A borrower's student loan debt can be affected by decisions the borrower makes about his or her finances or education.

Borrowers

A majority of students have student loans, but few of them know what to do if their current education status or financial situation changes. Learn how to steer student loan borrowers in the right direction as they transfer schools, drop out, face difficulties making payments, or contemplate going to graduate school.


What if a borrower doesn't know how to make his or her loan payments?
What happens when a borrower transfers to another school?
What happens to federal student loans when a borrower drops out of school?
What if a borrower can't afford to make his or her monthly payments?
What if a borrower wants to go to graduate school?


What if a borrower doesn't know how to make his or her loan payments?

A common question among newly graduated student loan borrowers is, “ How/when/where do I make my student loan payments?” If you hear this question from a borrower, the short answer is, “ Find out from your loan servicer.” Here are a couple of places you can suggest the borrower find more information:

  • To find out who services his or her loan, as well as what the loan balance is, the borrower should check "My Federal Student Aid" at StudentAid.gov/login.
  • To learn about loan repayment, explore the details of repayment options, and try out a repayment estimator to compare repayment plans, the borrower should visit StudentAid.gov/repay.

Repayment: What to Expect Video(Result Type: VIDEO)
Description: Learn about loan repayment options and selecting a repayment plan, the role of loan servicers, and looking up student loan history in the NSLDS system. [30.9 MB]
Resource Type: Videos
Also Available in: Spanish Captioned(Result Type: VIDEO)YouTube Link(Result Type: General)
Related: How to Manage Your Student Loans Video(Result Type: VIDEO)Financial Awareness Counseling Tool(Result Type: General)

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What happens when a borrower transfers to another school?

When students transfer schools, they frequently assume that just like their grades, their loans will “transfer” with them. Students also forget to notify the original school and the loan servicer.

If the student attends the new school at least half-time, then the loan doesn't enter repayment immediately. What will likely change is the amount of federal student aid the student receives, because aid is recalculated taking into account the cost of attending the new school.

The student's current loan doesn't “transfer” to the new school, but it does count against the allowed federal student loan limits.

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What happens to federal student loans when a borrower drops out of school?

When a borrower drops below half-time enrollment, his or her loan usually enters a grace period—a set period of time before repayment begins. (Not all federal student loans have grace periods.) The grace period gives the student time to get financially settled and select a repayment plan. Interest will accrue during the grace period.

There are financial consequences to dropping out of school. For instance, a student might not be able to obtain a refund of tuition or fees from the school (the student should check with the school's financial aid office).

Talking points:

  • While the school may inform the loan servicer that the student has left school, the student must ensure that he or she is in touch with the loan servicer as well, to choose a repayment plan, find out when payments are due and in what amount, etc.
  • A borrower must pay back a loan even if he or she drops out of school or doesn't find a job after leaving school. If the borrower doesn't repay the loan, his or her credit record will be affected, and he or she might not be able to buy a car or a house, get credit cards, or get certain types of jobs.

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What if a borrower can't afford to make his or her monthly payments?

As with any other type of loan or credit obligation, falling behind or defaulting on a federal student loan can wreak havoc on a borrower's credit. If you are advising a borrower who is in danger of falling behind on student loan payments, suggest he or she investigate the following:

Talking points:

  • A borrower must notify his or her loan servicer as soon as he or she anticipates having trouble making payments. The loan servicer will able to help the borrower decide on repayment options that are feasible for the borrower's financial situation.
  • Ignoring calls from the loan servicer about outstanding student loan debt will only makes matters worse and force the lender to take action against the student.

Tip: Before students leave school, encourage them to seek job opportunities that offer loan forgiveness and to consider income-driven repayment plans for their student loans.

How to Manage Your Student Loans Video(Result Type: VIDEO)
Description: Get info on how to manage student loans, including changing repayment plans, and options for students who are having trouble making payments. [41.6 MB]
Resource Type: Videos
Also Available in: Spanish Captioned(Result Type: VIDEO)YouTube Link(Result Type: General)

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What if a borrower wants to go to graduate school?

Graduate school is a financial commitment, and an especially daunting one for those who need to borrow money in addition to existing loans from their undergraduate education. If a borrower has federal loans that are in repayment when he or she starts graduate or professional school, the borrower may be eligible for an in-school deferment if enrolled at least half-time.

You also might suggest that borrowers consider loan consolidation if they have multiple federal loans.

Note: As of July 1, 2012, graduate and professional degree students are no longer eligible for subsidized loans. These students still have the option of borrowing unsubsidized loans and PLUS loans.

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