Borrowers in School
You know that a federal education loan is both an invaluable tool in paying for higher education and a serious responsibility. But do you know the details of loan borrowing, such as what happens to your loan while you’re in school? What about while studying abroad? And are there special rules for medical and legal students?
In-School Deferment
While you are attending college or career school, any Stafford or Perkins Loans you’ve borrowed are eligible for in-school deferment. Your lender may determine your eligibility for in-school deferment based on confirmation of your half-time enrollment status through NLSDS. This deferment remains active as long as you remain enrolled in classes at least half-time or more.
If you leave school, or if you fall below half-time status, your Stafford and Perkins Loans will enter their grace periods, after which you must begin to repay them. The grace period lasts 6 months for Stafford Loans and 9 months for Perkins Loans; no payments are due during this time. At the end of the grace period, your first loan payment will be due to your lender or servicer.
Keep in mind: The allowance of 6 months for Stafford loans and 9 months for Perkins loans are the total amount of grace period you receive for each loan. Once you use your full grace period you cannot renew it.
If your federal education loans are subsidized, the government will pay the interest on your loan while you’re in school, in grace, or in deferment. If your loans are unsubsidized, interest will accrue during your studies, and it can either be paid by you before repayment begins or be capitalized (added to the principal balance) when you begin repayment. The amount you repay after school will include this new principal balance plus the interest that will accrue during the repayment period.
| Original Stafford Unsubsidized Loan |
$3,000.00 |
|---|---|
| Interest Rate |
6.8% |
| Daily Interest Accrual |
$0.56 |
| Total Interest After 4-Year College Program and Grace Period |
$806.40 |
| Full Loan Balance at End of Grace Period (Capitalized Interest) |
$3,806.40 |
Temporary Leave of Absence from School
If you decide to take a semester or more off from school, or you find that you cannot maintain a half-time or greater course load, your grace period will begin. If you are out of school for longer than your grace period (6 months for Stafford Loans, 9 months for Perkins Loans), you’ll need to begin repaying your loans until you re-enroll with a half-time or greater course load.
If you’re not ready to repay your loans after your grace period ends, investigate whether you qualify for a deferment or forbearance. A deferment is available to anyone who fits specific criteria for economic hardship or unemployment while actively seeking work. If you don’t meet these criteria, your lender or servicer may still agree to grant you forbearance.
Note: During a deferment, interest still accrues on the unsubsidized portion of your loan. During forbearance, interest still accrues on both the subsidized and unsubsidized portions. This accruing interest will be capitalized at the end of the deferment or forbearance period, making your loan larger in the long run. Also, a limited amount of deferment and forbearance time is available throughout the life of each loan—whether you use this option during a leave of absence or during a period of hardship later in life.
Withdrawing From Classes and Transferring
If you borrow loans but then withdraw from classes once the funds have been disbursed, these loan funds must be returned to the lender as soon as possible. If your loan has gone directly to your school to pay for tuition or other costs, you must speak with your school’s financial aid office to be sure that the funds have been returned.
If you’re leaving one school and transferring to another, you will need to be in touch with the financial aid offices at both institutions. Your eligibility for federal funds may have changed, depending on the cost of attendance at your new school.
If you think you may withdraw from your school, act quickly: Schools often leave only a small window of opportunity for you to withdraw from a program with a full tuition refund. If you leave school and your school does not refund the tuition, you are still responsible for repaying the money you have borrowed.
School Closings
In some cases, an educational institution goes out of business. Should this happen to your school, some or all of your loan may be eligible for discharge, based on the circumstances of the school’s closure. Contact the U.S. Department of Education for more information.
