Student Loans

Whether or not you need to borrow to help finance your education is an important decision you and your family must make. Student loans are financial obligations which must be repaid once you graduate or withdraw from school. Please read below for a full description of the Federal Direct Stafford Loan Programs including your rights and responsibilities as a borrower. We have also included helpful links to financial/debt management information at the end of this section.

Federal Stafford Loans are federally subsidized and unsubsidized student loans. Funds are provided directly through the school from the Department of Education. The Office of Financial Aid recommends and approves the amount a student may borrow. Repayment of principal and interest does not begin until six months after the recipient graduates, leaves college, or falls below half-time enrollment status. The interest rate for 2011-2012 for a Subsidized Stafford Loan disbursed on or after July 1, 2011 is fixed at 3.4%. Unsubsidized Stafford Loans are fixed at 6.8%.  WPI will be processing loan applications for all students with paid tuition deposits and with Federal Stafford Loan recommendations in their award packages. No application needs to be sent to WPI. Once your application has been processed, you will receive a letter and / or an email from the WPI Office of Financial aid and / or the Department of Education with instructions on how to electronically complete and sign your Master Promissory Note. 

Students must file a Free Application for Federal Student Aid (FAFSA) so that WPI can determine need-based eligibility for the Federal Stafford Loans. The Federal government sets annual borrowing limits according to year in school or grade level.

First year students: $3,500
Second year students: $4,500
Third and Fourth Year Students: $5,500

  **  As of July 1, 2008 undergraduate students are also eligible to borrow an additional Unsubsidized Stafford in the amount of $2,000 per year.

Students cannot borrow in excess of $23,000 over the life of their undergraduate education under the standard subsidized / unsubsidized Stafford Loan program.  With the creation of the additional Unsubsidized Stafford Loan program in 2008-2009 students became eligible to borrow up to an additional $8,000 in Unsubsidized Stafford loan funding (maximum of $2,000 per year) in addition to the $23,000 limit making the combined limit $31,000.

Students ineligible for the subsidized Federal Stafford Loan may borrow through the Unsubsidized Federal Stafford Loan Program. In the Unsubsidized Stafford Loan Program, the Federal government does not pay the interest accrued while the student is enrolled. The student has the option to capitalize the interest and postpone payment of principal and interest until after graduation or withdrawal from school.

You may also find yourself borrowing through different programs while enrolled as a student. Based on your eligibility you may be offered funds under the Federal Perkins Loan, Massachusetts No Interest Loan or an institutional loan program. It is important to keep track of what programs you borrowed under, who the lender/servicer was and how much you borrowed. Keeping a loan record will help you keep track of the several agencies involved.

Rights and Responsibilities as a Stafford Loan Borrower

As a Stafford Loan borrower you have certain rights and responsibilities under the current law. You have the right to ask for a deferment of your loan if you are experiencing economic hardship due to unemployment, temporary disability, or service in the Peace Corp, Vista or other volunteer activity. You may also ask for a deferment if you are continuing your education while enrolled at least half-time. During an approved deferment period both principal and interest are deferred.

You may also ask your lender for a forbearance if you are temporarily unable to make your payments. A forbearance is usually a short-term deferment that allows you to defer the principal and pay interest only during this period.

Certain branches of the military as well as law enforcement agencies may offer partial cancellations of your loans based on the number of years of service. Some public service careers such as public health service and teaching in low income areas may also offer partial cancellation as well.

Along with these rights come certain responsibilities as well:

 

Repayment Options

Once you have graduated or ceased to be enrolled you will have a six-month grace period before you start repaying your loans. During this time, you will be contacted by your lender/servicer with information regarding different repayment options available to you. These options are:

Standard Repayment
With Standard Repayment, you will make a fixed payment of at least $50 a month for up to 10 years. For some borrowers, this plan results in the lowest total interest paid because the repayment period is shorter than would be under the other plans, usually with a shorter repayment, the lower the total interest expense for the borrower.
Income Contingent Repayment (ICR)  Plan
This plan gives you the flexibility to meet your loan obligations without causing undue financial hardship. Each year your monthly payment amount will be calculated based on your annual income, and family size and the total amount of your loans. To participate in the Income Contingent Repayment Plan, you must authorize the U.S. Internal Revenue Service to release information about your income to the U.S. Department of Education. This information will be used to calculate your repayment amount annually.  There is a 25 year limit on repayment.  After 25 years any remaining debt will be discharged (forgiven).  The amount of debt discharged is counted as taxable income for that tax year.
Graduated Repayment Plan
With Graduated Repayment, your payments start at one level, then increase every 2 years. The repayment period varied from 12 to 30 years and depends on the total amount you have borrowed. If your income Is low when you leave school but is likely to increase steadily over time, this might be the best plan for you.
Consolidation
Consolidation is combining all of your federal loans into one loan with one monthly payment. The interest rate will be based on the weighted average of the loan's interest rates. This option is the one of last resort because over the longer term, you will be paying a lot more interest. Your parent's PLUS Loan cannot be consolidated with your student loans.

Consequences of Delinquency and Default

If you keep in touch with your lender or servicer with the various repayment options, deferments and forbearances available, there is no reason for you to become delinquent in your payments or go into default. But if you do miss payments your lender/servicer will contact you. If you continue to miss payments without making contact, you will be considered in default and your credit will be damaged for as much as 7 years. This means no car loans, no credit cards and no mortgages will be approved during that period. Until you get back on track, state and federal tax refunds can be confiscated, wages may be garnisheed and you will not be eligible to receive further financial assistance for education.

Financial/Debt Management

Personal financial planning and setting up expense budgets for yourself can be beneficial to you now as well as when you graduate and are out working. By calculating a weekly or monthly budget and staying within that budget, you might be able to borrow less in student loans.

The College Board provides some Money Management Tips for Students.

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Last modified: October 05, 2011 15:18:34