Federal Loan Repayment

Prior to July 1, 2010, students at Fordham Law borrowed their Federal Stafford and Grad PLUS Loans from a bank or other lending institution, such as Citibank, Sallie Mae or Access Group, through the Federal Family Education Loan Program (FFELP). These are FFELP loans. 

After July 1, 2010, students borrowed these same loans directly from the Federal Government through the Department of Education. These are Direct Loans. As an undergraduate, you may have borrowed FFELP Loans or Direct Loans, depending upon the School attended.

It is important to distinguish between the two types of loans, particularly if you plan to take advantage of the Pay As You Earn (PAYE) Repayment option and/or the Federal Public Service Loan Forgiveness Program since only Federal Direct and Federal Direct Consolidation Loans qualify for each. Both Day and Evening students graduating in 2014 who borrowed through the Federal loan programs borrowed Direct loans.

What Type of Federal Loans did I Borrow while Attending Fordham Law School?

Types of Loans

Direct Subsidized - government pays the interest that accrues while the borrower is in school, plus six months thereafter

Direct Unsubsidized - the borrower is responsible for the interest that accrues from the date of each disbursement

Direct Grad PLUS Loan - the borrower is responsible for the interest that accrues from the date of each disbursement

Students graduating in 2014 who were enrolled in the Day School may have borrowed $8,500 in Subsidized Federal Direct and $12,000 in Unsubsidized Federal Direct Loans for their first year at the Law School. During the second and third year, the Subsidized Direct Loan was unavailable to graduate students. However, day students could borrow $20,500 in an Unsubsidized Direct Loan. In addition, day students could borrow up the cost of attendance, less all other financial aid received, in a Federal Direct Grad PLUS Loan for each year in attendance. 

Type of Loans a Day Student graduating in 2014 may have borrowed

2011-12
$8,500 Subsidized Direct
$12,000 Unsubsidized Direct
Direct Grad Plus

2012-13
$20,500 Unsubsidized Direct
Direct Grad Plus

2013-14
$20,500 Unsubsidized Direct
Direct Grad Plus

Students graduating in 2014 who were enrolled in the Evening Division may have borrowed $8,500 in Subsidized Federal Direct and $12,000 in Unsubsidized Federal Direct Loans for their first two years at the Law School.  For years three and four, evening students could borrow $20,500 in an Unsubsidized Direct Loan. Evening students also could borrow up the cost of attendance, less all other financial aid received, in a Federal Direct Grad PLUS Loan for all four years. 

Types of Loans an Evening Student graduating in 2014 may have borrowed

2010-11
$8,500 Subsidized Direct
$12,000 Unsubsidized Direct
Direct Grad Plus

2011-12
$8,500 Subsidized Direct
$12,000 Unsubsidized Direct
Direct Grad Plus

2012-13
$20,500 Unsubsidized Direct
Direct Grad Plus

2013-14
$20,500 Unsubsidized Direct
Direct Grad Plus

To determine the type of loans you borrowed and the amounts borrowed, log on to http://www.nslds.ed.gov. There you will find a complete listing of your Federal loans. If the loan is not prefaced by the word "direct," it is not a Direct Loan; it is most likely a FFELP Loan that you borrowed as an undergraduate. 

Are the Loan Terms Different for each of the Federal Loans I Borrowed?

Prior to 7/1/12, graduate students could borrow up to $8,500 in a Direct Subsidized Federal loan.  This Subsidized loan accrued no interest while the student was in school, plus six months thereafter.  When the Subsidized loans go into repayment status at the end of the six-month grace period, interest will accrue on these loans at the fixed rate of 6.8%.  After 7/1/12, graduate students were no longer eligible to borrow a Subsidized Loan. 

The Unsubsidized Federal Direct Loans borrowed prior to 7/1/13 accrued interest from the date of each disbursement at the fixed rate of 6.8%.

Unsubsidized Federal Direct loans borrowed after 7/1/13 and prior to 6/30/14 will accrue interest at the fixed rate of 5.41% for the life of the loan.

Federal Direct Grad PLUS Loans borrowed after 7/1/10 and prior to 6/30/13 accrued interest from the date of each disbursement at the fixed rate of 7.9%.

Federal Direct Grad PLUS Loans borrowed after 7/1/13 and prior to 6/30/14 will accrue interest at the fixed rate of 6.41% for the life of the loan.

Academic Year 2010-11

Direct Subsidized Loan
0% in school & grace;
6.8% in repayment

Direct Unsubsidized Loan
6.8%

Direct Grad Plus Loan
7.9%

Academic Year 2011-12

Direct Subsidized Loan
0% in school & grace;
6.8% in repayment

Direct Unsubsidized Loan
6.8%

Direct Grad Plus Loan

7.9%

Academic Year 2012-13

Direct Subsidized Loan
Unavailable to graduate students

Direct Unsubsidized Loan
6.8%

Direct Grad Plus Loan
7.9%

Academic Year 2013-14

Direct Subsidized Loan
Unavailable to graduate students

Direct Unsubsidized Loan
5.41%

Direct Grad Plus Loan
6.41%

Undergraduate Federal Stafford Loans may have interest rates that are fixed or variable.  Before the 2006-07 academic year, the interest rate on Federal Stafford Loans was variable and it changed every July 1st.  Some law students may have variable rate Stafford Loans (FFELP or Direct) that they borrowed as undergraduates, and they may have consolidated those loans with a FFELP lender to take advantage of locking in the low interest rate for the life of the loan. Again, it is important to distinguish if these consolidation loans are FFELP or Direct Consolidation Loans, particularly if the borrower plans to take advantage of the Federal Public Service Loan Forgiveness Program or the Pay As You Earn (PAYE) Repayment Plan. Only Direct Loans and Direct Consolidation Loans are eligible for Federal Loan Forgiveness and the PAYE Repayment Plan.

For a complete listing of your Federal education debt, please log on to www.nslds.ed.gov. To obtain additional information for each loan listed, click on the number of the loan. 

There are no penalties for prepayment of your Federal loans.

In the event of death or total and permanent disability, FFELP Stafford and Grad PLUS, as well as Federal Direct and Direct Grad PLUS Loans will be cancelled.

When Will I be Expected to Begin Repayment of my Federal Loans?

Federal Direct Subsidized and Unsubsidized Loans borrowed during Law School have a six-month grace period, usually calculated from graduation.  At the end of the six-month grace period, these loans will go into repayment status, and you will be expected to begin repayment the following month.

Grad PLUS Loans disbursed after July 1, 2008, have an automatic six-month post enrollment deferment so repayment of those loans begins when you begin repayment of your Direct Subsidized and Unsubsidized Loans. However, interest will accrue during the post-enrollment period, and this interest will be capitalized, i.e., added to the amount borrowed, at the end of this period. 

If you borrowed through the Federal loan program as an undergraduate, you may have used up the grace period on those loans, and you may be expected to begin repayment of those loans immediately after graduation.  If you are not in a position to begin repayment of those loans immediately, contact your loan servicer to request a deferment.

What Repayment Options are Available to me on my Federal Loans?

The Federal Loan Repayment options available to you on the Federal loans you borrowed are

Non-Income Driven Repayment Plans

Standard Repayment: 10-year repayment term.  epayments are in qual amounts each month and include both interest and principal. This Plan costs the least amount in interest over the repayment term, but it is the highest monthly payment.

Graduated Repayment: 10-year repayment term, but payments at the beginning are lower, with the payments gradually increasing every two years. Payments are never less than the monthly accrued interest. 

Extended Repayment—Fixed or Graduated: 25-year repayment term, depending upon the amount borrowed.  Borrower must have more than $30,000 in outstanding FFELP loans to choose this plan for those loans and more than $30,000 in outstanding Direct loans to choose this plan for those loans. 

Borrowers can choose a fixed repayment for 25 years or a payment that gradually increases every two years over the 25-year term. The Graduated Extended Plan helps graduates who need more cash for living expenses after graduation, but it will cost the borrower more in interest over the life of the loan if paid over the 25-year term. 

Income Driven Repayment Plans - Requires annual submission of income documentation

Income-Sensitive Repayment: Available on FFELP Loans only. 10-year repayment term, but the lender may increase the term to 15 years. Monthly payments are based on the borrower's expected total monthly gross income and on the amount of the loan debt. Payments are adjusted annually. 

Income Contingent Repayment (ICR): Available only on Direct and Direct Consolidation Loans. 25-year repayment term. Payments are based on the borrower's total debt, annual income and family size and are limited to 20% of the borrower's Discretionary Income. Discretionary Income is the difference between the borrower's Adjusted Gross Income and 100% of the poverty guideline amount for the borrower's family size. Payments are adjusted annually. Any balance remaining at the end of 25 years will be forgiven. Unpaid interest is capitalized once a year but the amount capitalized will not exceed 10% of the amount owed when the borrower entered ICR.  

Income Based Repayment (IBR): Available on FFELP and Direct Loans, but not Parent PLUS Loans or a FFELP or Direct Consolidation Loan that repaid a Parent PLUS Loan. Borrowers need not consolidate to choose IBR, but the borrower must be experiencing a partial financial hardship to be eligible. Limits loan repayments to 15% of Discretionary Income. Discretionary Income is the difference between the borrower's Adjusted Gross Income and 150% of the poverty guideline amount for the borrower's family size. Payments are adjusted annually.

Under IBR if the borrower's monthly payment does not cover the interest that accrues on the loans each month, the Government will pay any unpaid interest on the Subsidized portion of the borrower's debt for up to three consecutive years from when the borrower first entered IBR.  After three years and for all other types of loans the unpaid interest that accrues will be capitalized, i.e., added to the principal balance, when the borrower is no longer eligible for IBR.

Once the borrower is no longer eligible for IBR because he/she is no longer experiencing a partial financial hardship, any unpaid interest will be capitalized.  The borrower may remain in IBR and continue making payments under the amount the borrower would have paid on the Standard ten-year repayment plan when he/she first entered IBR until the balance is paid in full or eligible for forgiveness.  Any balance remaining at the end of 25 years will be forgiven.

If the borrower chooses to leave IBR, any unpaid interest will be capitalized, and the borrower will be placed into the Standard ten year Repayment Plan based on the term remaining on the debt.  For example, for Stafford and PLUS Loans, the borrower will have ten years minus the time the borrower has been in repayment under IBR to repay the balance remaining.  Consolidation Loans may have a 10 to 30 year repayment term, depending upon the amount of the borrower's debt, minus the time the borrower has been in IBR to repay the balance remaining. 

Pay As You Earn (PAYE): Available on Direct Loans and Direct Consolidation Loans only.  To be eligible, a borrower must be a new borrower as of October 1, 2007 AND must have a Direct Loan disbursement after October 1, 2011 AND be experiencing a partial financial hardship. 

The Direct Loan disbursement after 10/1/11 can be a Direct Consolidation Loan, but it cannot include a loan borrowed prior to 10/1/07.  Limits loan repayments to 10% of Discretionary Income.  Discretionary Income is the difference between the borrower's Adjusted Gross Income and 150% of the poverty guideline amount for the borrower's family size.  Payments are adjusted annually.  Any balance remaining at the end of 20 years will be forgiven.

Under PAYE if the borrower's monthly payment does not cover the interest that accrues on the loans each month, the Government will pay any unpaid interest on the Subsidized portion of the borrower's debt for up to three consecutive years from when the borrower first entered PAYE.  After three years and for all other types of loans the unpaid interest that accrues will be capitalized, i.e., added to the principal balance, when the borrower is no longer eligible for PAYE, but the amount capitalized willl not exceed 10% of the amount owed when the borrower entered PAYE.

Borrowers are advised to log on to their loan servicer's website, www.studentloans.gov, or www.finaid.org and use the loan repayment calculators to compare loan repayments under each of the above repayment plans. 

What is a Partial Financial Hardship?

Borrowers must be experiencing a Partial Financial Hardship to be eligible for the Income Based Repayment Plan or Pay As You Earn Plan.  

Borrowers are experiencing a partial financial hardship if their annual loan repayments on a Standard (ten year) Repayment Plan are greater than the annual repayment they would be required to make under IBR or PAYE. 

To calculate an IBR or PAYE repayment amount, use the on-line calculators at your loan servicer's website or at www.studentloans.gov or www.finaid.org. Compare this monthly repayment with the monthly repayment determined under the Standard (ten year) Repayment Plan. If you have loans accruing interest at different interest rates, input into the calculator the total for the same interest rate loans separately. Add the results from each calculation to get an estimate of your payments under the Standard (ten year) Repayment Plan.

If your payment under IBR or PAYE is less than your payment under the ten-year plan, based on the greater of the amount you owed on your loans when the loans initially entered repayment or the amount you owe at the time you request IBR or PAYE, you are experiencing a partial financial hardship and meet that eligibility requirement for IBR or PAYE.

Are there Disadvantages to the Income Driven Repayment Plans?

Borrowers under the Income Driven Repayment Plans are required to submit annual income documentation, and as a result repayment amounts may fluctuate annually.

In addition, if the borrower's monthly payments do not cover the interest that accrues monthly on the total debt, the unpaid interest will be capitalized, i.e., added to the borrower's principal balance.  It is this new balance upon which future interest will be charged. 

Under ICR, the unpaid interest will be capitalized annually but will not exceed 10% of the loan balance at the time the borrower entered ICR. 

Under IBR, any unpaid interest will be capitalized when the borrower is no longer experiencing a partial financial hardship. 

Under PAYE, the interest will be capitalized when the borrower is no longer experiencing a partial financial hardship. However, the capitalized interest will not exceed 10% of the borrower's loan balance at the time he/she entered PAYE.

This negative amortization as it is called may result in an increase in the outstanding balance of the debt over and above what the borrower owed at the time he/she entered the income driven repayment plan. 

Married borrowers must file their Federal taxes as "married, filing separately," in order to have the income driven loan repayment based on the borrower's income alone.  This may result in a loss of certain tax benefits. 

Income driven repayment plans result in a longer repayment period and the payment of additional accrued interest.

How Do I Apply for an Income Driven Repayment Plan?

Go to www.studentloans.gov and apply on-line using the e-Application for IBR, ICR, PAYE or the lowest monthly payment available to you. Using the on-line application enables you to release your prior year's tax information electronically. 

You must affirm that the information on your prior year's tax return substantially represents your current financial situation.  If the information on your prior year's tax return does not substantially represent your current financial situation, you may file the Alternative Document of Income form; however, this is a paper form and cannot be done on-line.

Be sure to note whether the on-line application has been sent to all your loan services and print the confirmation for your records.

What Do I Do if I cannot Pay my Loans?

If you run into problems repaying your education loans, contact your loan servicer(s) immediately. 

You my request a deferment which is a temporary postponement of principal and interest payments. During periods of deferment, the government will pay the interest that accrues on the subsidized portion of your debt. The interest that accruess on the unsubsidized portion of your debt will be capitalized, i.e., added to your principal balance. It is this new balance upon which future interest will be charged. Federal loan borrowers are eligible for a maximum of three years of deferment. 

The types of deferment available to you on your Federal loans are
  • Unemployment
  • Economic Hardship
  • Graduate Fellowship (full-time)
  • Rehabilitation Training (full-time)
  • Military Service
  • Half-time enrollment in an eligible school
If you are ineligible for a deferment, ask that you be considered for one of the Income Driven Repayment plans.  If you have no income, you should be required to pay nothing on your debt!

During IBR and PAYE, the government will pay the interest on the subsidized portion of your debt for three consecutive years if your payments do not cover that interest. You will be responsible for the interest accruing on all other unsubsidized loans. 

If all else fails, request forbearance.  During periods of forbearance, you will be responsible for the interest that accrues on your entire debt.  Federal loan borrowers are eligible for a maximum of three years of forbearance.

Should I Consolidate my Federal Loans?

A few years ago, almost every law graduate consolidated his/her Federal loans to extend the repayment period beyond the maximum ten-year repayment term and to lock in the low variable interest rate for the life of the loan.  These reasons no longer exist.  Federal loan borrowers can get up to 25 years to repay their loans under several repayment plans and the interest rates on those loans are fixed. 

The reasons a borrower might consider consolidating are
  • A borrower has FFELP loans that are ineligible for the Federal Public Service Loan Forgiveness Program or the new Pay As You Earn Repayment Plan, as only Federal Direct Loans and Federal Direct Consolidation loans are eligible for each.
  • A borrower needs a Federal loan disbursement after 10/1/11 to be eligible for PAYE.  A consolidation loan will satisfy the disbursement requirement as long as the consolidation does not include a loan borrowed prior to 10/1/07.
  • A borrower has several Federal loan servicers and is required to write several loan repayment checks each month.  Consolidating will result in one Federal loan monthly payment.
Borrowers should be cautioned not to consolidate their Federal loans in a private loan consolidation as this will result in a loss of all the Federal loan benefits (i.e., deferment/forbearance, income driven repayment options/cancellation, etc.).
For information and the Federal loan consolidation application, go to http://www.studentloans.gov. As part of the application process, you may choose your Federal consolidation servicer (FedLoan Servicing, Great Lakes, Nelnet or Sallie Mae).  You may also select a repayment plan, and if applicable, complete the electronic Income-Based Repayment (IBR), Pay As you Earn (PAYE) or Income Contingent Repayment (ICR) Plan request as part of the Direct Consolidation Loan process.

Things to Consider when Choosing a Repayment Plan

Your Financial Goals. Where do you see yourself five or ten years down the road, married, with children, owning a home, car, planning for retirement.

Your Total Debt.  Do you have credit card debt which may be accruing interest at a much higher interest rate than your student loans?  Consider lowering your monthly loan repayments to pay off your higher interest rate credit card debt first. 

Your Net Income.  What will you actually take home each paycheck after taxes, FICA and Medicare have been deducted?

What can you afford to pay each month on your education loans?  Prepare a budget.  Compare your income with your expenses.

Your Attitude Toward Debt.  Do you wish to pay off your education loans as quickly as possible or do you wish to pay it off at a slower rate utilizing the savings you incur each month to save for retirement?

Are there repayment incentives on any of the Federal loan repayment plans?  If you opt for automatic debit of your monthly payments, you will receive a .25% in interest rate reduction which could add up to a considerable amount over the life of the loans, depending upon the amount borrowed.

Are there penalties for prepaying my Federal loans?  There are no penalties for prepaying any of your Federal loans.  Making lump sum payments over and above your monthly payments will save a considerable amount of interest over the life of the loans.  Always pay off the highest interest rate loans first and work your way down to the lowest to get the greatest benefit.

Does your employment qualify you for Federal Loan Forgiveness?  If so, be sure you choose a repayment plan that qualifies for that forgiveness.

Are you eligible for Fordham's Loan Repayment Assistance Programs?  If you are employed in a 501(c)(3) corporation or have a two-year clerkship or two one-year clerkships, you may be eligible to receive loan repayment assistance from Fordham.  If you are unsure whether you are eligible, check with the Financial Aid Office.

Are there any Federal Tax Benefits for Education?

There are tax credits and there are tax deductions. A tax credit reduces the amount of income tax you are required to pay. A deduction reduces the amount of your income that is subject to tax, thus reducing the amount of tax you have to pay. The most commonly used deduction for law graduates is the Student Loan Interest Deduction. 

Deductions
  • Student Loan Interest Deduction
  • College Tuition & Fees
Tax Credits
  • American Opportunity
  • Hope
  • Lifetime Learning
For a description of each, see Publication 970 at www.irs.gov.