student loans federal

in this lesson, we'll talk about repayment plans for your federal loans. when loans enter repayment, the interest that is accrued capitalizes. in other words, it's added to the principal balance. interest capitalization must occur at repayment, but ask your servicer if interest has capitalized more often than that. if you want to avoid or minimize the cost of capitalization, you can pay down interest prior to repayment either with a few timely repayments during your enrollment, or even a lump sum right before your grace period ends. so, what can you expect in terms of payment amounts? if you borrow about

$20,000, assuming an interest rate of 6.8%, you should expect to make a payment of $230 every month for ten years. someone who borrowed $10,000 would pay about $115 per month. your school can provide you with the average indebtedness for students in your school and program. the good news is federal loans offer a variety of repayment plans you can use to reduce your payments in those first few years, and a few ways for you to postpone payments at least for a while. so let's say you find yourself in a though spot, and you can't make payments on your loans. what can you do? you have two options: deferment and forbearance.

deferment, which should be your first choice, is something you request from your loan servicer, based on a specific eligible reason, when you need to postpone payments for a period of time. during deferment, interest accrues only on unsubsidized loans. in most cases, interest does not accrue on subsidized loans during deferment, but there are a few limited exceptions. you can check with your loan servicer if you’re not sure whether your loan’s interest may be subsidized during deferment. you need to apply for deferment and meet the criteria before payments can be deferred. there are different types of deferment. the most common ones are

in school, economic hardship, and unemployment. if for some reason you're not eligible for deferment or you've already used up your deferment benefits, try forbearance. this also postpones your payments for a period of time, but interest will accrue on your entire direct loan balance whether its subsidized or not. just like deferment, you have to apply and meet certain criteria. it may be easier to qualify for forbearance, but deferment should always be your first choice because you'll likely accrue less interest. the last piece to understanding your student loans is knowing that if somehow you can't fulfil your obligation to make your payments,

there are consequences. first of all, there's delinquency. this occurs when your monthly payments are late. if you don't pay up, or work out a solution with your loan servicer, they'll report your situation to a credit bureau. once your loan is 270 days delinquent, you've defaulted. the consequences of default are collection and legal activity, damage to your credit rating for seven years or more, in extreme cases they might even get a court order to take money right out of your pay check. in legal terms, that's called wage garnishment, and for some people their professional licenses could be suspended or revoked.

if you're having trouble with your payments keep in constant contact with your loan servicer, and make sure they have your most current contact information on file. and don't ignore your mail. even if looking at your student loan debt seems overwhelming, it's wise to know where you stand. if at any time while you're in school you need a reminder of your federal student loan balance, interest rate, or loan servicer, visit nslds.ed.gov. this site is designed to offer a comprehensive look at all of the federal loans you have borrowed. direct loans are a common way to fund your education, and they're available to most students. they're also a major responsibility.

knowing how federal loans work will help you create a funding plan that is right for you.