidation program.

No prepayment penalty fee. You need to make sure there are no prepayment 

penalty fees.

Also avoid using credit cards to pay for your education. Interest rates on credit cards are 

very high, payments are due every month, and usually don’t offer different repayment 

and deferment (temporarily postpone payments) options.

Table 6. 

Sources of financial aid

Maximize the Sources of Aid You Don't Have to Repay

MONEY YOU DO NOT HAVE TO REPAY

1. Scholarships and Grants 

2. Savings 

3. Work-Study Earnings

CHEAPEST LOANS

4. Federal Student Loans 

• Perkins Loans 

• Direct Subsidized Stafford Loan 

• Direct Unsubsidized Stafford Loan 

• PLUS Loans

EXPENSIVE LOANS

5. Private Educational Loans 

6. Home Equity Loans 

7. Credit Cards

Source: Consumers Union. July 2007. Helping Families Finance College: Improved Student Loan Disclosures and Counseling. Yonkers, NY.
10

 Your Federal Student Loans

Prepare

Plan ahead and graduate with less debt

After exploring the various non-loan and low-interest loan options, another option 

is to reduce your cost of attending college. You can start at a less expensive school or 

community college before transferring to a four-year college (make sure the four-year 

school you’re interested in accepts course credits from the community college you’re 

attending), and consider in-state vs. out-of-state schools. Debt adds up quickly, so keep 

an eye on it. If you’re concerned about too much debt you can:

• search for more scholarships and grants;

• work while you’re attending school;

• change your spending habits; and

• consider transferring to a less-expensive school.

Always consider what you’ll have to repay and keep track of how 

much you’re borrowing

Your student loan payments should only be a small percentage of your salary after you 

graduate. Ask your school’s financial aid office for starting salaries of recent graduates 

in your field of study to get an idea of how much you are likely to earn after you graduate. 

Estimates of salaries for different careers are available in the Department of Labor's 

Occupational Outlook Handbook at www.bls.gov/oco. You also should research 

employment opportunities advertised in the area where you plan to live to get an idea 

of a local starting salary.

Manage your money and change your spending habits

Resist the urge to get a credit card or to get more than one credit card. A credit card can 

help you build a credit history, if you use it wisely. But use it for emergencies only and 

don’t spend more than you can afford to pay. If you decide to get a credit card, make sure 

you understand the terms and read the fine print. You should also open a checking account, 

if you don’t already have one, and learn how to balance your checkbook.

A few more tips to save money while you’re in school:

• Buy used books instead of new ones whenever possible.

• Use your prepaid meal plan instead of eating out.

• Take advantage of free activities (e.g., concerts, plays, art exhibits) sponsored 

by your school.

• Resist impulse buying. Buy what you need, not what you think would be nice 

to have. When you do shop, use coupons and look for sales.

• Stay healthy to keep medical bills and loss of class time to a minimum. Prepackaged 

food might seem cheap, but you also can find inexpensive, fresh, and healthy foods 

if you plan ahead. 

• Understand your cell phone plan. Stay within your free minutes. Remember that 

texting is usually not free.

• Brew your own coffee.
11

Apply

APPLY—Learn How to Apply for Aid

The U.S. Department of Education has billions of dollars in federal student aid to help 

students pay for college. But in order to potentially receive some of this money, you 

have to apply for it. This section provides information on who is eligible for federal 

student aid and the application process.

Who can get federal student aid?

Our most basic eligibility requirements are that you must

• be a U.S. citizen or eligible noncitizen,

• have a valid Social Security number,

• register (if you haven’t already) with Selective Service, if you’re a male between 

the ages of 18 and 25,

• be working toward a degree or certificate,

• maintain satisfactory academic progress once you’re in a postsecondary school, and

• show you’re qualified to obtain a postsecondary education.

These are general requirements. To get more detailed information, see 

www.studentaid.ed.gov/eligible.

How do I apply for federal student aid?

Fill out an application! Apply for federal student aid, including a federal student 

loan, by completing the Free Application for Federal Student Aid (FAFSASM) at 

www.fafsa.gov. In addition to federal student loans, the FAFSA also determines 

your eligibility for other federal student aid (grants and work-study). Many states 

and schools use your FAFSA information to determine your eligibility for state and 

institutional aid. You must submit the FAFSA to receive federal student aid.

When should I complete the FAFSA?

Complete and submit the FAFSA at www.fafsa.gov on or after Jan. 1 of the year you 

expect to start college.

What information do I need? 

Completing the FAFSA is very straightforward, but you will need some documents to 

assist you in filling out the form, such as your or your parent’s most recent income tax 

return. You’ll find a list of documents you need when you complete the online application 

at www.fafsa.gov.
12

 Your Federal Student Loans

Apply

How can I get help completing the FAFSA?

If you need help filling out the FAFSA, the online application has help text tools and 

a live chat option. If you’d like to talk to someone, then you can call our Federal Student 

Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913).

What if I can’t complete the FAFSA online?

If you can’t complete the FAFSA online, you can get a paper copy by calling the 

Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243) or 

you can download a PDF at www.fafsa.gov. If at all possible, you should complete your 

FAFSA online at www.fafsa.gov. The online application has features that let you skip 

some questions if they don’t apply and automatic error checking that streamlines your 

application process.

NOTE: By completing the FAFSA, you will be applying for federal grants, 

work-study, and loans.

What about loans?

All students interested in federal student aid must complete the FAFSA to apply for 

grants, work-study, and loans.

The school's financial aid office can provide additional instructions for parents on 

how to apply for Federal PLUS Loans. However, dependent undergraduate students 

of parents applying for a PLUS Loan must complete a FAFSA.

Is our income too high to qualify for aid?

Aid is intended to make a college education a reality for as many students as possible, 

all of whom have many different financial situations. Complete the FAFSA, even if 

you don't expect to qualify for need-based grants and loans. By completing the FAFSA 

you’ll also be considered for Direct Unsubsidized Stafford Loans, which are not based 

on need. Also, you can't be certain that you won't qualify for a subsidized loan and 

might end up missing out on the benefits of a subsidized loan.

The number of other family members in college at the time of your application is taken into 

consideration when your eligibility for federal student aid is calculated. In addition, when 

preparing your financial aid package school financial aid administrators (FAAs) often take 

into account not only income but other factors, such as medical expenses. Many families are 

surprised by the aid they can receive.
13

Apply

How do I apply for state and school aid?

The information you provide on your FAFSA is used to determine your eligibility for 

some state and institutional (school) aid. This aid is often provided on a first-come, 

first-served basis, so submit your FAFSA as soon as possible on or after Jan. 1 to be 

considered for this aid. Visit the website of each school you’re interested in to learn their 

priority deadlines for school and state financial aid, and to find out about any special 

requirements, such as additional paperwork the school might need from you. Also, most 

colleges have deadlines for completing the FAFSA. Because some funds are limited and 

run out, meeting deadlines is always very important. You can also find a list of state 

deadlines at www.fafsa.gov.

I submitted my FAFSA—what happens next?

After you submit your FAFSA, we will send you a Student Aid Report (SAR), which is a 

summary of the FAFSA data you submitted. Review your SAR and, if needed, make 

changes or corrections and submit those changes for reprocessing. If you don’t have any 

changes, you don’t need to do anything. Your complete and correct SAR will contain 

your Expected Family Contribution (EFC)—the number used to determine your 

federal student aid eligibility during one school year. Make sure your EFC appears in 

your SAR.

We also send your SAR to the schools you identified on your FAFSA. From this point 

on, you must stay in contact with your school’s financial aid office because they will put 

together your financial aid package.

The RECEIVE section (page 15) of this publication has additional information on 

next steps.
14

 Your Federal Student Loans

NOTES
15

Receive

RECEIVE—Learn When and How You Will 

Receive Your Aid

You completed and submitted your FAFSA, reviewed your Student Aid Report, 

made any needed changes, and made sure that your school has all your required 

information. So, what happens next? From now on, you’ll contact your school's 

financial aid office to keep track of your financial aid award.

Your award letter

If you included the school on your FAFSA, the school will receive the results of your 

FAFSA. After you receive an admissions letter from the school, usually sent in April, 

its financial aid office will put together a financial aid award package for you and send 

you a financial aid award letter.

The award letter will explain how much and which forms of aid you've qualified for. 

Because your award package is tailored for you and is based on the cost of attending a 

particular school, aid amounts and information included will vary from school to school.

NOTE: Need-based financial aid takes into account the school’s cost of attendance 

(all direct and indirect expenses, including tuition, fees, room and board, books, 

transportation, and supplies) minus the EFC (an index used to determine your 

financial aid eligibility).

Evaluate your award

The award letter describes the aid you are offered. Although it’s individually tailored, 

you’re not obligated to accept all of the aid or to borrow the full amount of any loans 

listed in the award letter. It's up to you and your family to evaluate the award, compare 

it to awards from other schools, and then decide what to accept and how much to 

borrow. Read your award letter carefully. Loans can be classified in many ways but you 

should be able to tell if you’re getting a subsidized or unsubsidized loan. If you have 

any questions or don’t understand what’s in your award letter, contact the school. The 

school also will tell you what actions you need to take after you review your award 

letter. Always ask questions and be an informed borrower. Make sure you understand 

what you’re receiving and the repayment terms.

Before you accept any aid you need more information

• Get a breakdown of the direct expenses (tuition, room and board, and fees) and 

estimates of indirect expenses (travel, books, etc.) for one year of college; 

• Know the actual amount (cost of attendance minus financial aid) that you’ll have 

to pay to attend one year of college; 
16

 Your Federal Student Loans

Receive

• Know how much in scholarships and grants (money that doesn’t have to be repaid) 

you’ve been awarded, the conditions under which they are renewable each year, and 

any other conditions you must meet to receive these funds; 

• Know the exact amount of work-study you’ve been awarded and the conditions to 

fulfill the work-study requirements; 

• Find out which types of loans you’ve been awarded and the amounts;

• Find out which federal loans your parents can get to help pay for your education;

• Know the interest rates, loan terms, monthly repayment amounts, and total 

repayment amounts of your loans;

• Know where you can get additional information or have your loan questions 

answered; and

• Make sure you understand the source of your loan (government or private) and 

the terms of the loan and only consider those with the most favorable terms.

NOTE: Documents for federal student loans will state somewhere on the form 

that it is a federal student loan. Some private student loan lenders have forms that 

look similar to the federal forms. Make sure what you’re getting is, in fact, a federal 

student loan.

Is your family's share of college costs still more than you can afford? If so, you may 

want to consider the Direct Unsubsidized Loans listed in your letter. These federal loans 

offer more favorable terms than private and commercial loans (see page 9). 

If you’re a dependent student, your parents can apply for a PLUS Loan (see page 6).

Try other free sources of information to ensure you have considered all viable options 

for securing adequate, yet the least costly, financial aid, such as your state education 

agency, the financial aid office at the school you plan on attending, professional 

organizations, etc. For more sources of information, go to Looking for Student Aid at 

www.studentaid.ed.gov/LSA. 

NOTE: Your award letter or financial aid package doesn’t transfer with you if you 

go to another school. Contact the financial aid office at your new school as early 

as possible to find out what to do.

Accepting the loan offered to you

Accepting a loan listed in the award letter involves some additional steps, which vary 

depending on the type of loan you’re receiving. Saying yes is as simple as signing a 

promissory note (a contract between you and the U.S. Department of Education that 

specifies terms and conditions of the loan). By signing the promissory note, you are 

promising to repay your student loan. The financial aid office will guide you through 

the paperwork or direct you to www.studentloans.gov to sign the online Master 
17

Receive

Promissory Note (MPN). The MPN is a legal document in which the borrower promises to 

repay the loan and any accrued interest and fees to the U.S. Department of Education. The 

MPN can cover multiple academic years. Contact the financial aid administrator at your 

school if you need more information or have any questions about your award letter.

When you obtain a federal student loan, you have certain responsibilities. Consider the 

following important responsibilities regarding your loan:

Think about how much you’re borrowing

• Accept scholarships and grants you’re eligible for and understand the 

conditions you must meet.

• Accept the loans with the most favorable terms; that is, federal student loans and 

state aid offered to you (see page 9). If you see private or commercial loans in your 

award letter, ask why this type of loan was included, find out the terms, and reject the 

private loan if the terms aren’t favorable.

• Borrow only what you need. If you don’t repay your student loan on time or according 

to the terms in your promissory note, you could default on this legal obligation, which 

has serious consequences and will adversely affect your credit rating, and make any 

future lending much more difficult if not impossible.

Signing a promissory note means you agree to repay the loan

• When you sign a promissory note, you’re agreeing to repay the loan according 

to the terms of the note. Be sure to read your promissory note.

• The note states that you must repay the loan unless you meet the requirements 

for loan discharge (cancellation), even if you don’t complete your education.

• Also, you must repay your loan even if you can’t get a job after you complete the 

program or you didn’t like the education you received. The U.S. Department of 

Education does not guarantee the quality of education you receive or that you will 

find a job in your field of study.

Make payments regardless of receiving billing notices

• 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. 

You’re obligated to make payments even if you don’t receive any reminders.

• You also must make monthly payments in the full amount required by your 

repayment plan, in order to keep your account in good standing. Partial payments 

do not fulfill your obligation to repay your student loan on time.

Receive entrance and exit counseling

• If you are a first-time borrower you must complete an entrance counseling session 

before you’re given your first loan disbursement. This session provides you with 

useful tips and tools to help you develop a budget for managing your education 

expenses and helps you to understand your loan responsibilities. Parent PLUS Loan 

borrowers do not participate in entrance counseling.
18

 Your Federal Student Loans

Receive

• You must receive exit counseling before you leave school to make sure you 

understand your rights and responsibilities as a borrower. You will receive information 

about repayment and your loan servicer will notify you of the date loan repayment 

begins (usually six months after you graduate, leave school, or drop below half-time 

enrollment). Parent PLUS Loan borrowers do not participate in exit counseling.

When to notify your loan servicer

Notify your loan servicer of your enrollment status when you

• graduate;

• withdraw from school;

• drop below half-time status;

• change your name, address, or Social Security number (new Social Security 

numbers are issued only in very rare circumstances; see www.ssa.gov/ssnumber 

for rules on changing them), or

• transfer to another school.

How and when do I receive the money from my federal 

student loans?

There are a few things to remember:

• Funds will be sent directly to the school in two disbursements (installments). 

No disbursement will be greater than half the amount of your loan.

• If you’re a first-year undergraduate student and a first-time borrower, you must 

complete entrance counseling and your first disbursement can’t be made until 

30 days after the first day of your enrollment period.

• Your school usually credits your loan payment to school charges on your account 

(tuition and fees, room and board, and other authorized charges).

• If the loan money exceeds your school charges, the school will pay you the credit 

balance by check or other means.

What can I use my federal student loan money for?

You may use the money you receive only to pay for education expenses at the school 

that awarded your loan. Education expenses include such school charges as tuition, 

room and board, fees, books, supplies, equipment, dependent child care expenses, 

transportation, and rental or purchase of a personal computer. Talk to someone 

at the financial aid office at your school if you need more details.

What is interest?

Interest is a loan expense charged by the lender and paid by the borrower for the use of 

borrowed money. The expense is calculated as a percentage of the unpaid principal amount 

(loan amount), which includes the original amount borrowed and any capitalized interest.
19

Receive

What is the interest rate on my federal student loan?

Fixed interest rates for Direct Subsidized Loans for undergraduate borrowers are

• 4.5% for loans first disbursed on or after July 1, 2010 and before July 1, 2011.

• 3.4% for loans first disbursed on or after July 1, 2011 and before July 1, 2012.

• 6.8% for loans first disbursed on or after July 1, 2012.

The interest rates for Direct Subsidized Loans for graduate students and Direct 

Unsubsidized Loans for undergraduate and graduate students is 6.8%. For Direct 

PLUS Loans, the interest rate is 7.9%.

For detailed information on interest rates, go to www.studentaid.ed.gov/interestrates.

Interest rate cap for military members

If you qualify under the Service Members Civil Relief Act, the interest rate on loans 

you obtained before entering military service may be capped at 6% during your military 

service. You must contact your loan servicer to request this benefit. 

In addition, the U.S. Department of Education does not charge interest (for a period of no 

more than 60 months) on Direct Loans first disbursed on or after Oct. 1, 2008, while you are 

serving on active duty or performing qualifying National Guard duty during a war or other 

military operation or other emergency, and serving in an area of hostilities qualifying for 

special pay. 

Isn’t my interest subsidized (paid) by the government?

Depending on the type of federal student loan you have, the interest is either 

paid by you (unsubsidized loan) or by the federal government (subsidized loan). 

See page 7 for more information on unsubsidized and subsidized loans.

Who sets interest rates for federal student loans?

Interest rates on federal student loans are set by Congress.

How is interest calculated?

The amount of interest that accrues on your loan from month to month is determined by a 

Simple Daily Interest formula. This formula consists of multiplying your loan balance by the 

number of days since the last payment times the Interest Rate Factor (see more on interest 

rate factor on next page).

Monthly interest can be calculated using this Simple Daily Interest formula:

Number of days 

since last payment x Principal balance 

outstanding (PBO) x Interest rate factor = Interest amount
20

 Your Federal Student Loans

Receive

Interest rate factor

The interest rate factor is used to calculate the amount of interest that accrues on your 

loan. It is determined by dividing your loan's interest rate by 365.25 (the number of 

days in a year). See table 7 for some examples of interest rate factors.

Table 7. 

Calculation of interest rate factor, by select interest rates

Interest rate Converted to decimals Divided by 365.25 Interest rate factor

8.99% .0899 .0899/ 

365.25 .00024613

8.25% .0825 .0825/ 

365.25 .00022587

7.59% .0759 .0759/ 

365.25 .00020780

Note: 365.25 is the number of days in a year.

Practice Example: Let's say the remaining balance on your loan is $9,500 and your 

interest rate is 8.25% (interest rate factor is .00022587). You sent in a payment of $160 

32 days after your previous month's payment, and you're wondering how much of that 

payment went toward the principal balance of your loan.

32 (days) x $9,500.00 (PBO) x .00022587 (interest rate factor) = $68.66 of your payment applied to interest

$160.00 (payment) – $68.66 (interest) = $91.34 applied to your principal loan balance

In this scenario, you paid $68.66 toward interest and $91.34 toward the principal balance. 

This would leave you with a principal loan balance of $9,408.66 after the $160.00 payment 

was applied ($9,500.00 PBO – $91.34 paid toward PBO = new PBO of $9,408.66).

Go to www.studentaid.ed.gov/repaying or contact your loan servicer for more information.

Are there any other fees?

All loans have loan fees (also called origination fees) that are deducted proportionately 

from each loan disbursement you receive. This means the money you receive will be less 

than the amount you actually borrow. You’re responsible for repaying the entire amount 

you borrowed and not just the amount you received in loan disbursements. The loan fee 

for Direct Stafford Loans first disbursed on or after July 1, 2010, is 1%. The Direct PLUS 

Loan fee is 4%.

NOTE: Interest is charged on PLUS Loans during ALL periods, beginning on the date 

of the first loan disbursement. A PLUS borrower may pay the interest as it accrues 

during a deferment, or allow it to accrue and be capitalized at the end of the 

deferment period.
21

Receive

I don’t need to borrow all this money. What should I do?

You can notify your school before your loan is disbursed that you don’t need to 

borrow all or part of your loan and within certain time frames after your loan has been 

disbursed. The time frames and the procedures for canceling a loan, also are explained 

in notices that the school is required to send you. Contact your financial aid office for 

more details.

Loans add up! Watch your finances carefully!

Loans accumulate over the two, four, five years or more that you will attend school. 

Estimating the full cost of attendance for the total number of years you plan to attend 

school will help you understand how much you may have to borrow. Once you have 

an idea of the total amount of federal student loans you may be taking out, you can see 

how much your monthly payments could be. See estimated monthly payment amounts 

for different repayment plans, see pages 27–28.

Keep track of how much you’re borrowing

To keep track of all your U.S. Department of Education loans, access the National Student 

Loan Data SystemSM (NSLDSSM) at www.nslds.ed.gov, the central database for federal 

student aid. You’ll need to use your PIN to access your information.

Keep good records. Repaying your student loan(s) is a very serious matter, and it’s 

important to keep accurate, accessible records. You should set up a file folder for each 

loan and file all paperwork. Your file should include:

• Financial aid award letters;

• Loan counseling materials (entrance and exit counseling);

• Promissory note(s);

• Amount of your student loans, including the amount that is disbursed each 

semester or year (you may access this information at www.nslds.ed.gov);

• Account numbers for each of your loans;

• Name, address, phone number, and website of your loan servicer 

(the entity to whom you send your monthly payments);

• Loan disclosure and payment schedule sent to you by your servicer 

before you start to repay your loan;

• Monthly payment stubs (if you pay by check) or printouts of proof 

of payment (if you pay electronically);

• Notes about any questions you ask about your loans, the answers, 

and the name of the person to whom you spoke;

• Any deferment or forbearance paperwork and notes of any 

phone calls to the servicer; and

• Documentation proving that you paid your loans in full.
22

 Your Federal Student Loans

Receive

What if I need to take a break from school 

or I just can’t go full-time?

If you’re preparing to leave school, withdraw early, or transfer to another school, you 

must remember to notify your loan servicer and the school you’re currently attending 

of the change in your enrollment status.

When your enrollment status changes, there are a few steps that you must take 

to ensure your loans are processed correctly.

Table 8. 

Change in enrollment status: Steps to ensure correct loan processing, by status change

Status change

Steps to take

Contact 

financial 

aid office

Complete 

exit 

counseling

Notify 

loan 

servicer

Begin loan 

repayment 

after your 

grace period 

Apply for 

financial aid by 

completing the 

FAFSA

Request an 

in-school 

deferment 

Withdraw 

from school X X X X

Drop your 

enrollment 

to less than 

half-time

X X X X

Return to school 

at least half-time 

after a period 

of less than 

half-time 

X X X

Transfer to 

another school X X X X X

Graduate X X

Go to 

graduate school X X X

NOTE: Before July 1, 2010, Stafford, PLUS, and Consolidation Loans were also made by 

private lenders under the Federal Family Education Loan (FFELSM) Program. As a 

result of recent legislation, no further loans will be made under the FFEL Program. 

All new Stafford, PLUS, and Consolidation Loans will come directly from 

the U.S. Department of Education under the Direct Loan Program.
23

Repay

REPAY—Learn About the Repayment 

Process and Options

If you have a federal student loan, you pay lower interest rates than you would on a 

commercial loan because the federal government subsidizes federal loans. You also 

don’t have to begin to repay most federal student loans until you leave school or drop 

below half-time. As generous as these terms are, you need to remember that you have to 

repay your loan. Failure to do so could result in your loan(s) being declared delinquent 

or in default and can have a negative impact on your credit score. This section outlines 

repayment requirements and describes the rare circumstances under which your 

obligation to repay can be reduced or forgiven.

What you need to know

You have the right to detailed information about your loan. 

Know the details of your loan

Below is what you need to know and must receive from your school or loan servicer:

• information about the yearly and total amounts you can borrow;

• the amount of your total debt (principal and estimated interest), 

your current interest rate and the total interest charges on your loan;

• the date you must start repayment;

• a complete list of any charges you must pay (loan fees) and information 

on how those charges are collected;

• information about the maximum repayment periods and the 

minimum repayment amount;

• a current description of your loans, including average anticipated 

monthly payments;

• the name of the loan servicer that holds your loans, where to send 

your payments and where to write or call if you have questions;

• an explanation of 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 default and its consequences;

• a reminder of available options for loan consolidation;

• a reminder that you can prepay your loan in whole or in part without 

penalty at any time;
24

 Your Federal Student Loans

Repay

• a description of applicable deferment, forbearance, and 

discharge (cancellation) provisions;

• repayment options and advice about debt management that will help 

you in making your payments;

• notification that you must provide your expected permanent address 

and the name and address of your expected employer; and

• notification that you must provide any corrections to your school’s 

records concerning your name, Social Security number, references, 

and driver’s license number (if you have one).

You must have access to your loan repayment schedule

Your loan servicer 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 will be notified if your loan servicer changes

You must be notified if your loan servicer changes and if it results in making 

payments to a new servicer. You must be given:

• the identity of the new loan servicer; and

• the address where you or your parents must send payments, and the telephone 

numbers of both the old and new loan servicer.

When do I repay my loans?

Federal student loans have grace periods. There is a set period of time after you 

graduate, leave school, or drop below half-time status before you must begin repayment 

on a Direct or FFEL Stafford or Perkins Loan. This period of time is called a grace period 

and gives you time to get financially settled and select your repayment plan. Not all 

federal student loans have the same grace period (see below).

• Federal Perkins Loans—the grace period is nine months. However, if 

you’re attending less than half-time, check with your financial aid office 

to determine your grace period. During the grace period, you don’t have 

to pay any principal, and you won’t be charged interest.

• Direct or FFEL Stafford Loans—the grace period is six months.

▶ Subsidized loan—during the grace period, you don’t have to pay any principal, 

and you won’t be charged interest.

▶ Unsubsidized loan—you don’t have to pay any principal, but you will be 

charged interest. Remember, you can either pay the interest as you go along 

or it will be capitalized (i.e., added to the principal loan balance) later.

• Direct or FFEL PLUS Loans—the repayment period for a PLUS loan begins on the 

date the loan is fully disbursed as there is no grace period.
25

Repay

▶ Graduate and professional student PLUS borrowers may defer repayment 

while they are enrolled in school at least half-time and (for PLUS loans first 

disbursed on or after July 1, 2008) for six months after they are no longer 

enrolled at least half-time.

▶ Parent PLUS borrowers whose loans were first disbursed on or after 

July 1, 2008, may defer repayment while the dependent student for whom 

they borrowed is enrolled at least half-time and for six months after the 

student ceases to be enrolled at least half-time. A parent borrower who is also 

a student may defer repayment while he or she is enrolled at least half-time.

If you are called to active military duty for more than 30 days, the grace period 

will be delayed.

Repayment options

When do I choose a repayment plan?

Your loan servicer will send you information about repayment, and you’ll 

be notified of the date repayment begins. However, you’re responsible for beginning 

repayment on time even if you don’t receive this information. Failing to make 

payments on your loan can lead to default.

There are several repayment plans to help you manage this important financial 

responsibility. The repayment plans outlined in table 9 are for Direct and FFEL Stafford 

Loans and PLUS Loans. You can change plans to suit your financial circumstances.

Federal Perkins Loans have different repayment options. Your payment depends 

on the amount that you borrow, but the minimum is $40 per month. Check with 

your school for more information on Perkins Loan repayment plans.

Table 9. 

Types of repayment plans for Direct and FFEL Loans

Repayment 

plan

Eligible loans Repayment time 

frame

Monthly payment Additional considerations

Standard Direct Stafford, FFEL 

Stafford, PLUS Loans 

for Parents, PLUS 

Loans for Graduate 

and Professional 

Students

Fixed payment for 

up to 10 years

Up to 30 years for 

consolidation loans

Fixed

Payment must be 

at least $50 per month.

If you do not choose a repayment plan 

when you first begin repayment, you 

will be placed 

in this one.

Graduated Direct Stafford, FFEL 

Stafford, PLUS Loans 

for Parents, PLUS 

Loans for Graduate 

and Professional 

Students

Up to 10 years

Up to 30 years 

for consolidation 

loans

Payments start out

relatively low at 

first and then increase, 

usually every two 

years.

Payments must at 

least cover the interest 

that accumulates on

the loans 

between payments.

The plan is tailored to individuals 

with relatively low current incomes 

(e.g., recent college graduates) 

who expect their incomes to increase 

in the future.

You'll ultimately pay more for your 

loan than under the Standard 

Plan, because more interest 

accumulates in the early years 

of the plan when the outstanding loan 

balance is higher.

(Continued on next page)
26

 Your Federal Student Loans

Repay

Repayment 

plan

Eligible loans Repayment time 

frame

Monthly payment Additional considerations

Extended Direct Stafford, 

FFEL Stafford, 

PLUS Loans for 

Parents, PLUS Loans 

for Graduate and 

Professional Students

25 years Fixed or graduated

Monthly payment 

is lower than it would 

be under 

the Standard Plan.

FFEL borrowers must 

have more than $30,000 in 

outstanding FFEL Program loans.

Direct Loan borrowers must have 

more than $30,000 in outstanding 

Direct Loans. This means, for 

example, that if there is $35,000 in 

outstanding FFEL Program loans 

and $10,000 in outstanding Direct 

Loans, the extended repayment plan 

is for the FFEL Program loans, but 

not for the balance on the Direct 

Loans.

For both programs, the borrower 

must also be a "new borrower" as of 

Oct. 7, 1998.

You'll ultimately pay more for the 

loan because of the interest that 

accumulates during the longer 

repayment period.

IncomeSensitive 

Repayment 

Plan

FFEL Loans only The maximum 

repayment period 

is 10 years

Monthly loan payment 

is based 

on annual income.

As income increases 

or decreases, so 

do payments.

IncomeContingent 

Repayment 

Plan (ICR)

Direct Stafford and 

Direct PLUS Loans 

only

Direct Loan parent 

PLUS borrowers are 

not eligible for the 

ICR repayment plan

Have 25 years 

to repay under 

this plan; unpaid 

portion will be 

forgiven

Monthly payments will 

be based on annual 

income 

(and that of spouse, if 

married), family size, 

and the total amount 

of Direct Loans.

You may have to pay income tax on 

the amount that is forgiven.

IncomeBased 

Repayment 

(IBR)

Direct and FFEL 

Stafford Loans, Direct 

and FFEL 

PLUS Loans made 

to students

Parent PLUS Loans 

(or consolidation 

loans that repaid 

parent PLUS Loans) 

are not eligible

Have 25 years 

to repay under 

this plan; unpaid 

portion will be 

forgiven

Monthly payments 

are capped at 15% of 

discretionary income 

(the difference 

between Adjusted 

Gross Income and 

150% of the poverty 

guideline for your 

family size and state 

of residence).

You must have partial 

financial hardship to 

enroll in the IBR Plan.

If you are married 

AND file taxes 

separately, only 

your income will be 

considered when 

calculating your IBR 

payment amount.

You may have to pay income tax on 

the amount that is forgiven.

Contact the servicer for more 

information the IBR Plan.

Table 9. 

Types of repayment plans (continued from page 25)
27

Repay

For more information on these repayment plans and to use our interactive calculators, 

go to www.studentaid.ed.gov/repaying. 

NOTE: Federal student loans have to be repaid after you graduate, leave school, 

or stop attending at least half-time (see page 22 for details).

Making your monthly payments

Estimated monthly payments for Direct and FFEL Stafford Loans

Table 10 shows estimated monthly payments for various loan amounts under each 

repayment plan and assumes that the student is making regular monthly payments on 

any unsubsidized loans and is not capitalizing the interest while in school. If the interest 

is capitalized (added to the outstanding principal balance), the cumulative payments and 

total interest charges will be higher than shown in the chart.

Table 10. 

Examples of typical Direct and FFEL Stafford Loan repayment plans, by initial amount of 

debt and type of repayment plan

Initial debt 

when you enter 

repayment

Repayment plans

Standard 

(not to exceed 10 

years)

Extended

Graduated 

(not to exceed 

10 years)

Income Contingent (income = $25,000)

for Direct Loans only

Single Married/HOH

Per 

month

Total 

repaid

Per month Total 

repaid

Per 

month

Total 

repaid

Per 

month

Total 

repaid

Per 

month

Total 

repaid

$ 3,500 $ 50 $ 4,471 Not available for 

this loan amount

$ 25 $ 5,157 $ 27 $ 6,092 $ 25 $ 6,405

5,000 58 6,905 Not available for 

this loan amount

40 7,278 38 8,703 36 9,150

7,500 83 10,357 Not available for 

this loan amount

59 10,919 57 13,055 54 13,725

10,500 121 14,500 Not available for 

this loan amount

83 15,283 80 18,277 76 19,215

15,000 173 20,714 Not available for 

this loan amount

119 21,834 114 26,110 108 27,451

40,000 460 55,239 $ 277 $ 83,289 316 58,229 253 72,717 197 84,352

Note: Interest rate: payments are calculated using the fixed interest rate of 6.8%.

Graduated repayment plan: an estimated monthly repayment amount for the first two years of the term and total loan payment. 

The monthly repayment amount will generally increase every two years, based on this plan. 

Income-Contingent Repayment plan: assumes a 5% annual growth (Census Bureau) and calculated using the formula 

requirements in effect during 2006. 

HOH is head of household: assumes a family size of two.
28

 Your Federal Student Loans

Repay

Under the Income-Based Repayment (IBR) Plan, the amount an eligible borrower 

would repay each month is based on the borrower's Adjusted Gross Income (AGI) and 

family size. The annual IBR repayment amount is 15 percent of the difference between 

the borrower's AGI and 150 percent of the Department of Health and Human Services 

most recently published poverty guidelines, adjusted for family size. That amount is then 

divided by 12 to get the monthly IBR payment amount. 

After the initial determination of your eligibility for IBR, your payment may be adjusted each 

year based on your income and family size, but your required payment will never be more 

than the standard 10-year payment amount (unless you choose to exit the IBR program).

Table 11. 

Income-Based Repayment (IBR) Plan maximum monthly payment by sample income and 

family size

Annual 

income

Family size=Number of family members

1 2 3 4 5 6 7

$10,000 $0 $0 $0 $0 $0 $0 $0

$15,000 $0 $0 $0 $0 $0 $0 $0

$20,000 $47 $0 $0 $0 $0 $0 $0

$25,000 $109 $39 $0 $0 $0 $0 $0

$30,000 $172 $102 $32 $0 $0 $0 $0

$35,000 $234 $164 $94 $24 $0 $0 $0

$40,000 $297 $227 $157 $87 $16 $0 $0

$45,000 $359 $289 $219 $149 $79 $9 $0

$50,000 $422 $352 $282 $212 $141 $71 $1

$55,000 $484 $414 $344 $274 $204 $134 $64

$60,000 $547 $477 $407 $337 $266 $196 $126

$65,000 $609 $539 $469 $399 $329 $259 $189

$70,000 $672 $602 $532 $462 $391 $321 $251

For more information on repayment plans and to use our calculators go to 

www.studentaid.ed.gov/repaying.

Discounts for electronic payments

You might be able get a 0.25% rate discount as a repayment incentive for automatic 

payments. This interest rate reduction is for having payments electronically debited 

from your bank account and is a rebate given up front. When you make your payments 

on time you are taking steps toward building a solid credit history.
29

Repay

To whom do I make my loan payments?

You will make loan payments to your loan servicer. When you first receive a loan, you 

will be contacted by the servicer for that loan. Your loan servicer will provide regular 

updates on the status of your loan, and any additional loans that you receive. 

The U.S. Department of Education uses several loan servicers for the Direct Loan 

Program and for FFEL Program Loans purchased by the Department. You will be 

notified by the servicer on where and when to send payments and the servicer will 

provide you with their contact information. Because the servicer is handling the 

day-to-day operations of your loan, and not providing the loan funds, correspondence 

you receive vary from servicer to servicer.

If you can’t find your servicer information or have questions about your loans, you can 

look up your federal student loan history through the U.S. Department of Education’s 

National Student Loan Data System (NSLDS) at www.nslds.ed.gov. You will need your 

Federal Student Aid PIN to access the database. You also can call the Federal Student 

Aid Information Center at 1-800-4-FED-AID (1-800-433-3243, TTY 1-800-730-8913).

What if I can’t make my monthly payments?

Your student loan debt is a legal obligation and can be a 10- to 30-year financial commitment. 

Don’t ignore debt. It won’t go away. 

There are many ways to get help if you are struggling, including changing your payment 

due date, switching repayment plans, and asking about deferment or forbearance.

If you can’t make your payments, don’t ignore the problem.

• Contact the servicer immediately to discuss options.

• Consider changing your repayment plan if your current one is not favorable.

• Keep track of all communications. Using the sample log below is one way to help 

you stay organized and on track.

Example of information to include in a communication log with your loan sevicer

Date:

Servicer:

Phone number or e-mail:

Person you spoke to:

Reason you called:

Were your questions answered or issues resolved?

What were the answers to your questions?

Follow-up actions:

Why is missing a payment a problem?

Your credit history will be affected if you do not repay your loans.
30

 Your Federal Student Loans

Repay

If you don’t make a payment on time or if you start missing payments—even one—your 

loan is considered delinquent and late fees can be assessed. If you are making late or partial 

payments, contact your loan servicer immediately for help. If you don’t make payments for 

more than 270 days (except for Perkins Loans), your loan will go into default and your credit 

rating could suffer. If your credit rating is affected negatively, you may be denied future 

education or consumer loans, and you may not be able, for example, to obtain a mortgage, 

rent an apartment, buy a car, or secure employment.

What is deferment?

A deferment is a period in which repayment of the principal balance is temporarily 

postponed (no payments are required) if you meet certain requirements. During a 

deferment, if your loan is

• Subsidized—the government pays the interest on your loan.

• Unsubsidized (which includes all PLUS loans)—you are responsible for the interest 

that accrues during the deferment period. If you do not make any interest payments 

during the deferment period, the unpaid interest will be capitalized (added to the 

principal balance) at the end of the deferment period.

How do I get a deferment?

You have to apply for a deferment to your loan servicer, and you must continue to 

make payments until you’ve been notified your deferment has been granted. Otherwise, 

you could become delinquent or go into default. The most common loan deferment 

conditions are enrollment in school at least half-time, inability to find full-time 

employment (for up to three years), economic hardship (for up to three years), and 

military service (see next question).

Can I get a deferment while in military service?

An active duty military deferment is available to borrowers in the FFEL, Direct Loan, 

and Perkins Loan programs who are called to active duty during a war or other military 

operation or national emergency. This deferment is available:

• While you are serving in active duty during a war or other military operation or 

national emergency or

• While you perform qualifying National Guard duty during a war or other military 

operation or national emergency, or

• If you were serving on or after Oct. 1, 2007, for an additional 180-day period 

following the demobilization date for the qualifying service.

If you are a member of the National Guard or other reserve component of the 

U.S. Armed Forces (current or retired) and are 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, you are eligible for a deferment during the 13 months 
31

Repay

following the conclusion of the active duty service, or until you return to enrolled 

student status on at least a half-time basis, whichever is earlier. Once you return 

to school at least half-time, your military deferment ends and you can get an 

in-school deferment.

Can parents or graduate and professional degree students defer 

repayment of their PLUS Loan?

Yes. Generally, the same deferment provisions that apply to Stafford Loans apply 

to PLUS Loans. Because PLUS Loans are unsubsidized, parents and graduate and 

professional degree students will be charged interest during periods of deferment. 

If they don’t pay the interest as it accrues, it will be capitalized (added to their outstanding 

principal balance). Parent PLUS borrowers may defer repayment of PLUS Loans first 

disbursed on or after July 1, 2008, while the student for whom the loan was obtained is 

enrolled at least half-time, and for an additional six months after the student ceases to be 

enrolled at least half-time.

The conditions that must be met under Stafford and Perkins loans to qualify for a 

deferment are listed in table 12. For information on deferments for loans, contact your 

loan servicer.

If you do not meet the requirements for a deferment, you may still be eligible 

for forbearance.

Table 12. 

Summary of loan deferment conditions for Stafford and Perkins Loans borrowers

Deferment Condition

Stafford Loans Perkins 

Loans

Direct Loans a, b FFEL Loans a

At least half-time study at a postsecondary 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 (includes Peace Corps Service) Up to 3 Years Up to 3 Years Up to 3 Years

Service listed under discharge/cancellation conditions NO NO YES

Borrower is on active military duty during a war or other military 

operation or national emergency and if the borrower was serving on 

or after Oct. 1, 2007, for an additional 180-day period following the 

demobilization date for the qualifying service

YES YES YES

For a borrower who is a member of the National Guard or other reserve 

component of the U.S. Armed Forces (current or retired) and is 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, 

during the 13 months following the conclusion of the active duty service, 

or until the borrower returns to enrolled student status on at least a halftime basis, whichever is earlier

YES YES YES

a

 For PLUS Loans and unsubsidized Stafford Loans, only principal is deferred. Interest continues to accrue.

b A Direct Loan borrower who had an outstanding balance on a FFEL Loan first disbursed before July 1, 1993, when the borrower 

received his or her first Direct Loan, is eligible for additional deferments.
32

 Your Federal Student Loans

Repay

More information on teaching and other types of service deferments and cancellations 

can be found online at www.studentaid.ed.gov.

NOTE: You MUST continue making payments on your student loan until you have 

been notified that your request for deferment has been granted. If you don’t, and your 

deferment is not approved, you will become delinquent and may default on your loan.

What is forbearance?

Forbearance allows you to postpone or reduce your monthly payment amount for a limited 

and specific period if you are willing but unable to make your scheduled loan payments for 

reasons including, but not limited to, financial hardship or illness and you do not meet the 

eligibility requirements for deferment. During forbearance, for all types of loans

• You are responsible for paying the interest that accrues during forbearance 

on all loan types, including subsidized loans.

• When you resume making payments at the end of the forbearance period, any 

unpaid interest will be capitalized (added to the principal balance).

Your servicer is required to grant you forbearance under certain conditions. 

These include, but are not limited to, the following

• While you are serving in a medical or dental internship or residency program and 

meet certain other requirements.

• If you are having payments being made for you by the Department of Defense.

• While you are serving in an AmeriCorps position for which you are receiving an 

education award.

• If the total amount you owe each month on all of your FFEL, Direct, and Perkins 

loans is 20% or more of your total monthly gross income.

You must request forbearance and, in some cases, must provide documentation 

showing that you meet the eligibility requirements. Contact your servicer to request 

forbearance and for a complete list of forbearance and eligibility criteria.

Important! Continue making payments on your loan while you’re waiting 

for deferment or forbearance approval. You must continue to make payments until 

you have been notified that your request has been approved. Keep a copy of any 

request form you submit, and document all contact you have with the loan servicer.

For more information on deferment or forbearance go to 

www.studentaid.ed.gov/repaying and click on “Difficulty Repaying.”
33

Repay

Consolidation loans

What is loan consolidation?

Student and parent borrowers can consolidate (combine) multiple federal student loans 

with various repayment schedules into one Direct Consolidation Loan. The result is a 

single monthly payment instead of multiple monthly payments.

With a consolidation loan:

• Your monthly payment might be lower.

• Your repayment period may be extended up to 30 years (depending on the amount 

of your consolidation loan and your other student loan debt).

Carefully review your consolidation options before you apply. Talk to your loan servicer 

for more information before you consolidate.

If you’re in default on a federal student loan, you still might be able to consolidate if you 

make satisfactory repayment arrangements on the defaulted loan or agree to repay the 

consolidation loan under the Income-Contingent, Income-Sensitive, or Income-Based 

Repayment Plans, provided the defaulted loan is not subject to a judgment or wage 

garnishment.

What kinds of loans can be consolidated?

All federal student loans discussed in this guide are eligible for consolidation. To get a 

complete list of your loans that are eligible for consolidation, contact your loan servicer.

When can I consolidate my loans?

For both FFEL and Direct Loans you can consolidate:

• During your grace period.

• Once you’ve entered repayment (the day after the end of the six-month grace period).

• During periods of deferment or forbearance.

What’s the interest rate on a consolidation loan?

The interest rate is a fixed rate for the life of the loan. The fixed rate is based on the 

weighted average of the interest rates on all of the loans you consolidate, rounded 

up to the nearest one-eighth of 1 percent. The interest rate will never exceed 8.25%.

Are there any disadvantages to getting a consolidation loan?

Yes, there could be. For example, consolidation may significantly increase the total cost 

of repaying your loans. Because you may have a longer period of time to repay (up to 

30 years), you’ll pay more interest. Compare the cost of repaying your unconsolidated 

loans with the cost of repaying a consolidation loan. Things to consider are:
34

 Your Federal Student Loans

Repay

• Whether you’ll lose any borrower benefits if you consolidate, such as interest rate 

discounts or principal rebates, as these benefits can significantly reduce the cost 

of repaying your loans.

• If you include a Perkins Loan in your Consolidation Loan, you will lose cancellation 

benefits that are only available in the Perkins Loan Program.

How do I get a consolidation loan and where can I get 

more information?

Contact Direct Loan Consolidation at 1-800-557-7392, or go to 

www.loanconsolidation.ed.gov. TTY users may call 1-800-557-7395.

Loan cancellation

Is it ever possible to have my federal student loan canceled?

Under certain specific circumstances, you can have all or part of your loan canceled 

or discharged. For more information, go to www.studentaid.ed.gov/discharges.

In certain cases, you may be able to have all or a part of your loan canceled because:

• Your school closed before you completed your program.

• Your school forged your signature on your promissory note or falsely certified 

that you were eligible to get the loan.

• Your loan was falsely certified because of identity theft (additional requirements apply).

• You withdrew from school, but the school didn't pay a refund that it owed under its 

written policy or the U.S. Department of Education's regulations. Check with the 

school to see how refund policies apply to federal aid at the school.

• Your loan was canceled in bankruptcy claim. This is not an automatic process—

you must prove to the bankruptcy court that repaying the loan would cause 

undue hardship.

• If you are a teacher and also a new borrower (i.e., you did not have an outstanding 

balance on an FFEL or Direct Loan on Oct. 1, 1998, or on the date you obtained 

an FFEL or Direct Loan after Oct. 1, 1998) and have been teaching full-time in a 

low-income elementary or secondary school or educational service agency for five 

consecutive years, you may be able to have as much as $17,500 of your subsidized or 

unsubsidized loans canceled. This provision is not available for borrowers of PLUS 

Loans. For more information visit www.studentaid.ed.gov/tc or call the Direct Loan 

Servicing Center at 1-800-848-0979. For teacher cancellation under the Perkins Loan 

program see table 13 on page 35.

• If you are employed in certain public service jobs and have made 120 payments on 

your Direct Loans (after Oct. 1, 2007), the remaining balance that you owe may 

be forgiven. Only payments made under certain repayment plans may be counted 

toward the required 120 payments. You must not be in default on the loans that are 

forgiven. For more information, go to www.studentaid.ed.gov and click on Public 

Service Loan Forgiveness.
35

Repay

Total and permanent disability and student death

Your loan may be discharged if you are determined to be totally and permanently 

disabled. Totally and permanently disabled is the condition of an individual who 

is unable to engage in any substantial gainful activity by reason of any medically 

determinable physical or mental impairment that can be expected to result in death; 

has lasted for a continuous period of not less than 60 months; or can be expected to 

last for a continuous period of not less than 60 months; or has been determined by the 

Secretary of Veterans Affairs to be unemployable due to a service-connected disability. 

To apply for this discharge, a physician must certify the discharge application. For more 

information, go to www.disabilitydischarge.com.

For a student who dies, the loan will be canceled if a family member or other 

representative provides an original or a copy of the original or certified copy of the 

death certificate.

Lists of discharge and cancellation provisions for Perkins Loans and Stafford and PLUS 

loans are found in tables 13 and 14, respectively. For a complete list on loan discharges 

go to www.studentaid.ed.gov/discharges or contact your loan servicer.

Table 13. 

Perkins loan cancellation/discharge and percentage forgiven

Conditions Percentage of 

amount forgiven

Bankruptcy (in rare cases—cancellation is possible only if the bankruptcy court rules 

that repayment would cause undue hardship)

100 percent

Closed school (before student could complete program of study)—applies to loans received on or after 

Jan. 1, 1986

100 percent

Borrower’s total and permanent disability or death 100 percent

Full-time teacher in a designated elementary or secondary school serving students from 

low-income families

100 percent

Full-time special education teacher (includes teaching children with disabilities in a public or other 

nonprofit elementary or secondary school)

Up to 100 percent

Full-time qualified professional provider of early intervention services for the disabled Up to 100 percent

Full-time teacher of math, science, foreign languages, bilingual education, or other fields designated as 

teacher shortage areas

Up to 100 percent

Full-time employee of a public or nonprofit child- or family-services agency providing services to 

high-risk children and their families from low-income communities

Up to 100 percent

Full-time nurse or medical technician Up to 100 percent

Full-time law enforcement or corrections officer Up to 100 percent

Full-time staff member in the education component of a Head Start Program Up to 100 percent

VISTA or Peace Corps volunteer Up to 70 percent

Service in the U.S. Armed Forces Up to 100 percent in 

areas of hostilities or 

imminent danger

Note: As of Oct. 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made 

or the terms of the borrower’s promissory note. However, this benefit is not retroactive to services performed before Oct. 7, 1998.
36

 Your Federal Student Loans

Repay

Table 14. 

Conditions for Stafford and PLUS loan cancellation/discharge and amount forgiven

Cancellation Conditions Amount Forgiven Notes

Borrower’s total and permanent 

disability or death.+

100 percent For a PLUS Loan, circumstances include 

the death, but not disability, of the 

student for whom the parents borrowed.

Full-time teacher for five consecutive 

years in a designated elementary or 

secondary school or educational service 

agency serving students from lowincome families. Must meet additional 

eligibility requirements.

Teaching at an educational service 

agency may count toward the required 

five consecutive years only if the 

consecutive five-year period includes 

teaching service at an educational 

service agency performed after the 

2007–08 academic year.

PLUS Loans are not eligible.

Up to $5,000 (up to $17,500 for teachers 

in certain specialties) of the total loan 

amount outstanding after completion of 

the fifth year 

of teaching.

Under the Direct Consolidation Loan 

programs, only the portion of the 

consolidation loan used to repay eligible 

Direct Loans qualifies for 

loan forgiveness.

For Direct and FFEL Stafford Loan 

borrowers with no outstanding balance 

on a Direct or FFEL Loan on Oct. 1, 

1998, or on the date they received a loan 

on, or after that date. At least one of the 

five consecutive years of teaching in an 

elementary/secondary school must occur 

after the 1997–98 academic year. Teaching 

at an educational service agency may count 

toward the required five consecutive years 

only if the consecutive five-year period 

includes teaching service at an educational 

service agency performed after the 2007–08 

academic year.

To find out whether your school is 

considered a low-income school, 

go to: www.studentaid.ed.gov/tc. 

Or call 1-800-4-FED-AID 

(1-800-433-3243).

Bankruptcy (in rare cases) 100 percent Cancellation is possible only 

if the bankruptcy court rules 

that repayment would cause 

undue hardship.

Closed school (before student could 

complete program of study) or false loan 

certification.

100 percent This is for loans received on or after 

Jan. 1, 1986.

False loan certification includes identity 

theft.

100 percent This is effective July 1, 2006.

School does not make required return of 

loan funds to the lender.

Up to the amount that the school was 

required to return.

This is for loans received on or after 

Jan. 1, 1986.

Loan forgiveness for public 

service employees.

100 percent of the remaining outstanding 

balance on an eligible Direct Loan. FFEL 

borrowers may qualify by consolidating 

into the Direct Loan Program.

For a borrower not in default and who 

makes 120 monthly payments, under 

certain repayment plans, on the loan while 

the borrower is employed full-time in a 

public service job after Oct. 1, 2007.

+ Total and permanent disability is defined as the inability to work and earn money because of an illness or injury that is expected to 

continue indefinitely or result in death. Your loan may be discharged if you are determined to be totally and permanently disabled based 

on a physician’s certification, and if you meet certain other requirements during a three-year conditional discharge period.

Further information on teaching service cancellation options can be found at 

www.studentaid.ed.gov/tc.

A loan, whether in default or not, cannot be discharged in bankruptcy in most cases.

How do I find out if I can get a loan discharge or cancellation?

After reviewing the conditions, if you think you qualify, contact your loan servicer. 

For Perkins Loans check with the school that made you the loan or with the school’s loan 

servicing agent. For other loans contact the loan servicer. 
37

Glossary

GLOSSARY

Accrue When interest on your loan adds to the amount you owe. The phrase “interest 

accruing on your loan” means that the amount of interest due on your loan is accumulating.

Aggregate loan limit The maximum total outstanding loan debt you can have when 

you graduate.

Borrower An individual who signed and agreed to the terms in the promissory note 

and is responsible for repaying a loan.

Capitalization Adding unpaid interest to the loan amount borrowed. 

Capitalization increases the unpaid principal balance of your loan and interest is charged 

on the increased principal amount. This occurs at the end of a deferment, forbearance, or 

grace period on unsubsidized loans, and at the end of a forbearance period on any type of 

loan, subsidized or unsubsidized. This increases the total amount you will repay over the 

life of your loan. To save money, pay interest before it’s capitalized.

Consolidation The process of combining one or more eligible federal education loans 

into a single new loan.

Cost of Attendance (COA) The total amount it will cost you to go to school—usually 

expressed as a yearly figure. It’s determined using rules established by law. The COA 

includes tuition and fees; on campus room and board (or a housing and food allowance 

for off-campus students); and allowances for books, supplies, transportation, loan fees, 

and, if applicable, dependent care. It also includes miscellaneous and personal expenses, 

including an allowance for the rental or purchase of a personal computer. Costs related 

to a disability also are covered. The COA includes reasonable costs for eligible studyabroad programs as well. For students attending less than half-time, the COA includes 

tuition and fees and an allowance for books, supplies, transportation, and dependent 

care expenses; and also can include room and board for up to three semesters, or 

the equivalent, at the institution—but no more than two of those semesters, or the 

equivalent, may be consecutive. Talk to the financial aid administrator at the school 

you’re planning to attend if you have any unusual expenses that might affect your cost 

of attendance.

Credit A summary of a person’s financial strength, including his or her history of 

paying bills, routinely used to assess a person's ability to repay future loans. Students 

often are turned down for private loans because they have not established a credit 

history and have no income with which to repay debts. People who pay their bills after 

the due date, have defaulted on debts, or declared bankruptcy are usually judged to 

have poor credit. Several private companies gather consumers’ financial information to 

create reports used by businesses and lenders to determine how much to lend and how 

much interest to charge each consumer. Federal law requires credit rating agencies to 

provide consumers with one free report regarding their credit each year. 

Credit Bureau Organization that tracks and reports the manner in which borrowers 

repay their loans (not only student loans).
38

 Your Federal Student Loans

Glossary

Data Release Number Your DRN is a four-digit number assigned to your application 

by Federal Student Aid. It will appear close to the top right-hand corner on the first 

page of your paper or electronic Student Aid Report (SAR). If you file electronically, 

you also will find your DRN below the Confirmation Number on your submission 

confirmation page. 

You will need the DRN if you contact the Federal Student Aid Information 

Center to make corrections to your mailing address or to the schools you listed 

on your FAFSA. The DRN also allows you to release your FAFSA data to schools you 

did not list on your original FAFSA.

Default Failure to repay a loan according to the terms of the promissory note. There 

can be serious legal consequences for student-loan defaulters.

Deferment A postponement of payment on a loan that is allowed under certain 

conditions and during which interest does not accrue for subsidized loans.

Delinquent Your loan payments are not received by the due dates. If your accounts 

have become delinquent and you are unable to make payments consider deferment, 

forbearance, or switching repayment plans. Accounts remain delinquent until 

borrowers bring their accounts current with payments, deferment, or forbearance.

Dependent Student Student who does not meet any of the criteria for an independent 

student. An independent student is defined as being any of the following: at least 

24 years old, married, a graduate or professional student, a veteran, a member of the 

armed forces, an orphan, a ward of the court, someone with legal dependents other 

than a spouse, an emancipated minor, or is homeless or at risk of being homeless. If 

you answer “No” to any of these questions, you are a dependent student. Please see the 

fact sheet “Am I Dependent or Independent?” at www.studentaid.ed.gov/pubs for more 

detailed information.

Direct Consolidation Loan Federal program that allows you to combine one or more 

federal student loans into one new Direct Consolidation Loan. Only one monthly 

payment is made to the U.S. Department of Education. In certain circumstances, 

students who have loans under the Federal Family Education Loan Program (FFEL) 

may consolidate them into Direct Loans.

Direct PLUS Loan Unsubsidized loans available to parents of dependent students, and to 

students enrolled in graduate or professional programs. These loans are available regardless 

of financial need and the amount of eligibility depends on the total cost of education.

Direct Subsidized Loan Also known as the Federal Direct Subsidized Stafford Loan. 

A loan from the U.S. Department of Education made on the basis of the student’s 

financial need and other specific eligibility requirements. The federal government does 

not charge interest on these loans while borrowers are enrolled at least half-time, 

during a six-month grace period, or during authorized periods of deferment.

Direct Unsubsidized Loan Also known as the Federal Direct Unsubsidized Stafford 

Loan. A federally financed student loan made to students meeting specific eligibility 

requirements. Interest is charged throughout the life of the loan. The borrower may 
39

Glossary

choose to pay the interest charged on the loan during in-school, grace, deferment, and 

forbearance periods, or allow the interest to be capitalized (added to the loan principal).

Disbursement Payment of loan proceeds to the borrower by the school. During 

consolidation, this term refers to sending payoffs to the loan holders of the underlying 

loans being consolidated.

Due Date (Payment Due Date) Date during the month when payment of your current 

due amount must be received. If you have any past due amounts or fees or outstanding 

charges, these are due immediately.

Monthly payments must be received by the payment due date. Therefore, if you do not 

have your payments debited electronically from a bank account, you may want to mail 

your payments well in advance to ensure they arrive and are applied to your account(s) 

by the due date(s).

Entrance Counseling An information session which takes place before the loan 

is disbursed and is required for first-time borrowers. The session explains your 

responsibilities and rights as a student borrower.

Exit Counseling Borrower receives a notice about exit counseling when borrower 

graduates or attends school less than half-time. At this session, the borrower will be 

given information on your loans and when repayment begins.

Expected Family Contribution (EFC) An index used to determine your eligibility for 

federal student aid during one school year. You receive an EFC based on the processing 

results of your FAFSA. Your EFC is reported to you on your Student Aid Report (SAR).

FAFSA see Free Application for Federal Student Aid

FAFSA4caster An online tool designed to help students and families financially 

plan for college, you can get an early estimate of your federal student aid eligibility 

by using FAFSA4caster.

Federal Family Education Loan ProgramSM (FFEL Program) A federal program that 

provided loans to eligible student and parent borrowers. The program consisted of 

Federal Subsidized and Unsubsidized Stafford Loans, Federal PLUS Loans, and Federal 

Subsidized and Unsubsidized Consolidation Loans. Funds were provided by private 

lenders, such as banks, credit unions, and other private financial institutions. The loans 

were backed by the federal government. 

Note: As of July 1, 2010, no new loans were made under the FFEL Program.

Financial Aid Administrator (FAA) An individual who works at a college or career 

school and is responsible for preparing and communicating information on student 

loans, grants or scholarships, and employment programs. The FAA and staff help 

students apply for and receive student aid. The FAA is also capable of analyzing student 

needs and making professional judgment changes when necessary.

Forbearance A period during which your monthly loan payments are temporarily 

suspended or reduced. You may qualify for forbearance if you are unable to make loan 

payments due to certain types of financial hardships.
40

 Your Federal Student Loans

Glossary

Free Application for Federal Student Aid (FAFSA) The FAFSA or FAFSA on the Web, 

the online version, is the FREE application used to apply for federal student aid.

Grace Period A six-month period that begins on the day after you, the Stafford Loan 

Program borrower, cease to be enrolled as at least a half-time student at an eligible 

institution and ends on the day before the repayment period begins.

Half-time Student

(1) An enrolled student who is carrying a half-time academic workload, as 

determined by the institution, that amounts to at least half of the workload of the 

applicable minimum requirement outlined in the definition of a full-time student.

(2) A student enrolled solely in a program of study by correspondence who is 

carrying a workload of at least 12 hours of work per week, or is earning at least 

six credit hours per semester, trimester, or quarter. However, regardless of the 

work, no student enrolled solely in correspondence study is considered more than 

a half-time student.

These minimum requirements apply to undergraduate students.

Independent Student Must meet any of the following criteria: at least 24 years old, married, 

a graduate or professional student, a veteran, a member of the armed forces, an orphan, 

a ward of the court, someone with legal dependents other than a spouse, an emancipated 

minor, or is homeless or at risk of homelessness. Please see the fact sheet “Am I Dependent 

or Independent?” at www.studentaid.ed.gov/pubs for more detailed information.

Interest A loan expense charged by the lender and paid by the borrower for the use 

of borrowed money. The expense is calculated as a percentage of the unpaid principal 

amount (loan amount), which includes the original amount borrowed and any 

capitalized interest (unpaid interest added to the principal loan amount). Accrued 

interest is interest that accumulates on the unpaid principal balance of the loan.

Interest Rate The current rate at which interest is calculated on your loan(s).

Lender The organization that made the loan initially. The lender could be the 

borrower’s school (for Federal Perkins Loans); a bank, credit union, or other lending 

institution; or the U.S. Department of Education.

Loan Money borrowed from a lending institution or the U.S. Department of Education 

that must be repaid.

Loan Fee A fee payable by the borrower that is deducted proportionately from each 

loan disbursement.

Loan Servicer An organization that administers and collects education loans payments 

on behalf of the lender.

National Student Loan Data System (NSLDS) A centralized database that stores 

information on all Department loans and grants. NSLDS also contains borrowers’ 

school enrollment information. Borrowers can access this information online using 

their Department of Education PIN at www.nslds.ed.gov. 

Parent Borrower Parents that have at least one PLUS Loan to finance their dependent 

child’s education.
41

Glossary

Partial Financial Hardship A circumstance in which:

for an unmarried borrower or a married borrower who files an individual federal tax 

return, the annual amount due on all of the borrower's eligible loans—as calculated 

under a standard repayment plan based on a 10-year repayment period, using the 

greater of either the amount due at the time the borrower initially entered repayment 

or at the time the borrower elects the income-based repayment plan—exceeds a certain 

percentage of the difference between the borrower's adjusted gross income and the 

poverty guideline for the borrower's family size; or

for a married borrower who files a joint federal tax return with his or her spouse, the 

annual amount due on all of the borrower's eligible loans and, if applicable, the spouse's 

eligible loans—as calculated under a standard repayment plan based on a 10-year 

repayment period, using the greater of either the amount due at the time the loans 

initially entered repayment or at the time the borrower or spouse elects the incomebased repayment plan—exceeds a certain percentage of the difference between the 

borrower's and spouse's adjusted gross income, and the poverty guideline for the 

borrower's family size.

Eligible loan means any outstanding loan made to a borrower under the FFEL or Direct 

Loan programs except for a defaulted loan, an FFEL or Direct PLUS Loan made to 

a parent borrower, or an FFEL or Direct Consolidation Loan that repaid an FFEL or 

Direct PLUS Loan made to a parent borrower.

Past Due The amount that you were scheduled to pay in previous month(s) but did 

not. The past due amount is also called the delinquent amount. Your account is 

considered “delinquent” if you have missed any monthly payments. Past Due amounts 

are due immediately.

Payment Due Date The date during the month when payment of your current due 

amount must be received. If you have any past due amounts or fees and outstanding 

charges, these are due immediately. Monthly payments must be received by the 

payment due date. Therefore, if you do not have your payments debited electronically 

from a bank account, you may want to mail your payments well in advance to ensure 

they arrive and are applied to your account(s) by the due date.

Perkins Loans Formerly known as National Defense Student Loan, or National 

Direct Student Loan. Federal Perkins Loans are low-interest (5%) loans for both 

undergraduate and graduate students with exceptional financial need. Your school is 

the lender. The loans are made with government funds with a share contributed by the 

school. You must repay these loans to your school.

PIN (Federal Student Aid PIN) Serves as your identifier to allow access to personal 

information in various U.S. Department of Education systems. 

Your PIN also acts as your digital signature with some online forms. Use your PIN to 

electronically sign your online FAFSA, consolidation loan application and promissory 

note and deferment or forbearance forms.

If you do not already have a PIN, you can request one online at www.pin.ed.gov. 

The PIN you receive will be your universal U.S. Department of Education PIN.
42

 Your Federal Student Loans

Glossary

Prepayment The amount in excess of the amount due on a loan. If borrowers have 

more than one federal student loan, they must specify which loan they are prepaying. 

Like all other federal student loan payments, a prepayment will first be applied to any 

outstanding fees and charges, next to outstanding interest, and then to the principal 

balance of the loan(s). There is never a penalty for prepaying principal or interest on 

federal student loans.

Promissory Note A binding legal document you sign when you get a student loan. 

It contains the loan terms and conditions under which you’re borrowing and the terms 

under which you agree to pay back the loan. It will include deferment and cancellation 

provisions available to the borrower. It’s very important to read and save this document 

because you’ll need to refer to it later when you begin repaying your loan or at other times 

when you need information about provisions of the loan, such as deferments or forbearances.

Refund The total amount of funds returned to the loan program as unused for the 

student’s education expenses.

Rehabilitation The process of bringing a loan out of default and removing the default 

notation on a borrower’s credit report. To rehabilitate a Direct or an FFEL Loan, you 

must make at least nine full payments of an agreed amount within 20 days of their 

monthly due dates over a 10-month period to the U.S. Department of Education. 

To rehabilitate a Perkins Loan, you must make nine, on-time, monthly payments of 

an agreed amount to the Department. Rehabilitation terms and conditions vary for 

other loan types and can be obtained from the loan servicer.

Repayment Incentive A benefit that the U.S. Department of Education offers 

borrowers to encourage them to repay their loans on time. Under a repayment 

incentive program, the interest rate charged on borrowers’ loans might be reduced. 

Some repayment incentive programs require borrowers to make a certain number of 

payments on time to keep the benefits of the repayment incentive.

Repayment Plan An agreed schedule between a borrower and a lender on repayment 

of a loan. Changing repayment plans is a good way to manage your loan debt when your 

financial circumstances change to a less favorable status. For example, you can usually lower 

your monthly payment by changing to another repayment plan that has a longer term in 

which to repay the loan. There are no penalties for changing repayment plans.

Repayment Schedule A statement provided by the loan servicer to the borrower that 

lists the amount borrowed, the amount of monthly payments, and the date payments 

are due.

Repayment Term The number of months it will take to repay your federal student loans 

under a specific repayment plan.

Servicer An entity designated to track and collect a loan on behalf of a loan holder.

Simple Daily Interest The method used to calculate interest on your student loans. 

To learn more about how interest is calculated, see page 19.
43

Glossary

Student Aid Report (SAR) This report has your FAFSA results and details all the 

information you provided on your FAFSA. If there are no corrections or additional 

information you must provide, the SAR will contain your EFC, which is the number 

that’s used to determine your eligibility for federal student aid. Whether you applied 

online or by paper, we will automatically send your data electronically to the schools 

you listed on your FAFSA.

Total Amount Repaid The total amount you would be expected to pay over the life of 

the loan, including principal and interest.

Variable Interest The rate of interest charged on a loan that changes annually and 

fluctuates with a stated index.

William D. Ford Federal Direct Loan Program (Direct Loan Program) The federal 

program that provides loans to eligible student and parent borrowers. Funds are 

provided directly by the federal government to eligible borrowers through participating 

schools. The loan program includes Direct Subsidized Loans, Direct Unsubsidized 

Loans, Direct PLUS Loans, and Direct Consolidation Loans. 
NOTES


Things to Remember

• Student loans are an investment in your future.

• Make a budget and stick with it. Be careful with credit card spending.

• Borrow only what you need.

• If you don’t understand something, call your lender or your financial aid office.

• Keep all student loan documents in a file.

• Open all your mail and read everything pertaining to your student loans.

• Keep in contact with your servicer.

• Make all regularly scheduled payments.

• Ask your lender for help if you start to have difficulty making payments. There are 

alternative options available.

• Borrowing is an investment in your future.

Don’t Default

You’ve made a commitment to yourself and your future. Be a responsible borrower, 

because loan default has serious consequences:

• Your entire loan balance (principal and interest) will be due in full immediately.

• Your college records may be placed on hold.

• You’ll lose your student loan deferment options.

• You won’t be eligible for additional federal student aid.

• Your account may be turned over to a collection agency and you’ll have 

to pay additional charges, late fees, and collection costs, all of which become 

part of your debt.

• Your credit rating will be damaged for several years because defaulted loans are 

reported to national credit bureaus.

• You’ll have difficulty qualifying for credit cards, a car loan, a mortgage, or renting 

an apartment (credit checks are required even to rent an apartment).

• Your federal and state income tax refunds can be withheld and applied to student 

loan debt. This is called a tax offset.

• You may have a portion of your wages garnished (withheld).

• You may not be able to obtain a professional license or get hired by any employer 

that performs credit checks on its prospective employees.

Any Questions?

If you ever have any questions on federal student aid, visit the websites listed on the 

inside of the front cover. If you still have questions and need to talk to someone:

• call us at 1-800-4-FED-AID (1-800-433-3243),

• talk to your high school counselor, or

• contact the financial aid office at the school you plan on attending.
www.studentaid.ed.gov