Glossary of Terms

Deferment

Deferment allows you to temporarily stop making payments on your federal student loans. You are not charged interest on subsidized loans during deferment. Student loan deferment is an agreement between the student and lender that the student may postpone repayment of a student loan for a designated period. The student agrees to pay more money for the loan so the loan will not be in default. If the student is experiencing financial hardship or is unemployed, he or she may be eligible for deferment. The lender will require valid proof of financial hardship and other financial information when the student applies.

Forbearance

Forbearance allows you to temporarily stop making payments or reduce your federal student-loan monthly payment. To avoid the collections process, the lender and the borrower can make an agreement called "forbearance". According to this agreement, the lender delays his right to initiate collections if the borrower can catch up to his payment schedule in a certain time. This period and the payment plan depend on the details of the agreement that are accepted by both parties. When a lender offers a forbearance, they are taking control of the situation so that they can maneuver whichever way best serves the lender. The borrower is still responsible for the total monthly payment due each month, though they will accept the agreed forbearance amount. When the forbearance period is over the total amount of the original payments for that period is still due.

Loan Default

Loan Default - For the FFEL and Direct Loan programs, your loan is in default if you fail to make a payment for 270 days, if you repay monthly (or 330 days, if your payments are due less frequently). Your lender is required to report the default to at least one national credit bureau. Default on a loan can adversely affect credit for many years. A student who wishes to return to school cannot qualify for federal aid in the United States until satisfactory payment arrangements are made on the defaulted loan. New collection costs are added to the loan’s balance and the loan becomes drastically more expensive than before. These costs can be reduced or eliminated through consultation with a Student Loan Advocate with USA Student Loans.

Repayment Schedule

Standard Repayment Plan - Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans. If you have not selected a repayment plan by the time repayment begins, your loan(s) will be placed on the Standard Repayment Plan.


Graduated Repayment Plan - Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase.


Extended Repayment Plan - To qualify for this plan, your Direct Loan balance must be greater than $30,000, and you will have up to 25 years to repay your loan(s). Plan options include:

Fixed Monthly Payment Option - You will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms.
Graduated Monthly Payment Option - You will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase.

Income Contingent Repayment (ICR) Plan - payment amount is based on your income (and your spouse's income, if you are married), loan balance and family size, and can vary year-to-year for up to 25 years.


Income-Based Repayment (IBR) Plan - payment amount is based on your income (and your spouse's income, if you are married and you and your spouse file joint tax returns) and family size, and can vary year-to-year for up to 25 years. You must be experiencing a partial financial hardship to enroll in the IBR Plan.

Tax Offset

Tax Offset -The government may take your income tax refund if you are in default. A number of states also have laws that authorize state guaranty agencies to take state income tax refunds. Computer records of all borrowers in default are sent to the I.R.S. Borrowers in default can expect to have all or a portion of their tax refund taken and applied automatically to federal student loan debt.

Wage Garnishment

Wage Garnishment is the process of deducting money from an employee's monetary compensation (including salary), sometimes as a result of a court order. Wage garnishments continue until the entire debt is paid or arrangements are made to pay off the debt. Garnishments can be taken for any type of debt but common examples of debt that result in garnishments include defaulted student-loans. Employers receive a notice telling them to withhold a certain amount of their employee's wages for payment and cannot refuse to garnish wages. Employers must correctly calculate the amount to withhold, and must make the deductions until the garnishment expires.

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