Applying For Direct Student Loans
To apply for these direct loans, students and their parents must fill out the FAFSA form. Based on the information you supply, the FAFSA will determine your Expected Family Contribution toward college or career school.
The schools use your EFC to decide how much federal aid to offer you. They do that by subtracting your EFC from their cost of attendance , a number that includes tuition, room and board, fees, and related expenses.
Keep in mind, however, that beginning in July 2023 the term “student aid index” will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure actually isan eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses.
To bridge the gap between your EFC and their COA, schools may offer you a package of financial aid that includes some combination of federal grantsknown as Pell Grantssubsidized and unsubsidized Direct Loans, and paid work-study jobs. Like subsidized loans, grants are intended for students in significant financial need, but you don’t have to repay them except in rare circumstances. Colleges may also offer other, non-federal aid, such as merit scholarships.
Change Your Repayment Plan
As a federal Perkins loan borrower, you dont have direct access to income-driven repayment plans if you need a lower monthly payment. Youll need to speak with your school to learn about repayment options for Perkins loans.
But you can consolidate Perkins loans into a single direct consolidation loan to qualify for income-driven repayment if you need it. The catch is that youll give up unique Perkins loan benefits, such as loan cancellation for those in certain public service jobs .
Double-check whether youre better off keeping your Perkins loans as they are before consolidating them. If you qualify for Perkins loan cancellation, not consolidating Perkins loans may mean getting forgiveness on your loans within five years, even if you cant get an income-driven payment in the meantime. For others who wouldnt qualify for Perkins loans cancellation, consolidating to get a more flexible repayment schedule might be worth it.
How To Rehabilitate A Defaulted Loan
To rehabilitate a Direct Loan or FFEL loan in default you will need to work with your lender to satisfy the following conditions:
- Determine a monthly payment amount that you can actually pay, then issue at least 9 full payments within 20 days of their monthly due dates during a period of 10 consecutive months
The only way to make this happen is by contacting whoever is currently servicing your loan and working out a schedule with them.
Keep in mind that they have access to all of your financial information, and that they will be willing to work with you on reducing your monthly payments, but only up until a certain point.
If they think youre wasting money on new clothes, expensive trips, or frivolous personal items that arent necessities, then its going to be extremely difficult to get them to negotiate a much lower monthly payment.
The good news is that by rehabilitating your defaulted loans, you become immediately eligible for all sorts of other important Federally-funded benefits, like the Obama Student Loan Forgiveness Program, the Public Service Loan Forgiveness Program, and other financial assistance opportunities.
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Which Are Eligible Loans For Private Consolidation
You can refinance and consolidate both federal and private student loans. This includes all types of federal loans, including Direct Loans, Stafford Loans, Parent PLUS Loans, as well as private loans.
Its important to note that when you refinance and consolidate, you can decide in your loan application which loans you want to refinance and which, if any, youre happy to keep at their current terms. Some people may want to refinance all their loans, and for others it may make sense to only refinance some of them.
When you refinance federal loans and private loans into a one new private loan you will no longer be eligible to use repayment options included in the governments income-based repayment programs or forgiveness programs like public service loan forgiveness.
To decide, you should look at the loan repayment terms for each of your current loansand whether refinancing can help you do better. You can get an estimated rate from Earnest in just two minutes.
What This Means For Your Student Loans
What does this mean for your student loans? If you are pursuing student loan forgiveness, then you can now count student loan payments that previously may have been ineligible. This can help you get student loan forgiveness faster. . You can still get student loan forgiveness even if you dont work in public service. Plus, you can always decide to get student loan forgiveness through public service loan forgiveness, even if you dont work for a qualified employer today. The program is still active and available to you now if you meet the requirements.
Student loan forgiveness is ending soon. Are you prepared? Learn all your options for student loan repayment. Here are some popular ways to pay off student loans faster:
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Options For Handling Perkins Loan Repayment
One of your main priorities is to make Perkins loan payments on time, every time, to protect your . Missed or late payments will have a negative impact on your credit, which can prevent you from taking out other loans in the future at favorable rates. If youd like to change your repayment plan or amount, check your options below.
| Option | |
|---|---|
| Not all plans, such as income-driven repayment, are available to Perkins loan borrowers. | |
| Delay your payment | The government pays the interest charged during a qualifying deferment, so interest wont accrue. |
| Pursue cancellation | If you work in a qualifying public service job, you could see up to 100% of your balance canceled. |
| Weigh consolidation and refinancing | Before you yield exclusive Perkins loans benefits by consolidating or refinancing, make sure youre confident you wont use them. |
Can You Consolidate Federal Consolidation Loans
Yes.
You can turn a Federal Consolidation Loan into a Direct Consolidation Loan under the following circumstances:
- You can consolidate an existing Federal Consolidation Loan into a new Direct Consolidation Loan if you add at least one new FFEL or Direct Loan into the batch of consolidated loans
- You can consolidate a single Federal Consolidation Loan if that loan is in default, or if it has been submitted to a guaranty agency for default aversion, but if you do this, youll be forced to put the loan on one of the income-based repayment plans
- You can consolidate a single Federal Consolidation Loan if you are planning on using the Public Service Loan Forgiveness Program or the no accrual of interest benefit program as an Active Duty military service member
Federal Consolidation Loans may be consolidated without including any new loans , but existing Direct Consolidation Loans can only be consolidated by adding at least one more new eligible loan into the mix
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Can You Consolidate Perkins Loans
Yes.
You can definitely consolidate a Perkins Loan into a Direct Consolidation Loan, but only if the new Direct Consolidation Loan includes at least one Direct Loan or FFEL Program Loan in the request.
Perkins Loans themselves cannot be combined into a Direct Consolidation Loan, and unfortunately, any Perkins Loans wrapped up into Direct Consolidation Loans will be included in the unsubsidized portion of the Direct Consolidation Loan, meaning borrowers will be forced to sacrifice any subsidies theyve been previously enjoying on their Perkins Loans.
That last point is a big one, and should be weighed carefully before deciding to consolidate a Perkins Loan.
For most borrowers, we do not advocate wrapping Perkins Loans up into Direct Consolidation Loans, but if youre hell bent on considering that option, there are some extremely important considerations youll want to look at before signing up, including:
How Do I Avoid Screwing This Up
If you have multiple student loans, go to the National Student Loan Database. Look for any Stafford, Perkins, or PLUS loan. Better yet, call or write your lender, and go loan by loan to verify whether your loans are federal direct loans or FFEL.
If you have FFEL loans, get them consolidated as soon as possible so that you can start making payments on them that count towards Public Service Student Loan Forgiveness.
One way to check whether or not you are doing things right would be to have some of your payments certified towards PSLF. If you can only get some loans certified and other loans dont count, you may have an FFEL problem.
This is not an easy subject, but by identifying that you might have an FFEL problem, you can ask the right questions to your lender and get things under control. You can also warn your friends who may have the same issue.
Most importantly, if you have FFEL loans and want to count your previous payments towards PSLF, be sure to conoslidate before October 31, 2022.
Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.
Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.
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Perkins Loan Cancellation And Discharge Charts
In the chart below, youll find the cancellation rate per completed academic year of full-time teaching, which includes the interest that accrued during each year of service:
- 15% of the original principal loan amount for each of the first and second years
- 20% of the original principal loan amount for each of the third and fourth years and
- 30% of the original principal loan amount for the fifth year.
*For service that includes Aug. 14, 2008, or began on or after that date.
**As of October 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless or when the loan was made or the terms that were in the promissory note. This benefit is not retroactive to services performed before that date.
Default Reduction Assistance Program
The Default Reduction Assistance Program assists schools in contacting defaulted Perkins Loan borrowers. A letter is sent from the Department on official letterhead to defaulted Perkins Loan borrowers. It explains the serious consequences of default including the inability to obtain other federally-supported financial assistance, withholding of federal and state income tax refunds, salary garnishment, and damage to credit history. It also encourages borrowers to contact the school to initiate repayment arrangements.
Through DRAP, a school or its third party servicer can:
-
submit borrower information for letters to be printed and mailed
-
maintain borrower information
-
edit DRAP contact information without the Departments intervention
-
run a report that assists in monitoring the letters mailed to borrowers
-
run a report that assists in tracking the total number of letter requests submitted and
-
determine if a letter was returned to the Department as undeliverable and if an address has been determined to be invalid.
Participation in the DRAP process is voluntary. There is no cost to the school.
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The Issue With Ffel Loans And Public Service Student Loan Forgiveness
The most frustrating part about this example is the fact that this borrower could have had all their loans eligible for public service forgiveness had they consolidated from day one.
Many customer service representatives did not understand this wrinkle in student loan law. It is a classic example of the dangers of relying on your student loan servicer.
Fortunately, the expanded rules now help borrowers who consolidate before the deadline.
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Perkins Billing Procedures And Overdue Payments
Billing refers to the series of actions the school routinely performs to notify borrowers of payments due, remind them of overdue payments, and demand payment of overdue amounts. The school may choose a coupon payment system as its method of billing. The school must send the coupons to the borrower at least 30 days before the first payment is due when using a coupon payment system.
If the school does not use a coupon system, it must, at least 30 days before the first payment is due, send the borrower a statement of account and a written notice giving the name and address of the party to which payments should be sent. The statement of account includes information such as the total amount borrowed, the interest rate on the loan, and the amount of the monthly payment. For subsequent payments, the school must send the borrower a statement of account at least 15 days before the due date of the payment.
If the borrower chooses to make payments through electronic funds transfer, the school doesnt have to send the borrower a statement of account before each payment. However, the school must send the borrower an annual statement of account that lists the required amounts and dates of repayment, as well as any information tracking the status of any late charges.
Can I Prepay A Direct Consolidation Loan
Yes.
You may prepay all or part of your remaining loan balance at any time, without prepayment penalties or other fees.
If you make a payment thats higher than your standard monthly payments, the excess amount will be applied to any charges or collection costs that youre incurred, then to outstanding interest, and finally to principal.
If you have no outstanding interest, then your prepayment will be applied entirely to the principal balance left on your loan.
If your prepayment amount is more than twice your typical monthly payment, then your next payment due date will be advanced, unless you specify otherwise.
Youll be notified of a revised due date if that occurs.
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What Loans Does This Apply To
This is an issue with most commonly associated with FFEL loans, but it also applies to Federal Perkins Loans. The Federal Family Education Loan Program was in existence from the mid-60s until 2010. Under the FFEL program, borrowers got federally insured loans through private companies.
If you received a Stafford Loan or a Graduate PLUS loan before 2010, you probably have an FFEL loan.
What Are Federal Direct Consolidation Loans
Direct Consolidation Loans are the end result of a loan consolidation process.
When you consolidate federal student loans, that means youre combining multiple student loans into a single, larger loan, which simplifies your monthly payments .
Federal loan consolidation offers a variety of potential benefits, including:
- Simplifying your Federal student loan debt by combining all outstanding loans into a single, consolidated loan, with a single lender and a single monthly payment
- Flexible repayment options, with multiple Federal repayment plans available for those who hold Direct Consolidation Loans, including the ever-popular Income-Based Repayment Plans
- No minimum or maximum loan amounts, and zero fees, meaning that your direct loans consolidation can combine any number and amount of Federally-funded loans without costing you a single cent
- Reduced monthly payments, for borrowers in certain situations
- Retention of subsidized benefits, meaning that borrowers with Federal subsidized loans are likely to retain the benefits theyve been offered on those loans, though this is not always the case either and should be explored before consolidating
To summarize, the direct loans consolidation process is simple, free and it could end up saving you some serious money.
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Time Limit Laid Down Before Teachers Before They Can Receive Their Benefits
Its quite simple for teachers to receive their Perkins Loan program, as long as you are an eligible teacher. You can benefit from the program after one year of service. You can teach full-time for one academic year in full. But theyre no specific hours or days in a year to appropriate this condition. As long as the school deems you as having completed a full academic year, you can qualify for the Perkins loan program.
Advantages Of Student Loan Consolidation
Why should you consolidate your student loans? Student loan consolidation offers several benefits, including lower interest rates, a single payment, and potentially lower payments.
During the consolidation process, students can change the interest rate on their loans. Many students took out loans at interest rates higher than today’s rates. By consolidating, students can benefit from lower interest rates.
In addition, federal student loan recipients often hold loans with multiple loan services. After consolidating federal student loans, recipients have a single loan through one lender. This means one monthly payment versus multiple payments.
Consolidation can also mean lower payments. The federal government gives students up to 30 years to repay their loans after consolidation. While this means paying more interest over the life of the loan, it translates into a lower monthly payment.
Students who took out loans at a variable interest rate can also consolidate to lock in a low fixed interest rate. This can easily mean thousands of dollars in savings.
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Contacting The Endorserloans Before July 23 1992
For loans made prior to July 23, 1992, the school must also try to collect the amount owed from any endorser of the loan. It may help to send the endorser a copy of the final demand letter that was sent to the borrower and copies of all subsequent notices, including demand/ collection letters. For loans made on or after July 23, 1992, an endorser is no longer required.
