Lenders offer a variety of payment plans to help borrowers manage their loan repayments. A standard repayment plan divides payments equally over the course of the loan; you will have one payment amount for the entire time you repay. This option provides the least amount of total interest on the loan; all other methods of repayment will increase the total amount repaid on the loan. Federal loans are automatically set to standard repayment unless changed.
If you are unable to make your loan payments in part or in total, you should immediately contact your lender to find a new payment plan. Extended repayments increase your payment period up to 25 years; this will reduce your monthly payment. Graduated repayments keep monthly payments lower in the beginning of the loan and then increase them over time. Borrowers may like this option when they are earning less early in their career. Income-sensitive repayments determine the payment amount as a percentage of income. Income-based repayment is available for most federal loans. Payment amounts are determined by a percentage of discretionary income.
If you are still unable to make your loan payments after changing your payment plan, you should contact your lender to seek deferment. A deferment temporarily stops your payments while you are in school, unemployed, are suffering economic hardship, are in the armed services, or are engaged in national service. If you have a subsidized federal loan, you will not have to pay interest on your loan while in deferment. If you have an unsubsidized loan, any interest you do not pay while in deferment will be added to the loan principal, this means that you will have to pay interest on the interest as you repay the loan. If you do not qualify for a deferment, but are still unable to make payments you may be able to enter into forbearance. Forbearance temporarily stops your payments while you are unable to pay. All loans that enter forbearance will accumulate interest that the borrower must pay.
If you do not make a loan payment your loan will go into delinquency. If you miss enough payments your loan will go into default. The default period will be listed in your promissory note. Once in default your loan is immediately due in full. If you go into default your credit score will likely go down. Credit scores are used to determine if you can get a loan of any kind, and the percentage rate of that loan. Many insurance companies and employers also look at credit scores. A defaulted federal student loan makes you ineligible for further federal student aid. Since federal loans are guaranteed by the government, your payments can be deducted from your paycheck or tax refunds withheld. Additionally, you will have to pay fees and interest on the loan, and can be sued to be forced to repay the loan.
If you are in default on student loans you should immediately contact your lender to begin repayment to get out of default. Your lender will work with you to find a payment plan and amount that pays down your loan and is manageable. In order to rehabilitate your loan and get out of default you must make the agreed upon payments on time and voluntarily (i.e. not as a wage garnishment). With federal loans, nine consecutive on-time payments will make you eligible to apply for loan rehabilitation. Once rehabilitation is granted the loan will move out of default and the default will be removed from your credit report.