Questions about In-School and Grace Periods and Loan Forgiveness

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By Mark Kantrowitz

June 17, 2020

During our webinar about Student Loans 101 (Borrowing), participants asked dozens of questions. Here are the answers to questions on borrowing student loans. These are questions about in-school and grace periods and student loan forgiveness.

I thought that all first-time students had a 30-day disbursement delay? Did that change?

There is a 30-day delay for disbursing federal student loans for first-time, first-year undergraduate borrowers of federal student loans. This rule does not apply to parent loans and graduate student loans.

There is a waiver of this rule for colleges with low loan default rates. 

  • If the college’s cohort default rate (CDR) is less than 15% for each of the most recent federal fiscal years for which data are available, the college is not required to delay the disbursements by 30 days.
  • The college may also disburse loans for a study abroad program without the 30-day delay if the college is the home institution for the study abroad program and the college’s most recent cohort default rate is less than 5%. 

Otherwise, the college must wait under 30 days after the first day of the student’s program of study to disburse the loans.

After the loans are disbursed and applied to the student’s account at the college, the college must refund the credit balance, if any, to the student within 14 days.

What happens if you apply for a Parent PLUS loan for the remaining amount of the cost, get approved and then in the fall, if classes are online, the college gives you a refund, so the amount you’re paying for college is less? How is that handled?

The annual loan limit on a Federal Parent PLUS loan is the college’s cost of attendance, minus the amount of other financial aid received by the student. 

If a college reduces the cost of attendance before the college financial aid office disburses the Parent PLUS loan, the amount of the disbursement will be reduced, if necessary, to prevent an overaward. 

If a college issues a refund after the Parent PLUS loan is disbursed, the college will either use the refund to return loan funds to the lender up to the amount of the refund or the college will reduce subsequent loan disbursements to eliminate the overaward. 

If the college inadvertently does not address the overaward, the borrower will be required to repay the excess loan amount before the student can receive additional federal student aid.

When student is over summer break are students responsible for monthly loan payments?

It depends on the loan. 

With federal student loans, the in-school deferment continues during the summer break if the student will be still enrolled in the fall.

Some private student loans have in-school payment options, such as fixed payments of $25 per loan per month and interest-only payments. These payments continue during the summer. Otherwise, the in-school deferment continues during the summer months. 

For both federal and private student loans, the deferment ends if the borrower graduates or drops below half-time enrollment. The borrower then transitions to a 6-month grace period. If the grace period expires, repayment begins.

If the student is once again enrolled on at least a half-time basis before the grace period expires, the in-school deferment continues and the grace period is reset to 6 months.

My daughter is taking final exams for her junior year and receiving Stafford direct loans. Where can she go to learn her current loan balances and how to make a payment prior to graduation?

Borrowers can login to the web site (previously using their FSA ID to check their student loan balances. They can also login to the loan servicer’s web site.

Borrowers whose federal loans are serviced by Great Lakes and Nelnet can make payments on the web site. For other loan servicers, make payments on the loan servicer’s web site. Eventually, borrowers will be able to make payments for all of the loan servicers through the web site.

Does the grace period for federal loans extend if you go into medical school?

It depends.

Federal student loans have a 6-month grace period before repayment begins after the student graduates or drops below half-time enrollment.

If the student returns to school before the grace period expires, the grace period will be reset. 

Thus, if a student graduates from undergraduate school and immediately enrolls in medical school on at least a half-time basis, the grace period will still be available to the student after they graduate from medical school.

However, if a student graduates from undergraduate school, uses up their grace period and enters repayment on their federal student loans, they will no longer have a grace period on the undergraduate federal student loans after they graduate from medical school. The undergraduate loans will qualify for an in-school deferment while the borrower is enrolled on at least a half-time basis in medical school, but the loans will enter repayment immediately after the borrower graduates from medical school. 

Any federal student loans borrowed for medical school, however, will receive a 6-month grace period after the student graduates from medical school.

Questions about Student Loan Forgiveness

If the government enacts student loan forgiveness, will PLUS loans taken out by parents be included?

Maybe. Maybe not. Among existing forms of student loan forgiveness, some forgive Parent PLUS loans and some do not. For example, certain types of military loan forgiveness will forgive Parent PLUS loans borrower by the Servicemember’s parents to pay for the Servicemember’s education. Most other forms of student loan forgiveness do not forgive Parent PLUS loans. 

A good place to start:

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