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Life Cycle of a Loan

Life Cycle of a Loan

Understanding the life cycle of a loan will help you in the long run when making decisions about your student loans. View the six stages of a loan's life cycle so you can understand what happens in each step.

1. You Take Out a Loan

To obtain Direct Subsidized and Direct Unsubsidized Loans, you must complete the FAFSA® (Free Application for Federal Student Aid) every year.

NOTE: Review StudentAid.gov for more information on Direct PLUS and Direct Consolidation Loans.

The Department of Education (The Department) Processes the FAFSA

The Department then notifies each school listed on your FAFSA so the school can determine how much aid you could receive. Once you are accepted, you will receive an award letter from that school. This letter details the types and amounts of student aid the school is offering you.

You Sign Your Master Promissory Note (MPN)

Under certain conditions (including as a first time borrower), you need to sign a Master Promissory Note (MPN) and go through entrance counseling before you get any federal student loans. The MPN is a legal document stating that you agree to pay back your loans, including any accrued interest and fees, and explains your rights and responsibilities as a student loan borrower.

2. Loan Funds Arrive at Your School and You're Assigned a Servicer

PSLF Icon

The Department Assigns You a Servicer

That is who we are—we are the servicer of your loans. As the servicer of your loans, we are your primary point of contact and are here to help you manage your student loans.

What If the School Received Too Much Money?

There are times when you may qualify for more money in student loans than what you need for school. If this happens, you are required to return the money, based on the terms of your MPN. If you could use the money to cover additional educational expenses but are on the fence about whether or not to return the funds instead, know that there are advantages to returning the money.

If it's returned within 120 days of the disbursement date () we will reduce the principal balance, loan fee, and applicable interest based on the amount you return.

If you realize you have more money than you need after the cancellation deadline, still send it back, but it may be applied to interest on your loans before reducing the amount you borrowed.

3. You're in School

No Payments Are Required

As long as you are enrolled at least half-time, you typically don't have to make payments.

Interest & Unsubsidized Loans

If you have an unsubsidized loan or on your subsidized loan, you are responsible for the interest. If you can, paying the interest while in school could save you money over the life of your loan. Learn all you need to know about the benefits of paying interest!

Learn More

You're Worried About Your Loan Debt Getting Too High

Education can be expensive! One of the best ways to manage how much college will cost is to make sure you are prepared and avoid over borrowing. Check out ways to be a smart borrower.

Learn More

NOTE: If you have a Parent PLUS loan, repayment begins once the loans are fully disbursed, unless you postpone your payments while you or your dependent student is in school.

4. You're in Grace

You Leave School

When you leave school, you should complete Exit Counseling—a session in which you learn about your loans and get an overview of repayment.

Grace Begins

Once you leave school or drop below half-time you enter a 6-month grace period where you are not required to make payments. However, if you are able to make payments, we encourage you to pay at least any interest you are responsible for on your loans before it is added to your principal balance at the end of grace. It is also a good time to prepare for when your loans enter repayment.

NOTE: PLUS loans do not have a grace period. When the individual loan becomes "fully disbursed" (all funds for that loan are received by the school) your loans enter repayment. If you have student PLUS loans, you'll automatically have payments postponed while you're in school and for 6 months following your enrollment.

We Send You a Repayment Obligation

Keep an eye out for your . This document details your monthly payment, the projected amount of interest, the principal balance, and more.

What If You Already Used Your Grace?

If you previously used your grace period, but had payments postponed while you were back in school, most likely you were on a period of deferment or forbearance. Once you leave school you will immediately enter repayment.

Helpful Hints

  • Create an online account—Once signed in, you can view your loan balance and make sure the contact information we have on file is correct.
  • Explore your repayment options—Review what repayment plan may best fit your needs, including those that consider your income, like Pay As You Earn or Income-Based Repayment.
  • —Even though you are not required, making payments now can save you money in the future.
Public Service
Public Service Loan Forgiveness (PSLF)
If you're entering into a public service job and considering the PSLF Program, you have the option to consolidate your loans and waive your grace period to start making qualifying payments right away.

5. You're in Repayment

It's Time to Start Paying Back Your Loans

Repaying your student loans doesn't have to be a burden.

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  • We send you about 20 days before your due date so you have enough time to prepare.
  • You have flexible options to choose how you'll make payments, including through our mobile app, online, or automatically through Direct Debit.
  • You can change your repayment plan to an option that better meets your needs at any time.
  • Serious consequences can happen if you miss payments or don't pay.

Remember, we are here to help if you ever have trouble making payments!

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Understanding Interest

Interest is money an individual pays for the use of borrowed funds. Interest that accumulates is based on the loan's unpaid principal balance and accrues on a student loan every single day, even if the account is not in repayment.

When Interest Accrues

Interest accrues every day from the date of disbursement; however, depending on your loan type or repayment plan, such as Income-Driven Repayment plans (review our IDR FAQ), you may not always be responsible to pay the accrued interest.

Check out the overview below to determine when you are responsible for your interest:

Unsubsidized student loan:

  • Every day, from the day the loan is disbursed until you make the last payment.

Subsidized student loan:

  • Every day, from the day the repayment period starts until you make the last payment, unless in a period of deferment.
  • During your grace period if your loan was disbursed on or after July 1, 2012 and before July 1, 2014.

The Department of Education will pay the accrued interest on your subsidized student loan during:

  • Your in-school status.
  • Your grace period if your loan was disbursed before July 1, 2012 or on/after July 1, 2014.
  • An approved deferment.

NOTE: If you are a first-time borrower on or after July 1, 2013 and you exceed the maximum eligibility (150% of the length of time to complete your specific academic program as defined by your school), you will be responsible for the interest on your subsidized loans while in school and during approved periods of postponing payments. You are a first-time borrower for interest subsidy purposes if you had no outstanding balance on a Direct or FFEL Program loan on July 1, 2013, or on the date you obtained a Direct Loan after July 1, 2013.

The loss of subsidy would continue through periods of enrollment and any grace or deferment periods.

How To Calculate Interest

To calculate your daily interest accrual, use the following formula:

Interest rate × current principal balance ÷ number of days in the year = daily interest

Example: Sara Student has a $10,000.00 current principal balance and 6% interest rate.

As a result, Sara's loans will accrue $1.64 in interest per day (until her principal balance is reduced by future payments).

Interest Rate
6%
Current Principal Balance
$10,000
Number of Days in Year
365
Daily Interest
$1.64

Review Your Interest Rates And Principal Balance in Account Access.

Don't Have an Account?

Create One Now!

Interest Notice

An interest notice is a summary that details the interest accrued on your student loans during a certain period.

  • We may send you an interest notice if your loan is in deferment, forbearance, grace, or in-school status.
  • An interest notice differs from a bill because you're not required to pay the outstanding interest. However, if you have the ability to make a payment, it could save you money in the long run.
  • As long as you have a valid email address on file and at least one unsubsidized loan, we will send you a quarterly email while you are in school detailing the amount of interest that accrues each day on your loans.

Benefits of Paying Interest

You could save money over the life of your loan if you are able to pay any interest you are responsible for while you are in school, grace, deferment, or forbearance.

Review the comparison chart below to see how paying your outstanding interest can impact your monthly payment and your total amount to be repaid.

In the example above you would save more than $65 per month if you paid the outstanding interest before it capitalized (was added to the principal balance). This amounts to potential savings of more than $2,000 over the life of the loan!

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Leaving School

Being prepared for repayment, even before you leave school, is the best way to set yourself up for successful repayment. Below are some important things you need to know.

Exit Counseling

If you borrowed money from the federal government to pay for your education, your school will require you to complete exit counseling.

Exit counseling occurs when you graduate, withdraw, or drop below half-time status. This learning opportunity provides information about your rights and responsibilities as a borrower. Additionally, during exit counseling, you will probably be asked to pick a repayment plan.

Take time before exit counseling to review your repayment plan options. The options are flexible, and there's sure to be one that will work for you.

Picking the right repayment plan can make all the difference in your ability to pay your student loans.

Facts About Student Loans

Understanding the ins and outs of student loans can be confusing; but, it doesn't have to be. Educate yourself on some important points to ensure you start out on the right path.

  • If you withdraw from school, you still have to pay back your loans.

    A portion of your loans may be able to be returned depending on the amount of time you spent at the school. Review your school's refund policy to determine if any of the funds will be returned.

  • If you can't find a job, you are still responsible for paying back your loans.

    Fortunately, there are several different repayment options available, such as Income-Driven Repayment (IDR) plans.

    IDR plans take your income, loan debt, and family size into consideration when determining your monthly payment. Your payment could even be as low as $0.00 a month!

  • When you leave school, you don't have to start paying back your loans right away.

    You get a 6-month grace period that begins the day after you graduate, leave school, or drop below half-time status. The purpose of the grace period is to give you time to find employment and prepare for loan repayment.

NOTE: If you previously used your grace period, or forfeited the remainder of your grace period to consolidate your loans, you will enter repayment once you graduate, leave school, or drop below half-time status.

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Loan Types

There are several types of loans available to pay for school. You have to pay loans back (with interest), so it's important that you are selecting the best ones for your situation.

Learn more about the loans we service.

Federal Unsubsidized Loans - This type of loan is serviced by FedLoan Servicing = Loans We Service

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Parent PLUS Borrowers

This information is important to you if you took out federal loans for your dependent undergraduate students.

"No Payment" Option While Your Student is in School

When your individual loan becomes "fully disbursed" (all funds for that loan are received by the school) your loan enters repayment. Although you enter repayment, you have the option to postpone your payments through a deferment or forbearance.

For example, if your student is attending school at least half-time, you may qualify for a Parent PLUS In-School Deferment.

To find the option that best fits your situation, take our .

Save Yourself Money

Interest accrues on a daily basis once your loan funds disburse. If your loan is on a deferment or forbearance, you could save yourself money over the life of your loan if you are able to pay the accruing interest.

Review your interest and make a payment today!

Alternate Billing Recipient

If someone would like to pay your full monthly payments for you each month, set them up as an alternate billing recipient. The alternate billing recipient will receive monthly billing statements on your behalf.

Important to Know
  • Even though another party will pay your monthly bill, you remain responsible to ensure your loans remain in good standing. Please ensure the alternate party pays the bill timely each month. We will alert you if your bill remains unpaid!
  • Since bills contain specific information about your account, the form that authorizes an alternate party to receive bills also acts as a release to allow us to provide them account specific information. This will allow them to receive information in writing or over the phone about your account.

Set up an Alternate Billing Recipient today! (PDF)

Consolidate

Consolidate to combine your parent PLUS loans into a single new loan. You can even consolidate your PLUS loans with student loans you took out for yourself! Federal Direct Consolidation may be a good option if you wish to:

  • Become eligible for the Income-Contingent Repayment (ICR) plan. ICR is the only Income-Driven Repayment plan available to parent borrowers, but you must consolidate your loans into a Direct Consolidation loan before they will become eligible for ICR.
  • Extend your repayment period up to 30 years, which may lower your monthly payment amount.
  • Lock into a fixed interest rate, which is calculated based on the weighted average of your interest rates at the time you consolidate your loans.

Explore your option for Consolidation

Direct Debit

Sign up for Direct Debit to save time and money!! Once your loan is in repayment, you may set up Direct Debit to have your monthly payment automatically pulled from your bank account. Each month that you are on Direct Debit, you will receive a 0.25% interest rate reduction!

If you previously signed up for Direct Debit and have a new loan disbursed, you will need to submit a new request to have Direct Debit set up on your new loan.

Set up your account on Direct Debit today!

Tips!

  • Create an online account. Manage your account online—quickly, easily, and securely.
  • Once you receive your first bill, you should think about signing up for Direct Debit.
  • Reduce your clutter—enroll in .
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Graduate and Professional Students

This information is important to you if you have decided to continue your education beyond a bachelor's degree or are enrolled in a program that would lead to a professional degree.

Lowering Your Payment

If your payment amount is too high, options are available to help.

We offer several different repayment plans, including Income-Driven Repayment (IDR) Plans. IDR is a great option because it takes your income, loan debt and family size into consideration. Many of our borrowers on IDR qualify for a monthly payment of $0.00.

There are also plans that could lower your monthly bill by extending the time you have to repay your loans.

Check out all available repayments plans.

Have Questions About Your Loans?

We have a team of experienced specialists trained to answer questions specifically for graduate and professional students. Contact us if you have any questions; our specialists are available to help.

Postponing Your Undergraduate Loans

If you have federal loans that are in repayment, you may be eligible for an in-school when you return to school for a professional degree.

If you postpone repayment of your loans during this period, you can still make payments. We recommend that you pay at least any interest that accrues on your loans, even though it's not required, if you can afford it.

Check out ALL the benefits of paying interest.

To be eligible for an in-school deferment, you must be enrolled at least half time (as determined by your institution). If you don't qualify for an in-school deferment (for example, you're enrolled less than half time) or for any other deferment, your loan may be eligible for a .

To find the option that best fits your situation, take our .

Public Service Loan Forgiveness (PSLF) May Be a Great Option

This program was created by Congress to encourage individuals to enter and continue to work full-time in public service jobs. Under the PSLF Program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 payments on those loans under certain repayment plans while employed full-time by a qualifying public service employer.

Are you getting ready to start or are currently in an internship/residency program?

PSLF may be a great option for you to consider if your internship or residency is with a qualifying employer. With an Income-Driven Repayment (IDR) plan, you may qualify for a $0 monthly payment that would count towards the 120 qualifying payments needed for PSLF. So, before you postpone your payments, which could have a big impact on your overall ability to repay your student loans, you may want to review the eligibility requirements for PSLF.

Are you considering a career in public service?

Public service jobs are not only rewarding and a great way to help people, but working in this field could also prove to be beneficial to you with the PSLF Program. As previously stated, if you work for a qualifying employer, you may qualify for student loan forgiveness.

Review the requirements of the PSLF Program, including what types of employers qualify!

Learn More

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How to be a Smart Borrower

Education can be expensive! While there is only so much control you can have about how much college will cost, you can almost entirely control how prepared you are. Take a few minutes and get to know the basics.

Smart Borrowing Tips

Smart Borrowing Tips

1. Only borrow what you need

Your school might approve more loan funds than you actually need for tuition, fees, and other educational expenses (cost of attendance). So, only borrow what is necessary.

If you take out more than what you need, return the extra money. If you return the money within 120 days of disbursement, we will process it as a Borrower Cancellation Payment. Returning the extra funds is good, because:

  • Your principal balance will be reduced, meaning you will have to pay back less over time.
  • Any origination fee you were assessed will be adjusted based on your new, reduced principal balance.
  • Less interest will accrue over the life of your loans based on the smaller principal balance.
2. Think before taking out more loans

It's important to understand your current level of student loan debt and how taking on more loans will impact your monthly payment in the future.

Don't know how much you've taken out in federal student loans? Sign in to NSLDS.ed.gov to find out.

When considering whether you can afford to take out additional student loans, it's best to understand what you expect to make when you're out of school. Don't forget that student loan payments will only be one of the expenses you'll have to manage.

Visit MySmartBorrowing.org to help you determine how much you may make in your future career, how much your student loan payment may be with the amount you intend to borrow, and how that will fit into a monthly budget.

If you are over budget, carefully consider if there are ways you can limit how much you borrow before you reach that point.

3. Know your options if you borrowed more than expected

If you feel that you may have over-borrowed for school, there are always options available that can help.

  • Different repayment plans, such as Income-Driven Repayment (IDR), are available if you feel you may not be able to afford your monthly payment. You may even qualify for a $0 monthly payment!
  • There are special programs available, if you qualify, that could have your loan debt reduced or even eliminated.
  • Consolidation allows you to combine one or more existing student loans into a single new loan with a new repayment schedule. Because consolidation extends your repayment period, you will most likely have a lower monthly payment.

No matter what option you choose, just know we are always here to help you manage your student loans.

Ways to Reduce College Costs

Ways to Reduce College Costs

It's never too late to start saving for college. Below are a few ways to save extra cash and some ideas on how you can lessen your expenses once you get to college.

  • Open a savings account
  • Save money you receive as gifts
  • Ask yourself if you really need things before you buy them
  • Live at home and commute
  • Become a Resident Assistant (RA) and get free or discounted room and board
  • Live on campus or close by so you can walk to class
  • Pick the right meal plan so you don't pay for meals you're not eating
  • Buy used text books

Keep in mind that some choices, like changing schools and majors, taking longer than prescribed to complete your program, or studying abroad, could increase your costs of school. Before you make such decisions, consult your school's financial aid office and do all the research you can to understand how these decisions factor into your total cost of college.

Your Responsibilities

Your Responsibilities

1. Read your promissory note (know what you agreed to)

Under certain conditions (including as a first time borrower), you must sign a promissory note. The promissory note is a "promise to pay" contract between you and the lender that is providing your loan money (if you have a Direct Loan, the lender is the federal government). This legally binding document specifies your responsibilities for paying back the loan.

Because your responsibilities may vary according to the type of loan you receive, be sure to read the promissory note before you sign it so you know what is expected of you. And pay the loan back per this agreement. After all, you promised, and you will be held accountable.

2. Look up all of your federal loan information online

The U.S. Department of Education centralizes all federal student aid information through its National Student Loan Data System (NSLDS). This online tool includes information from your school, lenders, servicers, and guarantors. Sign in to view details about your federal loans, as well as your history of federal student aid. You will need your FSA ID to access this information.

3. Pay attention during entrance/exit counseling

If you take out a federal student loan, you are supposed to participate in entrance and exit counseling. Entrance counseling takes place around the time you sign your promissory note, before the government disburses your loan money. Exit counseling occurs when you graduate, withdraw, or drop below half-time status.

Pay attention. The purpose of entrance and exit counseling is to educate you about your loan. It speaks honestly about what you can expect throughout the life of your loan, provides contact information (name, phone number, and email address) for your servicer for when you need help managing your student loan debt, and discusses the potential consequences of default.

Entrance and exit counseling is unique to every school. You may receive your counseling online or in person. And there may be testing to confirm your knowledge.

4. Keep in touch with your loan servicer

We are here to guide you to successful repayment. We are accustomed to talking with borrowers who are having financial difficulties or can't pay their loan right away. So, JUST CALL US and explain. We'll work with you to figure out your options. You are not alone.

Don't know who services your federal loans? Sign in to NSLDS.ed.gov to find out.

5. Stay organized

Remember to keep copies of all of your loan documents, including:

  • Your FAFSA® (Free Application for Federal Student Aid)
  • Promissory notes
  • Your loan repayment schedules
  • Records showing when loan payments were received
  • Records of loan payments you made, including cancelled checks and money order receipts
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Endorsers vs. Co-makers

Review the information below to find out the difference between an endorser and co-maker.

Endorser

Endorser

If you made a commitment that you would assist someone by paying their parent or student PLUS Loan if they are unable to do so, you are most likely an endorser. As an endorser, you are secondarily responsible for paying back the loan.

What happens if the borrower doesn't make payments?

If the primary borrower fails to make monthly loan payments when they are due, the loan will become delinquent. Delinquency can result in both you and the borrower being negatively reported to the consumer reporting agencies. Therefore, it is important that you ensure either you or the borrower are making payments when they are due.

Deferment and Forbearance Options

The borrower is able to make a request to temporarily postpone making monthly payments under certain circumstances. This does not require any action or approval from you. There are certain circumstances where you may also make a request to postpone payments. Contact us for your available options.

Co-maker

Co-maker

If you and another person each had your own loans and you made a commitment to combine your loan debt and pay back your loans together, you are most likely a co-maker of a joint Consolidation Loan. You may also be a co-maker if you agreed to pay back a parent PLUS loan with another person prior to 2000.

As a co-maker, you are equally responsible for paying back the loan for the entire life of the loan.

What happens if we don't make payments?

If you fail to make monthly loan payments when they are due, the loans will become delinquent and both of you may be negatively reported to the consumer reporting agencies. Therefore, it is important that you are making payments when they are due.

Deferment and Forbearance Options

You are able to make a request to temporarily postpone making monthly payments under certain circumstances. However, when applying for either a deferment or forbearance, both of you must each apply and qualify for a deferment or forbearance in order to postpone payments.

  • If you would like to apply for a deferment or forbearance, both of you must apply for the same type of postponement (deferment or forbearance). However, you may apply for different deferment or forbearance types.
  • The approved dates of the deferment or forbearance will depend on the eligibility for both of you as only the overlapping eligible time will be applied.

NOTE: You can also determine if you are an endorser or co-maker by referencing the type of promissory note you signed.

Do you know the status of your loans?

Regardless if you are an endorser or co-maker, it is important that you stay up to date on the status of the loans you signed for. We provide you with your own unique 10-digit number to manage your account. We encourage you to sign up for an online account so you can view your loan details at any time and ensure that the loan remains in good standing.

Account Access

Creating an online account is easy!

  • Make a payment
  • View the payment status (i.e. Up-to-date vs. Past Due)
  • Check the balance and other loan details for your loans
  • Update your personal information