Loan Repayment Question and Answers — Questions and Answers

Question 1: The subsidized loan's outstanding interest is covered by the federal government while...

Deferment
In-School
Grace Period
All of the above (Correct answer)

Correct answer: All of the above

For subsidized federal student loans, the government pays the interest that accrues during specific periods to help borrowers manage their debt. These periods include while the student is enrolled in school at least half-time, during the grace period after leaving school, and during periods of approved deferment. This benefit significantly reduces the total amount borrowers have to repay.

Question 2: When the borrower has applied the following to his or her federal student loan, the government will cover any outstanding interest for the first three years on a subsidized federal student loan:

Income-Based Repayment (Correct answer)
Forbearance
Deferment [DUEM & DHAR] (Correct answer)

Correct answer: Income-Based Repayment

Under the Income-Based Repayment (IBR) plan, the federal government provides an interest subsidy for subsidized loans. If your monthly IBR payment doesn't cover the accrued interest, the government will pay the remaining interest for up to three consecutive years from the date you began IBR. This helps prevent your loan balance from growing due to unpaid interest while you're making reduced payments based on your income.

Question 3: Which payment plan with the servicer will apply to the account if a student doesn't respond to a letter from the servicer warning that the IBR on his or her account will expire in 45 days and a new plan is necessary when the IBR is about to expire?

Extended Repayment Plan
Standard Repayment Plan (Correct answer)
Graduated Repayment Plan

Correct answer: Standard Repayment Plan

If a borrower on an Income-Based Repayment (IBR) plan fails to recertify their income and family size or doesn't choose a new repayment plan before their current IBR period expires, the loan servicer will typically default them to the Standard Repayment Plan. This ensures that payments continue, but it can result in a significantly higher monthly payment than the IBR plan, as it's not based on income.

Question 4: True/False: A student's repayment strategy is subject to alter once a year.

False
True (Correct answer)

Correct answer: True

Borrowers of federal student loans generally have the flexibility to change their repayment plan once a year, or even more frequently depending on the specific circumstances and plan types. This allows students to adjust their repayment strategy to better suit their current financial situation, such as switching from a standard plan to an income-driven plan if their income decreases. It's important to contact your loan servicer to explore available options.

Question 5: True or False: To be eligible for the Graduated Repayment Plan, a student must be a graduate student.

False (Correct answer)
True

Correct answer: False

The Graduated Repayment Plan is available to all federal student loan borrowers, regardless of whether they are undergraduate or graduate students. This plan starts with lower payments that gradually increase over time, typically every two years, and is designed for borrowers who expect their income to rise over their repayment period. Eligibility is not tied to graduate student status.

Question 6: The servicer can approve and submit the following repayment options over the phone.

Income-Based Repayment Plan
Graduated Repayment Plan (Correct answer)
Extended Repayment Plan (Correct answer)

Correct answer: Graduated Repayment Plan

Loan servicers can often process requests for certain repayment plans, like the Graduated Repayment Plan and the Extended Repayment Plan, over the phone. These plans have more straightforward eligibility criteria compared to income-driven plans, which usually require submitting documentation of income. Always confirm with your specific loan servicer about their procedures for changing repayment plans.

Question 7: DERP is an acronym for...

Date Enter Repayment (Correct answer)
Deferment Ends Repayment Plan Starts
Deferment Economic Repayment Plan

Correct answer: Date Enter Repayment

DERP stands for 'Date Enter Repayment' in the context of student loans. This date marks the official beginning of the repayment period for a loan, typically after the grace period has ended. It is a crucial date for tracking loan status, calculating interest, and determining eligibility for certain repayment benefits or programs.

Loan Repayment Question and Answers

The subsidized loan's outstanding interest is covered by the federal government while...