Student Loan Facts

Like most Federal programs, subsidized student loan repayment programs are detailed if not best described as esoteric.

Before reviewing the program details, it is helpful to review the basic facts, terminology and structure. This section of the knowledge vault covers these fundamentals.

What are federal student loans?

Federal student loans are guaranteed by the U.S. Federal Government and may have lower interest rates or fixed interest rates. There are multiple repayment plans and no prepayment penalties.

What are private loans?
  • Private loans in most cases carry higher interest rates than federal student loans and may include a variable interest rate. Private loans can have prepayment penalty fees.
  • If you consolidate federal student loans with a private lender you will forfeit the many benefits and programs available only through the U.S. Department of Education.
  • If your bank (or other financial organization) provides loans backed by the federal government they are likely participating in the FFEL program and this should be clearly described at as a federal student loan. Some private student loan lenders utilize forms that look similar, but are not backed by the federal government. Make sure to look closely and ask questions.
What’s default?

Default occurs if you fail to make payments on time. Once a student loan goes into default the full balance of the loan becomes due – immediately. It also means that other options for delaying payment, including student loan deferment and forbearance, are no longer available.

What type of student loans are there?

The three most common types of loans are:

  • Stafford Loan
  • Parent PLUS Loan (including the Grad PLUS Loan)
  • Alternative student loans (Private Student Loans)

While there are no absolute ways to determine which student loan programs are best there are some general guidelines.

What are federal Stafford loans?

There are two different types of Federal Stafford Loans: (i) subsidized, (ii) unsubsidized.

  • Subsidized Stafford Loans are awarded based on financial need. You will not be charged interest before you begin repayment or during periods of deferment. The federal government “subsidizes” the interest during these periods.
  • Unsubsidized Stafford Loans are not awarded based on financial needs. Any eligible student can take out unsubsidized Stafford Loans. You will be charged interest from the time the loan is disbursed to the time the loan is repaid in full.
Loan Guidelines
  • Interest subsidy: subsidized loans are far better than unsubsidized loans
  • Lowest cost: the loan’s interest rates and fee structure determine the finance charges. Some loans (like mortgages) allow you to pay up-front fees in exchange for a lower interest rate over time. Loans with a longer repayment period are often less expensive.
  • Interest rate options: some are fixed and stay the same over the life of the loan. Some are variable and tied to the prime interest rate (or other index). Rate adjustments can occur annually, quarterly or monthly.
  • Flexibility: consider the repayment options offered. Can the principal be deferred? Are alternative repayment programs offered (e.g., graduated or income-based repayment programs).
Federal Student Loan Examples
  • Direct Subsidized Stafford Loans
  • Direct Unsubsidized Stafford Loans
  • Direct Parent Plus Loans
  • Direct Plus Unsubsidized Consolidation Loan
  • Subsidized Federal Stafford Loans, formally Guaranteed Student Loans (GSL)
  • Unsubsidized and Non-subsidized Federal Stafford Loans
  • Federal Nursing Loans
  • Federal Perkins Loans
  • Federal Parent Plus Loans
  • Subsidized Federal Consolidation Loans
  • Unsubsidized Federal Consolidation Loans
  • Federal Supplemental Loans for Students


There are times when hardships such as unemployment or under-employment can make it difficult for you to repay your student loans. Higher Level Processing is here to assist you in finding a financial hardship student loan program that might apply to your situation. Our experts can help you understand what qualifies as a hardship, and we’ll explore your options for relief.

Learn the Facts

A hardship program for student loans can sometimes defer your student loan payments for up to three years. These programs are often overlooked by those who need relief, and your loan provider may not be eager to bring them to your attention. You should know the facts about financial hardship student loan options, and that is where Higher Level Processing can help.

There are many factors which could possibly qualify you as someone that is suffering an economic hardship. These include periods of unemployment, maternity leave, or disability. Each student’s situation is unique. This is why it is important for you to learn the facts about each hardship program for student loans, and you need to learn these facts from a company that is experienced in student loan debt solutions.

We can Help

At Higher Level Processing we will provide you with the truth about financial hardships and the resources that are available for those in this unfortunate situation.

Repayment Programs

This section of the knowledge vault does not articulate every repayment program available from the U.S. Department of Education.

It provides the next level of detail covering policy intent program structure, definitions and qualifications.

What are federal student loans?

The standard repayment term for a Stafford loan is 10 years. You may be able to extend repayment by deferring or consolidating your Stafford loans. You can choose one of the following plans:

  • Standard Repayment Plan: it requires you to pay a fixed amount each month based on your principle and interest, but will be no less than $50 or the interest that has accrued.
  • Graduated Repayment Plan: it allows you to make lower payments at the beginning of the term and over time your payments increase. Each of your payments must equal the interest accrued on the loan between scheduled payments and initial payment.
  • Income-Based Repayment Plan: your monthly payment is based on your annual income and your loan amount. Payments may change as your income increases or decreases.
  • Extended Repayment Plan: is for borrowers with loans totaling more than $30,000. This plan offers a choice of fixed or graduated payments over a period of up to 25 years.
What are private loans?
  • Federal Family Education Loan (FFEL) allows borrowers to consolidate several loans, with various repayment schedules, into one loan with one monthly payment.
  • Credit bureaus will be notified that your account has a zero balance and you will sign a new promissory note with a new interest rate and repayment schedule.
  • To qualify you must first be in “repayment” status on your defaulted loan (that is, you must make three voluntary, on-time, regular monthly payments). The FFEL program allows you to become eligible for other federal education loans. You must consent to the IRS to disclose to the Department of Education certain income tax information. This information is necessary in order to calculate a monthly repayment plan based on your income.
  • The monthly payments on ta FFEL must, at a minimum, equal all interest as it accrues, while Direct Loan monthly payments may go as low as zero. An order to receive a Direct Loan you must certify that you could not obtained and FFEL or secure a plan that is satisfactory to you.
What’s default?
  • In the case of either a Federal Family Education Loan (FFEL) or a Federal Direct Consolidation Loan (Direct Loan) there are repercussions if you file for a personal bankruptcy seven years after the first payment became due.
  • If you are considering challenging the loan, a consolidation loan may waive some defenses. If you are considering court proceedings to appeal a loan, or your are considering bankruptcy, you should consult a lawyer before applying for consolidation.
  • Another disadvantage of consolidation is that while you cure the default by consolidating a loan, your credit continues to show that at one point you were in default. If you “rehabilitate” a loan instead, any reference to the default is removed from your credit history. After consolidation any collection fees become part of the loan principle.
  • Borrowers may have more opportunity to “compromise” the amount owed on old loans. Compromise entails negotiation of the repayment amount. However, this usually requires a lump sum payment of a major portion of the loan.
What type of student loans are there?
  • In the case of either a Federal Family EduThere are two methods to temporarily stop making payments and avoid a default. They are: (i) Deferment, (ii) Forbearance.
What are federal Stafford loans?
  • You may request the United States Department of Education to grant you a “deferment” which allows you to stop payments (and stop interest from accruing as well). You must meet specific criteria in order to qualify for a deferment.
Loan Guidelines
  • Principal and interest payments may be deferred while the borrower is: (i) attending school at least 50% of the time, (ii) unemployed (up to three years), (iii) studying in an approved graduate fellowship or rehabilitation program for the disabled, (iv) experiencing economic hardship (up to three years).
Federal Student Loan Examples
  • There are two sets of standards for obtaining deferments depending on whether your loans were disbursed before or after July 1, 1993. The standards adopted for loans disbursed after July 1, 1993 tend to be viewed as more generous.
  • Deferment Standards for loans disbursed after July 1, 1993: the maximum unemployment deferment period is increases from two to three years. A new three-year deferment category called “economic hardship” was created which supersedes the former three-year deferment for specified types of financial hardship which include: (i) temporary total disability, (ii) primary caregiver for a disabled dependent, (iii) parental leave,(iv) mother with preschool children at or near minimum wage. Those who receive public assistance, automatically qualify.
  • Some of the more important grounds for deferral of loans disbursed prior to July 1, 1993 are: (i) unemployment (maximum of two year deferment), (ii) full-time student at participating school, (iii) active duty status in the U.S. Armed Forces, (iv) receiving, or being scheduled to receive service, under a program designed to rehabilitate disabled individuals, (iv) temporary total disability, (v) providing nursing or similar services to a spouse who is temporarily totally disabled, (vi) parental leave and being a mother of preschool children starting work at no more than $1.00 above the minimum wage.
Deferment of Parent PLUS Loan For Undergraduate Students
  • Parent PLUS deferment options are based on the parent borrower’s eligibility. If the parent, not the student on whose behalf the parent took out the loan, you may be eligible for Federal student loan deferment (principle and interest payments). The criteria (for the parent) are: (i) attending school at least 50% of the time, (ii) unemployed (up to three years), (iii) studying in an approved graduate fellowship or rehabilitation program for the disabled, (iv) experiencing economic hardship (up to three years).
  • Deferment does not lock-in an interest rates. Deferred loans can still have variable rates unless a loan is being deferred that was also consolidated (which has a fixed interest rate). Stafford loans borrowed prior to July 1, 2006 have variable interest rates. Those borrowed after July 1, 2006 have fixed interest rates. If Stafford loans have been consolidated then the interest rate will remain fixed. Deferment has no effect on the interest rate of a loan.
What is forbearance?

Forbearance is a tool to assist borrowers in meeting their loan repayment obligations. Lenders permit a temporary cessation of payments for an extension of time or temporarily accepts smaller payments.

  • Interest continues to accrue. Accordingly the outstanding debt could increase during forbearance. However, forbearance is not available when the loan is in default.
  • Lenders are encouraged to grant a forbearance to prevent a borrower from defaulting and must grant forbearance when your debt exceeds 20% of your gross income. Forbearance cannot be the cause of a negative credit report and no fees can be charged.

Forbearance of payments is typically granted when the borrower is experiencing financial difficulty, but can be requested for any of the following reasons: (i) unemployment, (ii) partial disability, (iii) other documented hardship.

If the borrower is ineligible for a deferment, he/she can still receive forbearance. Unlike deferment, it doesn’t matter if the loans are subsidized or not.

  • The borrower’s loan holder can grant forbearance in intervals of up to 12 months for up to a total of three years.
Forbearance on federal PLUS loans
  • Federal PLUS Loan: the eligibility requirements and procedures are the same as Stafford Loans. Since all PLUS Loans are unsubsidized, interest is charged during forbearance.
Interest rates and federal student loan forbearance
  • Forbearance does not lock-in interest rates. While loans are deferred variable rates may still apply. Consolidated loans that are deferred have fixed interest rates. Stafford loans from July 1, 2006 and prior have variable interest rates and those after July 1, 2006 have fixed interest rates. Stafford loans that have been consolidated remain fixed. Forbearance has no effect on the interest rate of a loan.
How can I obtain forbearance on my loan?
  • The United States Department of Education encourages lenders to grant forbearance if you are in poor health or have other personal problems. Forbearance eligibility is limited to loans held by lenders. It does not apply if the loan has been taken over by guaranty agency or the United States Department of Education. Contact your HLP Advisor for additional information.