By Ryan Laspina
Senior Specialist, Red Flags and External Reviews
When you’re a college student, you should earn your degree while accruing as little loan debt as possible. For any debt you do accrue, you should pay it off on time with the use of a standard or graduated repayment plan.
Unfortunately, you may not always find yourself in this ideal situation. But with some financial literacy and effort, you can avoid less-than-ideal debt circumstances, especially when you borrow money for a Federal Student Aid (FSA) loan.
You Remain Liable for FSA Loan Repayments if Your Academic Circumstances Change or You Don’t Find a Job Right Away
You are responsible for all of the FSA loan debt you accrue, even if you drop out or withdraw from school or fall below your half-time enrollment status for an extended period of time. You are expected to start paying back your loans whether you receive a diploma or not.
In addition, you must still repay the debt whether or not you find a job in your field of study. If you cannot find gainful employment, you may be eligible for a deferment or forbearance. However, your loan debt will not be forgiven and interest may continue to accrue.
FSA Loan Interest Still Accrues, Even after You Leave School
If you are not actively paying back your FSA loans, interest continues to accrue even after you are out of school. Unpaid interest on most student loans is typically capitalized (added to the principle balance of the loan).
Ignoring Your FSA Loans Affects Your Financial Situation
Ignoring your student loans has a massive negative impact on your financial situation. Defaulting on your loans can result in a garnishment of your wages, a withholding of your tax refunds and a loss of eligibility for future FSA.
Fortunately, federal student loans have a six-month grace period before repayment begins. Take this opportunity to align your budget and finances. Also, there is no penalty for making interest payments, early payments or multiple payments each month.
Always Know the Conditions of Your FSA Loans and Stay Financially Literate
FSA loans are a great tool to help pay for your college expenses. However, do your research and make sure you know all of the conditions associated with your loan.
The best way to avoid loan repayment problems is to be a financially literate borrower. Pay close attention to entrance counseling, read your Master Promissory Note (MPN) fully and stay in constant communication with your school’s Financial Aid Office and your loan servicer. They will help you remain financially literate.
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