Loan Repayment
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How to Prepare for Repayment
You should have copies of the disclosure statements and promissory notes for all your loans.
You should know the following information as you prepare to enter repayment:
- The amount you borrowed during law school
- The amount that you borrowed as an undergraduate and during any other graduate program
- The name, address and phone number for your lender(s)
- The loan terms (interest rate, length of repayment, grace period, repayment options, etc.)
- An estimate of your monthly payments
This information is available from several sources including the Law Financial Aid Office, your lenders - including the Federal Direct Loan Servicing Center, and the National Student Loan Database System (NSLDS).
One to two months prior to the end of the grace period, you can expect to receive statements from your lenders indicating your outstanding balance and actual monthly payments.
Federal Loan Repayment
Your Federal Direct Loans will be repaid through the Direct Loan Servicing Center, which is part of the US Department of Education. You may contact them at 800.848.0979. You may also access your account online.
You will receive a payment invoice in the mail each month or you may choose electronic debit or online payment.
Grace Period
Federal Direct Stafford Loans enter their grace period six months after you graduate or six months after your leave of absence or withdrawal from the university becomes effective. During the grace period, the in-school loan terms continue:
- No payments are required
- Interest on subsidized loans is paid by the government
- Interest accrues on the unsubsidized loans
The grace period is only granted once for each loan. If you borrowed student loans for your undergraduate program or another graduate program, and you were out of school for more than six months before beginning law school, you will not receive a second grace period for these loans. Repayment will begin 30 to 60 days after graduation from law school.
Graduate PLUS Loans do not have a grace period. Grad PLUS Loans borrowed after August 1, 2008 are eligible for a 6 month post-enrollment deferment that will postpone the start of their repayment in much the same way as the grace period on the Stafford Loans. This deferment should be automatically added to your loan, however, students are urged to check prior to graduation to make sure that the deferment is on their loans.
Graduate PLUS Loans borrowed prior to August 1, 2008 may be put into a forbearance period so that the repayment start date can match up to the other loans.
Interest Capitalization
Any unpaid, accrued interest on your unsubsidized loans is capitalized or added to the principal balance at the end of the grace period. This will result in a higher starting principal balance.
Paying the interest on your unsubsidized and private loans before it is capitalized will reduce the total amount you will repay, since interest will accrue on a smaller balance.
Repayment Options
Direct Loans offers five repayment plans for repayment:
- Standard Plan: equal monthly payments over 10 years
- Extended Plan: borrower chooses equal monthly payments or graduated payments that increase over time; 25 year repayment term
- Graduated Plan: payments increase over time; 10 year repayment term
- Income Contingent Plan: monthly payments are calculated as 20% of (AGI - poverty level); includes spouse’s income; unpaid principal and interest is forgiven after 25 years
- Income Based Repayment: the monthly payment is calculated using 15% of (AGI -150% of poverty level); includes spouse's income if taxes are filed jointly; interest on subsidized loans is paid for the first three years; unpaid principal and interest is forgiven after 25 years
The Extended, Graduated, Income Based and Income Contingent Plans are designed to reduce your monthly payments. Because you will usually be repaying the loans over a longer repayment term, they will accrue additional interest and the total amount repaid will be higher than under the Standard Plan.
Students are allowed to prepay any amount at any time without a penalty regardless of the repayment option that they choose. Students may make additional payments on a monthly basis or periodically throughout their repayment. Any payment received in excess of the standard monthly payment will be applied first to any outstanding interest balance and then to the principal.
Public Interest/Government Employment
Students interested in a career in public interest have new repayment options that can make it easier to choose this career path. Income Based Repayment (descibed above) and Public Service Loan Forgiveness are designed to work together to provide students in lower-paying public service employment support to be more able to afford their living expenses while in this type of position.
Public service employment is defined by the Act as follows: A full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education, social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences and other school-based services, or at an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code.
To be eligible, borrowers must:
- Make 120 monthly payments on the eligible Federal Direct Loan on or after October 1, 2007;
- Be employed in a public service job as defined in the Act during the time that he or she makes the qualifying payments;
- Be employed in a public service job as defined in the Act at the time that the loan is forgiven; and
- Make qualifying payments under one of (or combination of) the following:
- Income Contingent Pepayment plan;
- Income Based Repayment plan ;
- Standard repayment plan with a ten year repayment period; or
- One of the other Direct Loan repayment plans under which the borrower paid a monthly amount that is not less than what the borrower would pay under a ten year repayment plan.
Students who complete 120 monthly payments while employed in a public service job will have the remaining principal and interest of their loan forgiven.
The Public Service Loan Forgiveness requires that students borrow Federal Direct Loans or consolidate their loans through the Federal Direct Consolidation Program.
Alumni or current students who have consolidated or borrowed their federal loans through other lenders may want to consider a Direct Consolidation Loan. Alumni who consolidated away from the Direct Loan Program are allowed to reconsolidate their loans back into Direct Loans to take advantage of this option.
Federal Loan Consolidation
Federal Loan Consolidation is a repayment option that allows you to borrow a new loan to replace your existing federal loans (can include Federal Stafford, Grad PLUS, Perkins, and Federal Consolidation Loans ). The terms of this loan include the ability to extend your repayment term up to 30 years (for debt greater than $60,000) and a fixed interest rate (calculated as a weighted average, rounded up to the nearest 1/8th of a percent).
Students should consolidate during their grace period or during repayment, but there is not, strictly speaking, a deadline for consolidation. You should consider consolidation as another way to structure your loan repayment. This option will work best for students who have federal loans with multiple lenders, students who need a lower monthly payment, and students who are interested in the federal loan forgiveness option for public service.
As you try to determine whether consolidation is the best option for you, the choices can seem rather complicated. Students are encouraged to contact the Law Financial Aid Office with any questions they have about consolidation. Your lenders can also answer many of your questions and there is information available online at loanconsolidation.ed.gov and finaid.org.
Tip: Private Loan Consolidation has become more popular in recent years. It is difficult for the Law Financial Aid Office to widely recommend that students consolidate their private loans because interest rates and fees for this type of loan are determined by an individual's credit history.
Deferment and Forbearance
Students who are temporarily unable to make their loan payments have two short-term options: deferment and forbearance. These options will either suspend or reduce your monthly loan payments for a short period of time. They may be used for a variety of situations, including, but not limited to, interruptions in employment, delayed employment start dates, illness, or to delay payments while setting up a new repayment option.
If you are having difficulty making your payments, it is imperative that you contact the Direct Loan Servicing Center immediately. Not only will a deferment or forbearance relieve your financial situation, it will also protect your credit rating by preventing your loans from entering delinquent or default status (see below).
A deferment is a period during which payments of principal are postponed. No interest accrues on subsidized loans. Interest is charged on the unsubsidized loans and may be paid or allowed to accrue and capitalize.
Borrowers must request the deferment and meet specific eligibility criteria. Documentation may also be requested. Deferments may be granted for cases of unemployment and economic hardship. These deferments are typically granted for six or 12 month periods and may not exceed three years in total.
During a period of forbearance, borrowers may either suspend payments or reduce their scheduled monthly payment amount on a temporary basis. Students must apply for forbearance and may be required to submit supporting documentation. Interest continues to accrue on both the subsidized and unsubsidized loans. Interest is capitalized when the forbearance ends. The forbearance is available for a total of three years.
Delinquency and Default
Your loans will be considered in delinquent status if your payment is not received by the lender by the payment deadline. Late charges may be assessed and the delinquency may be reported to the credit bureaus. Your loans will be considered in defaulted status if your payment is more than 270 days overdue. The consequences of default may include the following:
- The lender can declare the entire balance of your loans due immediately
- Your wages can be garnished
- You will no longer be eligible for a deferment
- The IRS can withhold your income tax refund
- Your account can be turned over to a collection agency and the government can take legal action against you.
- Collection and litigation costs can be added to your loan balance
The default will appear on your credit report for at least seven years.
You can avoid delinquency and default by signing up for electronic debit payment, updating your address promptly if you move and requesting a deferment or forbearance before you miss a payment.
Private Loan Repayment
Repayment of private loans begins six or nine months after you leave school depending on the terms set by the lender. The repayment period varies by lender, but is usually 15 to 20 years.
You will usually be able to defer payment of your private loans if you are in a dual degree program at Boston University. However, private lenders may not offer in-school deferments if you decide to return to school for another degree program.
While some private lenders may offer limited repayment options, you should be prepared to make loan payments under the standard terms of the loan program.
There are no prepayment penalties for any private educational loans. If you repay your MEFA loans early, the payoff amount will include the interest that would have accrued for the remainder of that calendar year.