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Federal Stafford Student Loans: Understanding the Promise of the Promissory Note

Before school begins each semester many students will need to borrow money for tuition and college expenses. So, they will take out federal student loans. As federal student loan borrowers, they will be asked to sign a master promissory note. This is the document that requires them to repay the money that they are borrowing. Therefore, it is important to understand the promises made regarding repaying the money.

The most important thing for borrowers to remember when they are taking out student loans is that they are promising to repay the loans in the future. They will be paying the amount borrowed, the interest accrued, any fees that were added to the loan amount (such as origination and guarantee fees) and any late charges or collection costs that they might incur if they do not make their loan payments on time. The loan interest begins accruing on the date the loan funds are originally disbursed and continues accruing until the loan is paid in full. (In some cases, the federal government may pay the interest while you are in school.) The interest rate is determined by the federal Higher Education Act.

As for repayment, if the loan money is not used solely for educational purposes, if the borrower fails to enroll in school at least half time or if the borrower lies to receive funds for which he or she is not eligible, then the loan will become due immediately. Otherwise, all borrowers who comply with the terms of the loan are given a grace period upon graduation or when they cease to be at least a half time student. Typically, borrowers are given six months before they need to start repaying the loans. However, the grace period may be extended an additional three years if the student is called to active duty for the U.S. military. The borrower is given a choice of repayment plans that typically run from 5 -10 years and require monthly payments. However, the repayment term can be extended to 25 years in certain circumstances.

Deferment options are also available in certain limited circumstances. Borrowers may be able to defer their loan payments if they are a full time student in a graduate program, enrolled full time in a rehabilitation program for individuals with disabilities, if they are unemployed and unable to find a job despite conscientious job seeking, or if they are under economic hardship as determined by federal law.

Forbearance of the loan payments may also be an option, pursuant to the federal Stafford student loan promissory note. Forbearance allows borrowers to temporarily stop making payments in cases of illness or economic hardship. Medical and dental interns and residents may also be eligible for this option as may be some military personnel, teachers and daycare providers.

Federal Stafford loans are just one type of student loan. Every type of loan has its own promissory note that explains the specific borrowing and repayment terms of the loan. While all promissory notes require student borrowers to repay their loans, the details may vary and it is important to read the promissory note carefully and make sure that you understand what you are agreeing to before you sign it and accept the funds.

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