Borrowers in School
Stafford and Perkins Loans
You know that federal education loans are 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? We have the answers you need.
Updated Stafford Loan Terms
Effective May 7, 2008, in accordance with the Ensuring Continued Access to Student Loans Act of 2008 (HR 5715), dependent undergraduate students can receive annually $2,000 in additional unsubsidized Stafford funds for loans first disbursed on or after July 1, 2008. This chart shows the total amount annually available to dependent undergraduate students:
| Student | Subsidized/unsubsidized base amount | Additional unsubsidized amount for loans first disbursed prior to July 1, 2008 | Additional unsubsidized amount for loans first disbursed on or after July 1, 2008 |
|---|---|---|---|
First year |
$3,500 |
$0 |
$2,000 |
Second year |
$4,500 |
$0 |
$2,000 |
Third year and after |
$5,500 |
$0 |
$2,000 |
The Stafford aggregate loan limit increased from $23,000 to $31,000 for dependent undergraduate students, as well. However, please note that only $23,000 may be subsidized.
Independent undergraduate students or students whose parent has been denied a PLUS Loan can also receive annually $2,000 in additional unsubsidized Stafford funds for loans first disbursed on or after July 1, 2008. This chart illustrates the total amount annually available to independent undergraduate students:
| Student | Subsidized/unsubsidized base amount | Additional unsubsidized amount for loans first disbursed prior to July 1, 2008 | Additional unsubsidized amount for loans first disbursed on or after July 1, 2008 |
|---|---|---|---|
First year |
$3,500 |
$4,000 |
$6,000 |
Second year |
$4,500 |
$4,000 |
$6,000 |
Third year and after |
$5,500 |
$5,000 |
$7,000 |
The Stafford aggregate loan limit also increased from $46,000 to $57,500 for independent, undergraduate students. However, please note that only $23,000 may be subsidized.
PLUS Loan Grace Period
For PLUS Loans first disbursed on or after July 1, 2008, the borrower may request a grace period ending 6 months after the student drops below half-time enrollment in school. Please note that during the time between the loan’s disbursement and the beginning of the repayment period, interest will accrue on the loan. Interest may be paid by the borrower during this period. If the borrower does not wish to pay during the grace period, interest will be capitalized by the lender quarterly.
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 . 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 period, then repayment. The grace period lasts 6 months for Stafford loans and 9 months for Perkins loans, and no payments are due during this time. At the end of the grace period, your 1st 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 regain 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 the interest can be either paid by you before repayment begins or capitalized (that means 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 off a semester or more 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 longer than 6 months (or 9 months for Perkins loans), you’ll need to begin repaying your loans until you reenroll 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 a 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 agree to grant you forbearance.
Keep in Mind: During a deferment, interest still accrues on the unsubsidized portion of your loan and during a forbearance interest still accrues on both the subsidized and unsubsidized portions of your loan. 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.
Semester Abroad
Your federal education loans may apply toward study at accredited foreign schools.
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 are transferring to another school, 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 (COA) 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 and still have your full tuition refunded. If you leave school and your school is unable to give you a refund for the dropped classes or program, you are still responsible for repaying the loan you have borrowed.
School Closings
In some cases, an educational institution may go out of business. In this case, some or all of your loan may be eligible for discharge, based on the circumstances of the school’s closure. Contact the Department of Education for more information.
PLUS Loans
Parent PLUS Loans
Parent PLUS loans begin repayment when they have been fully disbursed. These loans are not eligible for deferment based on your son or daughter being in school. However, you may be eligible for another deferment or a forbearance if you are having trouble repaying the loan. Please contact your lender or servicer for more information.
Graduate PLUS Loans
You can defer the repayment of Graduate PLUS loans while you’re in school. Make sure you contact your lender or servicer and ask if you need to fill out any forms to put your loans into in-school deferment. After you leave school, your loans will enter repayment immediately, since PLUS loans don’t have a grace period.
