Your Rights and Responsibilities as a Student Loan Borrower

As a federal loan borrower your have many rights that include your right to know all of the particulars about your loan—specifics on when you will start to pay it, who owns your loans, options during repayment and much more. Naturally, by borrowing money and agreeing to pay it back, you are also bound by many important responsibilities during the life of the loan.

Here’s what you need to know.

Your Rights:

Before your school makes your first loan disbursement, you must receive the following information about your federal student loan from your school, lender, and/or the Direct Loan Servicing Center:

• The full amount of the loan and the interest rate.
• The date you must start repayment.
• A complete list of any charges you must pay (loan fees) and information on how those charges are collected.
• Information about the yearly and total amounts you can borrow.
• Information about the maximum repayment periods and the minimum repayment amount.
• An explanation of default and its consequences.
• An explanation of available options for consolidating your loans and a statement that you can prepay your loan(s) without penalty at any time.

What Should Happen Before You Leave School

Before you leave school, you will receive the following information about your federal student loan (as part of “exit counseling”) from your school, lender, and/or the Direct Loan Servicing Center:

• A current description of your loans, including average anticipated monthly payments.
• The amount of your total debt (principal and estimated interest), your interest rate, and the total interest charges on your loan.
• If you have Federal Family Education Loans (FFELP) loans, the name of the lender or agency that holds your loans, where to send your payments, and where to write or call if you have questions.
• If you have Direct Loans, the address and telephone number of the Direct Loan Servicing Center.
• An explanation of the fees you might be charged during the repayment period, such as late charges and collection or litigation costs, if you’re delinquent or in default.
• A reminder of available options for loan consolidation and a reminder that you can prepay your loan without penalty at any time.
• A description of applicable deferment, forbearance, and discharge (cancellation) provisions.
• Repayment options and advice about debt management that will help you in making your payments; and notification that you must provide your expected permanent address and the name and address of your expected employer. You must also provide any corrections to your school’s records concerning your name, Social Security Number, references, and driver’s license number (if you have one).
• On Stafford, Perkins and Direct Loans, you have the right to a grace period before your repayment period begins. (Your parents do not receive a grace period for a PLUS Loan.) Your grace period begins when you leave school or drop below half time status.
• Your school, lender, and/or the Direct Loan Servicing Center, as appropriate, must give you a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.
• If you or your parents borrow under the FFEL Program, you (or your parents, for a PLUS Loan) must be notified when the loan is sold, if the sale results in making payments to a new lender or agency. Both the old and new lender or agency must provide this notification and must provide the identity of the new lender or agency holding the loan, the address to which the borrower must make payments, and the telephone numbers of both the old and new lender or agency.
• Note: Your private loans may not be dealt with in the “exit counseling” meeting.

Your Responsibilities:

• When you sign a promissory note, you’re agreeing to repay the loan according to the terms of the note. The note states that, except in cases of loan discharge (cancellation), you must repay the loan, even if you don’t complete your education (unless you couldn’t for a valid reason—because the school closed, for example). Also, you must repay your loan even if you can’t get a job after you complete the program, or you don’t like (or don’t receive) the education you paid for, or don’t complete your education (unless, again, you have a valid reason – for example, the school closed).
• Think about what your repayment obligation means before you take out a loan. If you don’t repay your loan on time or according to the terms in your promissory note, you might go into default, which has serious consequences and will affect your credit rating.
• You must make payments on your loan even if you don’t receive a bill or repayment notice. Billing statements (or coupon books) are sent to you as a convenience, but you’re obligated to make payments even if you don’t receive any reminders. You must also make monthly payments in the full amount that your repayment plan has established. Partial payments do not fulfill your obligation.
• If you apply for a deferment or forbearance, you must continue to make payments until you’re notified the request has been granted. If you don’t, you might end up in default. You should keep a copy of any request form you submit, and you should document all contacts with the organization that holds your loan.
• You must notify your loan servicer when: you graduate; withdraw from school; drop below half time status; change your name, address, or Social Security Number; or transfer to another school.
• For Direct or FFELP Stafford Loans, you must complete “entrance counseling” before you receive your first loan disbursement, unless you’ve previously borrowed a Stafford Loan. No matter what type of federal student loan you have, you must receive “exit counseling” before you leave school. Your school will provide the counseling and important information about your loan. Your lender will give you additional information.

Problem-Solver: The Federal Student Aid Ombudsman

Another resource for you is the Federal Student Aid Ombudsman of the Department of Education. This person helps resolve disputes and solve other problems with federal student loans. For more information, visit the FSA Ombudsman homepage at www.ombudsman.ed.gov.