Before you start repayment, you should know:
- 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) and/or servicer(s)
- The loan terms (interest rate, length of repayment, grace period, repayment options, etc.)
- An estimate of your monthly payments
How do you find this information?
- The National Student Loan Database System (NSLDS) lists all the federal loans that you have borrowed
- The BU Law Financial Aid Office (your law school loans)
- Your lender
- Your servicer
Prior to the end of the grace period, you can expect to receive statements from your lenders and/or servicers indicating your outstanding balance and actual monthly payments.
The Department of Education has entered into agreements with several loan servicers that oversee the status of federal student loans, collect payments, and handle deferments, forbearances and other related issues.
How do you make your payments?
You may choose one of three options:
- Mail a check
- Automatic electronic debit from a bank account
- Make an online payment through your servicer's website
Federal Direct Subsidized/Unsubsidized (Stafford) Loans enter their grace period six months after you graduate, or 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 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 immediately 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 similar to 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.
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.
Direct Loans offers several repayment options:
- Standard Repayment - Equal monthly payments over 10 years (the default repayment plan)
- Extended Repayment - Repayment term extends up to 25 years; fixed or graduated payments
- Graduated Repayment - Payments start lower and increase over time; 10 years
- Income Contingent Repayment (ICR) - Payment will not exceed 20% of discretionary income, remaining balance forgiven after 25 years
- Income Based Repayment (IBR) - Monthly payment is calculated using 15% of discretionary income; interest on subsidized loans is paid for the first three years; remaining balance forgiven after 25 years
- Pay As You Earn (PAYE) - Monthly payment is calculated using 10% of discretionary income; interest on subsidized loans is paid for the first three years; remaining balance forgiven after 20 years
The Extended, Graduated, Income Based, Income Contingent, and Pay As You Earn 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.
Concerned about the total cost of your loans?
Pre-pay - without a penalty. Borrowers 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 unless you state specifically where to apply the funds.
Students interested in pursuing employment in the public sector have a number of options to help them to cope with their loan payments while earning a lower salary. The options that you choose can depend on the type of employment and the length of time you anticipate working in the public sector.
Offered through the Federal Direct Loan Program, borrowers who have made 120 qualifying monthly payments while employed full-time in an eligible public service position may qualify for the forgiveness of the balance of their Federal Direct Loans.
The Public Service Loan Forgiveness Program was created to encourage individuals to enter and continue to work full-time in public service jobs. 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.
The Direct Loan Program offers three repayment options that use your income to determine your monthly payment which allows your monthly payment to fluctuate as your income changes. Income Contingent Repayment (ICR), Income Based Repayment (IBR), and Pay As Your Earn (PAYE) can assist you in setting up an affordable monthly payment.
Loan Repayment Assistance Programs (LRAP's)
LRAP's provide financial support in the form of a grant or a forgivable loan to assist borrowers with their monthly payments. LRAP's are offered through several sources:
- BU Law's Loan Repayment Assistance Program
- State LRAP's - Resources: American Bar Association and Equal Justice Works
- Employer-based LRAP's - Resource: Legal Services Corporation
- Federal government employees - Resource: U.S. Office of Personnel Management
- John R. Justice Program - Resource: U.S. Department of Justice
Funds received from a LRAP may be considered taxable income based on IRS regulations. Grants are generally considered taxable income while a forgivable loan may be non-taxable income. You should check IRS Publication 970 for additional information.
What is it?
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 (Subsidized/Unsubsidized), Graduate 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).
When do you consolidate?
Students can consolidate during their grace period or during repayment. 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 and students who are interested in the federal loan forgiveness option for public service. The Federal Consolidation Loan does not have a grace period - so once the consolidation is complete, your loans will enter repayment.
Should you consolidate?
Consolidation provides the most benefit to borrowers with one or more of the following:
- Federal loans with more than one lender/servicer
- Federal loans with a low variable interest rate (consolidation will change the variable rate to a fixed rate)
- Borrowers with federal loans outside the Direct Loan Program who want to benefit from Public Service Loan Forgiveness
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; information is available online at loanconsolidation.ed.gov.
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 your loan servicer 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.
Your loans will be considered in a 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.
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 generally are no prepayment penalties for any private educational loans. If you repay your MEFA Loan early, the payoff amount will include the interest that would have accrued for the remainder of that calendar year.