Student Loans

The short version

Student loans help you pay for college or career school. Understanding how to repay them, if they can be forgiven, and what happens if you can't pay is very important. This lesson will explain these key parts of student loan debt, so you know your options and responsibilities.

The law this is built on

Every point below comes from the authority named next to it. Verify the current text before relying on it.

• 20 U.S.C. § 1087e(a)(1)

  This section establishes the terms and conditions for Direct Loans, including repayment plans and interest rates.

  Why it matters: It sets the basic rules for how you pay back most federal student loans.

• 20 U.S.C. § 1087e(d)(1)

  This part outlines options for loan forgiveness, cancellation, or discharge for certain federal student loans, such as for public service or teacher service.

  Why it matters: It explains under what specific conditions your loans might not need to be repaid.

• 20 U.S.C. § 1087e(h)

  This section explains that federal student loans are not dischargeable in bankruptcy unless repaying them would cause an undue hardship.

  Why it matters: It means student loans are very difficult to get rid of, even if you declare bankruptcy.

• 34 C.F.R. § 685.208

  This regulation describes the available repayment plans for Direct Loan borrowers, including standard, extended, graduated, and income-driven repayment plans.

  Why it matters: It details the different ways you can structure your payments to fit your financial situation.

• 34 C.F.R. § 685.211

  This regulation defines the conditions under which a Direct Loan enters default, such as failure to make payments for a certain period.

  Why it matters: It tells you what actions (or inactions) will lead to your loan being considered in default, which has serious consequences.

Words you need to know

Repayment Plan

This is the agreement you make with your loan servicer about how you will pay back your student loan. Federal loans offer several plans, like standard, extended, or income-driven options.

Loan Forgiveness

This is when you are no longer required to repay some or all of your loan due to certain circumstances, such as working in public service or teaching in a low-income area. (20 U.S.C. § 1087e(d)(1))

Default

This happens when you fail to make payments on your loan for a long period, usually 270 days for federal student loans. Default has serious consequences. (34 C.F.R. § 685.211)

Deferment

This allows you to temporarily stop making payments on your loan. Interest may or may not accrue during this time, depending on the loan type. (20 U.S.C. § 1087e(b)(1)(E))

Forbearance

This also allows you to temporarily stop or reduce your loan payments. Interest usually accrues on all loan types during forbearance.

Income-Driven Repayment (IDR)

These repayment plans base your monthly payment amount on your income and family size. After a certain number of years of payments, any remaining balance may be forgiven. (34 C.F.R. § 685.208(k))

Your rights

• ✓You have the right to choose a repayment plan that best fits your financial situation, including income-driven plans. (34 C.F.R. § 685.208)
• ✓You can temporarily pause or reduce your payments through deferment or forbearance if you qualify. (20 U.S.C. § 1087e(b)(1)(E))
• ✓You are entitled to information about loan forgiveness programs if you meet the eligibility requirements. (20 U.S.C. § 1087e(d)(1))
• ✓You have the right to appeal if your application for a benefit, such as an income-driven repayment plan, is denied.
• ✓Your loan servicer must provide you with clear information about your loan terms, payment schedule, and options if you're struggling to pay.

How the process actually works

1. 1
   Borrow Money

   Before and during your education

   You apply for and receive federal or private student loans to pay for your education. Federal loans are governed by laws like 20 U.S.C. § 1087e.

2. 2
   Grace Period

   Immediately after leaving school

   After you leave school, you typically have a grace period (usually six months) before you must start making payments. Interest may or may not accrue during this time.

3. 3
   Choose Repayment Plan

   Before the end of your grace period

   You select a repayment plan for your federal student loans. Options include standard, extended, graduated, or income-driven plans. (34 C.F.R. § 685.208)

4. 4
   Make Payments

   Monthly, for the term of your loan

   You make regular monthly payments according to your chosen repayment plan. Your servicer sends you bills and statements.

5. 5
   Seek Help if Needed

   Anytime you face financial hardship

   If you struggle to make payments, you can apply for deferment, forbearance, or switch to an income-driven repayment plan. Contact your loan servicer right away. (20 U.S.C. § 1087e(b)(1)(E))

6. 6
   Potential Forgiveness/Discharge

   After meeting specific eligibility requirements

   If you meet specific criteria, like working in public service for 10 years, or if you become permanently disabled, your remaining loan balance might be forgiven or discharged. (20 U.S.C. § 1087e(d)(1))

7. 7
   Default Consequences

   After 270 days of non-payment for most federal loans

   If you stop making payments and do not arrange an alternative plan, your loan will eventually go into default. This can lead to wage garnishment, tax refund offset, and damaged credit. (34 C.F.R. § 685.211)

Deadlines that can end your case

• Start of Repayment
  6 months after leaving school or dropping below half-time enrollment

  Missing this means you won't have a repayment plan set up and could quickly fall behind on payments.

• Default for Federal Loans
  270 days of missed payments

  Your loan will be transferred to a collection agency, and you will lose access to federal student aid benefits and face collection actions. (34 C.F.R. § 685.211)

• Income-Driven Repayment Recertification
  Annually

  If you miss this, your payments may increase significantly, and any accrued interest may capitalize (added to your principal balance). (34 C.F.R. § 685.208(k)(5))

Common questions

How this changes by state

Federal student loan laws and regulations (like 20 U.S.C. § 1087e and 34 C.F.R. Part 685) are the same across all states. However, state laws can affect private student loan collection practices, statutes of limitations for debt collection, and consumer protection regulations. To find your state's specific rules regarding private student loans or general debt collection, you can check your state's Attorney General's office website or consumer protection agency.

When you need a lawyer

You should consider contacting a lawyer if your federal student loans have gone into default and you're facing wage garnishment or tax refund offset, especially if you believe there's an error. Also, if you're trying to discharge student loans in bankruptcy due to 'undue hardship,' you will definitely need legal help. For issues with private student loans, such as collection lawsuits or disputes over loan terms, a lawyer specializing in consumer debt or contract law can advise you on your rights under state law.

Do this today

• →Identify your federal student loan servicer(s) by visiting StudentAid.gov.
• →Review your current federal student loan repayment plan and consider if an income-driven plan might be a better fit.
• →If you have private student loans, gather their terms and contact information for your lenders.
• →If you are having trouble making payments, contact your servicer(s) today to discuss your options.