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Your student loan application may be the first contract
you sign. And that's exactly what it is — a contract.
It's a legal agreement between you and your lender.
As with most contracts, there will be fine print and
"legal-ese" that you probably haven't heard before.
Here's a rundown of items you will need to understand:
Promissory Note
This is your contract. It contains as many as eight
pages of information covering everything you need to know
about your loan. The "prom note" is what you sign,
and signing it means that you agree to everything that
it says. Read it carefully.
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Repayment Options
Without question, when you borrow money and you must repay it. The most common method is to pay
the same amount monthly for the duration of the loan.
Most lenders, offer more than one way to
repay the loan.
For example, recognizing when you
leave school your income should grow with time and experience,
your lender may let you schedule smaller payments at
first and then increase the monthly payment amounts
as time passes.
The repayment method selected impacts the total amount you repay, and that amount is outlined in your Disclosure Statement.
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Disclosure Statement
Whichever repayment option you've selected, the facts
and figures associated with that decision will be sent
to you in your disclosure statement. It will include:
- Interest rate for the loan
- Number of monthly
payments to pay the loan in full
- Amount(s) of your payments
- Estimated amount to be repaid—principal
and interest
You should receive this document at least 15
days before you are scheduled to begin repayment. Not
receiving this document does not release you from repaying
the loan.
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Accrued Interest
As you know, you will repay the amount you borrowed with interest. Generally, the interest rate and how it is applied to your loan, which results in the accrued interest, will be defined in your Promissory Note and in your Disclosure Statement. Interest is computed on a daily simple basis, which means you pay more interest if your payment is late.
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Capitalized Interest
The bottom line is you repay the interest on your loan
before you repay the principal. If you find that you
can't make payments for reasons such as unemployment,
you may qualify to suspend your payments. During that
time, though, interest is still accruing.
If you have
a subsidized loan, the federal government may cover
that amount, depending on your reason for not paying.
If you don't qualify for this interest subsidy, you
have two options: you can make interest-only payments;
or have the interest added to the outstanding loan principal—or
capitalized—when you resume repayments.
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Collection
If you do not repay your loan on time at the amount you've agreed to, you'll start to receive calls and letters from your lender or servicer. Talk to the folks who service your loan(s)—they may be able to help you if you're having financial troubles.
Late Charge
If you fail to pay all or part of a required installment payment when due, a late charge may be assessed.
Change of Status
Notify your lender or servicer when you change your
name, mailing address, e-mail address, or phone number—or
if you leave school or drop below half-time status.
Your signature on the promissory note says that you've
agreed to this borrower responsibility.
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Default
Most importantly—don't let this happen to you.
The terms of your loan hold you to repaying the loan
in-full and on-time. There are serious consequences
for failing to do either.
Not paying—or defaulting—on
your loan can have negative impact on your ability
to purchase a car or home or even obtain a credit card. And, if that's
not enough, if the loan is turned over to a guarantor,
you may be subject to your pay or income tax
refunds being withheld.
If you find you are unable to pay, work with your lender
to learn your options.
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