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How Federal Financial Aid Organizations Work


Paying Back Loans
Counseling sessions that help you understand your loans can reduce any stress related to paying them back.
Counseling sessions that help you understand your loans can reduce any stress related to paying them back.
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Student loans are great because they usually have lower interest rates than other loans, and you don't need to pay them back right away. You still need to pay them back, though. Refusal to do so -- called defaulting -- can impact your credit history, which will be a problem if you want to buy a house or get another loan later on in life.

The first order of business is signing a promissory note, which means you promise to pay the loan. You'll do this when you receive the loan. You'll also go through counseling to help you understand the specifics around your loan and learn how to budget your money.

Before you graduate or leave school, you'll attend another counseling session to review what you owe, the interest rate, fees and consolidation options. You'll also find out when the grace period for your loans ends.

Once your loan payments kick in, you're responsible for paying them each month, even if you aren't able to find a job right away. If you've received a Perkins Loan, you'll have up to 10 years to repay it. Those with Stafford Loans have a little more flexibility in their repayment options -- from 10 to 25 years, depending on what type of repayment plan you've arranged with your lender. These plans can be based on a fixed amount, or they can vary based on income and ability. You may also have the option of consolidating your loans to make payments easier and establishing a fixed interest rate on them.

If you're really running into difficulty repaying your loan, you can apply for a deferment, which will allow you to postpone certain types of loan payments in the event that you re-enroll in school at least half-time, can't find employment, suffer undue economic hardship or are called to active military duty. Depending on the type of loan you have, it may or may not accrue interest during the deferment period.

If you don't qualify for a deferment but still can't pay back your loan, you may ask your lender for forbearance, which allows you to reduce payments or postpone them for a fixed amount of time. You're still responsible for the full amount of the loan, and you'll continue to accrue interest on the outstanding balance. In extremely rare situations, your loans may be completely forgiven, such as if your school closes, you become permanently disabled or you die.

For lots more information on financial aid, see the links on the next page.