Guide to Debt Management

Commonly abbreviated MPN, this is the legally binding contract that sets the terms and conditions of your loan. It is also your signed acknowledgement that you will pay back the loan you have borrowed, plus any applicable interest. Some MPNs can be used over multiple years (such as the one for the Federal Direct Loans) while others need to be signed each time a disbursement is requested. Your lender can tell you which is applicable to your loan program.

These are temporary pauses on your loan payments, granted at the lender’s discretion. Deferment may be available for situations such as graduate student enrollment, certain volunteer work, armed forces enrollment, and economic hardship. Forbearances are typically limited only to economic hardships; however, your lender can explain which of these two options are available to you and when.

A loan servicer is in charge of overseeing the repayment process. This means they collect monthly payments, calculate payoff amounts, and generally manage your account. It is possible your loan servicer and your lender are different. Remember, the lender gives you the loan, the servicer is in charge of getting it back.

This is the maximum amount of time over which you can pay back your loan. For most education loans, the standard repayment term is 10 years. Others can stretch to 15, 20, or even 25 years depending on the program. By making prepayments or over-payments on your loan, you can shorten your repayment term and decrease the cost of the loan.

What is delinquency?
Your student loan status will become delinquent if your monthly payment is not received by the due date.

What is default?
Default is the failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. Default is very serious, and the consequences can harm your credit and hinder your ability to borrow money for future purchases like a car or house.

Avoid delinquency and default.
Communicating with your servicer is the key to avoiding delinquency and default. Many options are available that can lower or postpone your student loan payments. Stay in touch with your loan servicer—let them know if you’ve changed your contact information, and make sure that they know when you’ve completed your educational program or transferred to another school.

To verify which servicers provide customer service for your loans, visit StudentAid.gov. You will need your FSA ID user name and password to access the site. Your StudentAid.gov account is now a one-stop shop for managing your student loans and financial aid. 

This is the period of time after you drop below half-time enrollment and before you start repayment. Not all loans have a grace period, so check with your lender first. Typically, loans retain their characteristic of being subsidized or unsubsidized during the grace period.

Note that grace periods start after dropping below half-time enrollment. This means that if you take a gap year or leave of absence, it is possible your loan could run through its grace period and payments would be due before you return to school.

If a loan is subsidized, then any interest that accrues while you are in school or in deferment is paid by the lender. If a loan is unsubsidized, then interest starts accruing immediately after the loan is disbursed and the borrower is responsible for it. Many unsubsidized loans have the option of either paying interest as it accrues, or simply adding it to the principal of the loan. Adding loan interest to principal is known as capitalizing or capitalization.

Parent Loans can be divided into two options – federal and private. The Federal Parent Loan for Undergraduate Students (known as the PLUS loan) is a widely used program available for parents of undergraduate students. Private loans can also be used, but will likely require a cosigner. When comparing private loan offers, be sure to include the PLUS loan in your comparison. 

There are many private loans available to students, however we recommend using institutional and federal loan options first. Almost all private loans will require a co-signer and are credit-based. Private loans likely do not have protections that Federal Loans have, so discuss this option with your Financial Aid Officer before applying.

Click here for specific information on Federal Loan Options.

Click here for specific information on Private / Alternative Loans.

These can reduce the need for loans by covering some or all of your unmet financial need.

Click here for specific information on Outside Scholarship opportunities. 

This is an option many students use to help cover everyday expenses. Through our Student Employment webpage, you can look for jobs both on and off campus. Through part-time work during the semester you can use your wages towards things like books, travel, or other personal expenses. Wages can also be used to make prepayments on your loans, reducing potential long-run borrowing costs.

Why wait in line? Here’s a convenient way to make online “one-time” education payments to your school using a checking account or statement savings account. You may also use Visa, Mastercard, Discover or American Express credit cards. Please note there is a convenience fee for using a credit card.

Click here for specific information on RWU's Monthly Payment Plan.

As a general guideline, your starting salary after graduation should be able to accommodate loan payments totaling no more than 10-15% of your monthly gross income. Use an online calculator to estimate the average salary for your desired occupation (in your desired city) and this will give you an idea of what your monthly income might be. In tandem with loan payments, remember to include expenses such as rent, food, and utilities.

For many loans, once you drop below half-time enrollment you will enter a grace period when you are out of school but loan payments have not yet begun. An important step before your grace period expires is figuring out how much you will owe each month. This is a function of how much you borrowed, your interest rate, and your repayment term. If you do not have this information already, you should contact your lender now and find out.

To estimate your monthly payment, use a loan amortization calculator like the one from BankRate Student Loan Calculator. For Federal Direct and PLUS Loans, the interest rate is fixed - it won’t change over the life of your loan. Many private loans have variable rates though, so your monthly payment with those is likely to change over time. This means estimates made now may not be useful in the future, since changes in interest rate will change your payment. For specific information on your rate, contact your lender. Waiting until that first payment is due to find out how much you owe can be an expensive mistake, so start planning early.

There are many websites and resources out there that can help estimate your earnings potential based on your intended concentration, career path, and location. These are a few we have used in the past, but by no means is this an exhaustive list.

• www.GlassDoor.com
• www.Salary.com
• www.PayCheckCity.com
• www.ZipRecruiter.com/salaries

Your monthly payment is a minimum amount you are obligated to pay each month, but you can always pay more if you want. By paying more than the minimum due each month, you can drastically reduce the amount of interest you pay in the long run, thus reducing the total cost of the loan.

For example, a $10,000 Student Loan with a minimum required monthly payment of $100; If you were to add just $10 each month to that payment, you could reduce the repayment term from 10 years to 9 and lower the overall cost by roughly $250.

For education loans, there are no penalties for making prepayments and, the larger these payments are, the less expensive your borrowing becomes. If your lender says you cannot make prepayments or discourages you from doing so, we suggest finding a new lender.

Interest capitalization is when interest that has accrued on your original loan gets added to the principal balance. Capitalized interest creates a larger loan, which generates additional interest, which generates additional cost. If, during a grace period or forbearance, you can make interest-only payments, this can mitigate the long-run cost of your loan. Be sure to contact your lender to see if interest-only payments are an option, since not all lenders offer this.

• For Federal Direct and PLUS Loans: Your loan servicer will vary. If you haven’t already been contacted you can verify your servicer by logging into studentaid.gov. 
• For Private Education Loans: Any inquiries you have about repayment, deferment, applications, or otherwise should be directed toward your lender.

Deferment is a temporary pause in repayment granted at lender's discretion. The most common reason to request a deferment is graduate school. Students enrolled at least half-time in post-graduate work can usually receive a deferment on their loans. Other reasons could include serving in the armed forces, experiencing economic hardship, or severe illness/disability. The only way to know for sure if you are eligible is to contact your lender. Make sure to ask how long a deferment lasts, since some may only be one year and require new applications each year thereafter. For subsidized loans, a deferment keeps the subsidy going so additional interest will not accrue.

A forbearance is also a temporary pause on loan payments, but without any subsidy. Interest continues to accrue regardless of loan type. A forbearance is usually offered for cases of economic hardship and should be used as a last resort. Because loan interest continues to accrue, a prolonged forbearance can dramatically increase the amount of debt for which you are responsible.

The option to change your repayment plan varies by lender. For Federal Direct Loans, there are several potential plans. Many of these are income based and require approval before you can sign up. The best way to explore your options is by speaking with your servicer directly. While alternative payment plans might lower your monthly payment, they can also increase the overall cost of borrowing. In general, the 10-year repayment plan is the cheapest option (assuming minimum payments.)

Click here for information about federal loan payment plans.

If you withdraw, take a leave of absence, drop below half-time enrollment, or leave college entirely, your loans will enter their grace period and then go into repayment. It is important to contact your service lender(s) so you can discuss repayment or deferment options, as well as what happens if you decide to re-enroll. If you leave school, temporarily or permanently, repayment begins regardless of whether or not you have received your intended degree. This is why it is important to keep track of your grace period and provide your lenders with up-to-date contact information.

If you transfer schools while an undergraduate, you should let your lender(s) know where you are attending and what your enrollment status will be. They may request proof of enrollment from your new school, especially if you are requesting an in-school deferment. This is typically completed with help from a Registrar’s Office. In addition, you may be required to complete Loan Exit Counseling. This is where you review the terms and conditions of your loans, including your repayment obligation.