Frequently Asked Questions

When you fail to make a payment on your loans for 270 days (about 9 months) you are in default on your student loan. If your lender does not have a current address or phone number for you and cannot communicate with you, your loans can go into default and you may not even know it. That's why it is so important to keep an updated address and phone number on file with your lender. After default occurs, the lender may be reimbursed for the unpaid balance of your loan. Then the guaranty agency and/or federal government will come after the money you owe. They can be relentless, and they can take drastic actions now and in the future.

Consequences of Default:

• The entire amount of your loan, including interest, will become immediately due and payable.
• You will be ineligible for deferments and forbearances.
• You will be ineligible for obtaining more student assistance.
• Your  federal and state tax refunds can be withheld.
• Your default will be reported to credit agencies and can affect your credit rating for up to seven years - which practically eliminates any chance of new bank credit or loans (including auto loans, credit cards, even store credit!).
• Collection agencies can be utilized to collect amounts you owe and you can be required to pay attorney fees, court costs, penalties, and additional interest.
• Your wages can be garnished.
• You can have legal action initiated against you.

If you do default, start immediately to repair the damage before it gets worse! Contact your guaranty agency and work with them to establish a workable repayment schedule. By making nine (9) on-time payments in ten (10) consecutive months, you could obtain rehabilitation. That will restore your status (and benefits) as a good borrower.

If you encounter hardship and are concerned that making your payments may become difficult, contact your lender or guaranty agency immediately - while you can still take advantage of other options! By taking early action to help yourself, you will encourage your lender or guaranty agency to help you avoid default. Some options that are available to you are:

• Deferments - which lets you postpone monthly payments
• Forbearance - which allows you to reduce or delay payments
• Discharge/Forgiveness - which eliminates your obligation to repay all or part of your loan (These provisions apply primarily to certain teaching qualifications, permanent and total disability, or death, but there are a few others as well)
• Changing your repayment plan - to either Standard Repayment, Income Sensitive Repayment, Graduated Repayment, or Extended Repayment (if eligible)
• Consolidation Loan - which allows you to combine your loans, often extending your repayment and offering smaller monthly payments

The most important thing to do is to contact your lender or guaranty agency before any problems arise! This will allow you to work together to find a suitable solution.

A deferment entitles you to postpone monthly payments on your student loan. Deferments are important because they give you flexibility - and may save you money! For example, on Federal Subsidized Stafford Loans, the federal government pays your interest during a deferment. And the time your loan is in deferment is not counted in the maximum period you have to pay the loan back. So it is worthwhile to protect your deferment rights, just as you would be careful with your grace period. (Your grace period is the time after you withdraw, graduate, or drop below half-time until you have to start making payments on your loan. A Federal Stafford Loan has a six-month grace period.) You can apply for a deferment for a number of reasons, such as:

• Education (continuing your education)
• Mental or Physical Rehabilitation Program
• Graduate Fellowship Program
• Unemployment
• Economic Hardship
• Military or National Guard Service

To obtain a deferment timely, try to submit your request before the date you want the deferment to start. A deferment may be renewed, but not for longer than the cumulative time limit for that specific deferment. For example, a deferment for economic hardship cannot exceed a cumulative maximum of three years.

A borrower who is willing but unable to make payments, and who does not qualify for a deferment, may request forbearance from the lender. Forbearance allows payments to stop temporarily or decrease in amount for a specific length of time. The lender may grant forbearance of principal, interest, or both. The borrower is always responsible for repayment of accrued interest charges. The borrower can make interest-only payments, or the interest will be capitalized (added on to the principal). Unlike deferment, forbearance is not an entitlement. It is something the lender may choose to do for the borrower if the borrower is sincere in meeting his/her loan obligation and if the borrower's circumstances indicate forbearance would be helpful. Forbearances are processed for a maximum of 12 months at a time. Forbearance will not eliminate any prior derogatory credit history. Our online calculator can help you estimate the cost of a forbearance or an unsubsidized deferment.

There are four repayment plans offered on Federal Stafford Loans; they are:

1. Standard Repayment - requires you to pay a set amount monthly (with a minimum of at least $50) for up to a maximum of 10 years. However, this set amount may be changed depending on your interest rate, number of payments and total principal balance. Don't let the $50 minimum lull you into believing that would be your payment. If you borrowed $10,000.00 for 10 years at 6.8% interest, your monthly payments would be $115.08. 

2. Income Sensitive - is adjusted yearly according to your annual income and the amount of your loan. If this plan requires more than 10 years to complete your repayment, your lender can put your loan in forbearance to lengthen your repayment time up to five additional years.

3. Graduated Repayment - begins with smaller monthly payments, and then enlarges the payments over 10 years. The amount of your loan determines how often and by how much your payments increase.

4. Extended Repayment – allows for the repayment period to be extended for up to 25 years.  You must be a new borrower on or after 10/7/98 with FFELP loans totaling more than $30,000. You may choose to make standard or graduated payments under this plan.

Other payment options include prepaying on your loan. You can make prepayments on your loan at anytime without penalty. You benefit significantly if you make prepayments on Federal Subsidized Stafford Loans because the government pays interest on these loans while you are enrolled in school at least half-time, in grace, or while the loans are in deferment. So you are paying off the principal faster. Some lenders offer other special benefits or incentives. For example, if you pay each month with an automatic withdrawal from your checking account, or if you make payments on time for several years, you may be able to obtain a lower interest rate or principal reduction. To change your repayment type, you must contact your lender.

Payments are first applied to any outstanding late fees (if applicable), then to any outstanding accrued interest, and lastly to the principal balance. If you choose to make payments during a deferment period and you have a Federal Subsidized Stafford Loan, the government pays the interest on your loan. Therefore, any payments you make will most likely go directly to your principal balance. If your loan is not subsidized (unsubsidized Stafford, PLUS, or other), all payments made will be applied in the standard way.

For loans, other than Consolidation Loans, first disbursed on or before June 30, 2006, the interest rate on Stafford loans is most likely variable, which means it is subject to increases or decreases based on the economy. Interest accrues daily and is calculated on the number of days between the receipt of each payment.

For undergraduate Stafford loans disbursed on or after July 1, 2006, interest rates are as follows:

• July 1, 2006 through June 30, 2008 - 6.80%
• July 1, 2008 through June 30, 2009 - 6.00%
• July 1, 2009 through June 30, 2010 - 5.60%
• July 1, 2010 through June 30, 2011 - 4.50%
• July 1, 2011 through June 30, 2012 - 3.40%
• On or after July 1, 2012 - 6.80%

Interest rates for graduate Stafford loans disbursed on or after July 1, 2006, interest rates remain fixed at 6.80%.

It is possible that Nelnet owns your student loan, although we service loans for many other lenders.

Yes, if you need funding in addition to Stafford loans, Nelnet offers numerous loan options you can explore, including PLUS loans.