Repaying Federal Loans
It is important to understand that most types of financial aid come in the form of student loans. For most student loans, repayment is, or can be, deferred until after you leave school or drop below half-time status. At CTU, we will not only work with you throughout the financial aid process, but we will also provide you with valuable resources designed to help you understand and make informed decisions about your repayment obligations.
When you leave CTU, you will have access to our team of Student Loan Specialists who will stay in contact with you regarding the repayment of your student loans. Specialists will be able to provide you with information regarding grace periods, deferment, forbearance and more. These individuals will help you be well-informed if you need to set up a payment plan.
For those who like to plan ahead, we have provided student loan repayment resources you can review before you even begin your coursework. Below you will find a link to the FA tools page which has a link to a repayment calculator. Please take the time to review this resource for perspective on your student-loan borrowing. For Repayment calculators please visit Financial Aid Tools. For assistance with using the Repayment calculator, you can contact the Federal Student Aid Information Center at 1-800-4FED-AID (1-800-433-3243).
Grace Periods and Interest Rates
Federal Direct Loans
After a borrower graduates, leaves school, or drops below half-time enrollment, Federal Direct Stafford Loans that were made for that period of study have several months before payments are required to begin. This period of time is called a “grace period”. Each Federal Direct Stafford Loan (Subsidized and Unsubsidized) has a six-month grace period that starts the day after you stop attending at least half-time. You don't have to make payments during your grace period; however interest does continue to accrue. Please refer to the Federal Student Aid website for specific award year interest rates: https://studentaid.gov/understand-aid/types/loans/interest-rates.
Federal Direct PLUS Loans
Unlike Federal Direct Loans, there is no automatic six-month grace period for Federal Direct PLUS Loans. However, if you're a graduate or parent Direct PLUS Loan borrower, you can defer repayment while you're enrolled in school at least half time and for an additional 6 months after you graduate or drop below half-time enrollment.
The repayment begins 60 days after the loan is fully disbursed. Please refer to the Federal Student Aid website for other specific award year interest rates: https://studentaid.gov/understand-aid/types/loans/interest-rates.
Direct Subsidized and Unsubsidized Loan Repayment
A borrower’s repayment period begins the day after their loans’ grace periods end. First payments will be due within 60 days of the beginning of the repayment period. Borrowers have many repayment options to choose from, which can be found on the Department of Education’s website https://studentaid.gov/manage-loans/repayment/plans. If your financial circumstances change at any time during the course of repayment, you may contact your loan servicer to discuss, apply and/or change to alternative repayment options.
- Payment in Full - You may repay a portion or your entire loan at any time without penalty.
- Standard Repayment Plan - Fixed monthly payment to repay the loan in full within 10 years (not including periods of deferment or forbearance). Monthly payments start at a minimum of $50 and remain level. Your actual payments may be higher, depending on the amount you borrow.
- Graduated Repayment - Payments start out lower and gradually increase to ensure the loan(s) are paid off within 10 years. This option assumes that income will grow enough to cover the increasing loan payments. You'll pay more total interest over the life of the loan than under the standard plan, because your initial payments mainly go toward interest, not principal. You must repay the loan in full within 10 years (not including periods of deferment or forbearance).
- Extended Repayment - To be eligible for either, you must be a new borrower on or after 10-7-1998 and the total outstanding loan amounts must be $30,000 or more. Payments are either fixed or graduated. The life of the loan must not exceed 25 years. You'll pay more total interest over the life of the loan than under the standard plan, because your initial payments mainly go toward interest, not principal.
- Revised Pay as You Earn Repayment Plan (REPAYE): Monthly payments are 10% of discretionary income. Each year, payments are recalculated based upon updated income and family size. If married, your and your spouse’s income and loan debts are considered, whether taxes are filed jointly or separate. If the loan has not been paid in full after 20 years (for undergraduate) or 25 years (for graduate), any outstanding balance will be forgiven. Income tax would need to be paid on any amount that is forgiven.
- Pay as you Earn Repayment (PAYE): Under this repayment plan, the required monthly payment for a borrower who has a partial financial hardship is limited to no more than 10 percent of the amount by which the borrower's AGI exceeds 150 percent of the poverty guideline applicable to the borrower's family size, divided by 12. The payment amount will never be more than the 10-year Standard Repayment Plan amount. The Secretary of Education determines annually whether the borrower continues to qualify for this reduced monthly payment based on the amount of the borrower's eligible loans, AGI, and poverty guideline. The student’s must update their income and family size each year, even if they have not changed. If married, the spouse's income or loan debt will be considered only if you file a joint tax return. Any outstanding balances on loans taken out for undergraduate study, and not paid in full after 20 years, will be forgiven.
- Income-Based Repayment (IBR) - This repayment option is only available for borrowers who demonstrate a financial hardship. If you qualify for this option, your maximum monthly payments will be 10% or 15% of your discretionary income depending on when you received your first loans, but never more than you would have paid under the 10-year Standard Repayment Plan. Payments are recalculated each year and are based on updated income and family size. If you have not repaid your loan in full after making the equivalent of 20 or 25 years of qualifying monthly payments (depending on when you received your first loans), any outstanding balance may be forgiven.
- Income-Contingent Repayment (ICR) - The monthly payment amount will be based on your annual income (and your spouses', if you are married), family size and the total amount owed on your Direct Loans. As your income changes, payments may change. If you do not repay your loan in full after 25 years under this plan, the unpaid portion will be forgiven. You may have to pay income tax on any amount forgiven.
- Consolidation - This loan is designed to assist you with managing your debt. It is available only to students who are no longer in school. You may combine loan amounts from, FFEL / Direct Loan, other loans and lenders into one payment schedule using a fixed interest rate and longer repayment period (up to 30 years). This allows an extended repayment period and lower monthly payments. However, the interest rate and total cost of the loan may be greater. In addition to increasing your total cost of debt, you may lose eligibility for certain types of deferments if you consolidate. Carefully review your deferment eligibility before making the decision to consolidate. Under certain circumstances, your student loan, or a portion of your loan, may be cancelled, forgiven, or discharged. If you consolidate your loans, you may lose eligibility for certain cancellation or forgiveness programs. To apply for a Federal Consolidation Loan, your loans must be in a grace period or in repayment (including periods of deferment). If you choose to waive your grace period, that waiver is permanent and cannot be rescinded. If your loans are in default, you do have options if you want to consolidate. For more information visit https://studentaid.gov/manage-loans/consolidation, or contact your loan servicer.
Direct PLUS Repayment
For Federal Direct PLUS Loans, you can choose from a variety of repayment options, provided by the lender. You have the option to change plans at any time during repayment. The following are the current repayment plans available:
- Standard Repayment Plan: This plan has monthly fixed payment amounts, for up to 10 years.
- Graduated Repayment Plan: Under this repayment plan, the payments begin with lower amounts and then gradually increase, usually every two years. The loan must be repaid within 10 years.
- Extended Repayment Plan: The Extended plan has payments that are fixed, or graduated, which are paid monthly for up to 25 years. To be eligible for this plan, the borrower must have more than $30,000 in Direct Loan debt and must not already have an outstanding balance on a Direct Loan at the time the Direct Loan was received, on or after October 7, 1998.
Deferment, Forbearance, and Loan Discharge/Forgiveness
One way to have your loan payments postponed is through a deferment. A deferment is a period of time during which your lender temporarily suspends your regular payments. Deferments are not automatic; you must apply and be approved for deferment.
The most common reasons for deferment of Federal Direct Loans include:
- Returned to school for at least half-time attendance
- Rehabilitation training program
- Loss of a job or inability to find a job (up to three years)
- Active Duty Military service
- Economic hardship, or serving in the Peace Corps (up to three years)
- Graduate fellowship program
- Undergoing cancer treatment
The most common reasons for deferment of Federal Direct PLUS Loans include:
- Attending school at least halftime.
- Unemployed (up to three years).
- Studying in an approved graduate fellowship or rehabilitation program for the disabled.
- Experiencing economic hardship (up to three years).
Refer to your promissory note for specific deferment provisions.
If you are having difficulty repaying your loan but do not qualify for a deferment, you may request a forbearance from your lender or servicer. Forbearance is the temporary postponement or reduction in your payment. It may extend the time it takes to repay your loan. Interest continues to accrue during the forbearance, causing the total loan amount to increase. You must contact your lender/holder to request forbearance. Most forbearance is discretionary - it is completely up to your loan holder to grant one. There are two types of forbearances, General and Mandatory.
General Forbearances are temporary, and may not exceed more than 12 months at a time. Additional General Forbearances may be requested if you continue to meet the eligibility requirements.
General Forbearances may pertain to situations such as:
- Financial difficulties
- Medical Expenses
- Change in Employment
- Other reasons acceptable to the loan servicer
Mandatory Forbearances may not exceed 12 months at a time. Additional Mandatory Forbearances may be requested if you continue to meet the eligibility requirements.
Mandatory Forbearances may pertain to situations such as:
- Service in a medical or dental internship or residency program
- The total amount owed each month for all the student loans received is 20 percent or more of your total monthly gross income, for up to three years
- Service in an AmeriCorps position for which a national service award is received
- Performing a teaching service that would qualify for teacher loan forgiveness
- Qualification for partial repayment of loans under the U.S. Department of Defense Student Loan Repayment Program
- Member of the National Guard and have been activated by a governor, but are not eligible for a military deferment
You may be eligible for loan discharge/forgiveness if you meet the federally mandated requirement. If you are eligible for loan discharge, your student loan will be forgiven and you will not have to repay the loan. GENERALLY, FEDERAL STUDENT LOANS MAY NOT BE DISCHARGED OR CANCELLED DUE TO BANKRUPTCY. Possible reasons for student loan discharge include:
- Total and permanent disability
- False certification of Student eligibility or unauthorized signature/unauthorized payment discharge
- Identity Theft
- School closure
- Certain areas of the teaching or child care professions
- Bankruptcy (in rare cases)
- Certain Public Service Employees
- Unpaid refund and any accrued interest and other charges associated with the unpaid refund
The following reasons would not warrant discharge or forgiveness of Federal Direct Loans:
- The student didn’t complete the program of study
- The student didn’t like the school of the program of study
- The student didn’t obtain employment after completing the program of study
Loan Repayment Programs
There are certain programs that help borrowers repay loans. These include but are not limited to:
- AmeriCorps service program (https://www.nationalservice.gov/programs/americorps or (800) 942-2677)
- Serving as an enlisted person in the National Guard or Reserve programs (contact your recruiter for information)
Consequences of Default
Loans must be repaid and your signed promissory note includes details about your rights and responsibilities for your student loans. Failure to make timely payments on these loans may result in your loan being placed in what is called “default” status. A Direct Stafford Loan is considered in default when it reaches 271 days past due. Some of the consequences include:
- Adverse credit score. This could impact your ability to borrow in the future (e.g., you may be denied a car loan);
- Loss of eligibility for further federal student financial aid;
- Loss of deferment and forbearance entitlements and flexible repayment options;
- Garnishment of your wages;
- Withholding of your state and federal treasury payments (including an income tax refund due to you, or you and your spouse, Social Security benefits, state and/or federal public assistance, etc.);
- Civil lawsuit, including court costs and legal expenses. The federal government can take legal action against you;
- Late fees, additional interest, court costs, collection costs, attorney’s fees, and other costs incurred in collecting the loans, which can increase your loan debt;.
- Suspension of your professional license, if applicable.
Financial Aid is available for those who qualify.