What Happens To My Student Loans If I Return To School

Q: I am returning back to college after not attending for quite sometime. I have been paying back my student loans from when I did attend, but I am wondering if I will have to continue to pay these previous student loans while I attend college now?

A: The answer to this question can be different, depending on the type of student loans the individual has. For federal student loans, if the student leaves school or graduates, and then decides to return to school at least part-time, they will have the ability to post-pone their student loan repayment while attending school. In addition, the student will also be entitled to a full grace period again when they leave school or drop below part-time student status.

For private student loans, what happens to the borrowers student loan payments if they return to school will depend on their lenders terms and/or policies. For some private student loans if the borrower returns to school after their student loan grace period has ended, and they enter the repayment status of their student loans, they must request a deferment if they wish to post-pone the repayment of their loans. Most private student loan lenders will offer some kind of deferment option for their loans, however the length and qualifications may vary from one lender to the next. Lastly, simply because a student chooses to return school does not mean they have to stop paying back their previous student loans if they are in a financial position to continue with the payments.

Federal Student Loans: What Happens When You Return to College?

If you have federal student loans, you have more flexibility when you return to school. Here’s what typically happens:

1. Deferment Options for Federal Loans

Federal student loans offer deferment options for borrowers who return to school at least part-time (usually 6 credit hours or more). This means you can postpone your loan payments while you’re enrolled in school. For Subsidized Federal Loans, the government will even pay the interest during this time, meaning you won’t accumulate additional interest while you are in school.

2. Grace Periods

If you were in repayment before returning to school, you are entitled to a new grace period once you leave school again. This is typically a 6-month period where you don’t have to make payments on your loans. If you’ve already used up your original grace period, enrolling in school again gives you a new one.

3. Loan Servicer Communication

It’s essential to notify your loan servicer when you return to school. While most loans are automatically placed into deferment, you should still check with your servicer to ensure your loans are in the proper status. If you don’t do this, you might end up making unnecessary payments or accruing interest.

Private Student Loans: What Happens When You Return to School?

For private student loans, the situation is different. Unlike federal loans, there’s no uniform rule about deferment or forbearance options with private loans, as it depends entirely on the lender. Here’s what you need to know:

1. Deferment or Forbearance Options

Some private lenders may offer deferment or forbearance options for borrowers who return to school, but this is not guaranteed. You’ll need to check with your lender to find out if they offer these options. Generally, forbearance allows you to pause your payments temporarily, while deferment can also provide a payment pause. However, the terms and conditions vary from one lender to another, and they may require documentation or specific enrollment statuses (e.g., full-time student).

2. Interest Accumulation

For both forbearance and deferment on private loans, interest usually continues to accumulate. This is a critical factor to keep in mind: the interest on your loan will add up during any deferment period, and you’ll likely be paying interest on the new, higher loan balance once payments resume.

3. Loan Payments While in School

If you’re financially able to do so, continuing to make payments on your private loans while you’re in school can help reduce the amount you owe. You could opt for interest-only payments or even pay down some of the principal, if your lender allows it. This will help keep your loan balance from growing due to accumulating interest, and ultimately save you money in the long term.

What If You Can Continue Paying Your Loans?

Even though you may have the option to defer your loans while you return to school, you don’t have to stop paying your loans if you’re financially able to continue doing so. There are several benefits to continuing your payments:

1. Paying Down the Interest

If you have an unsubsidized loan (common with many private loans), it’s a good idea to continue paying at least the interest while you’re in school. This way, you won’t be hit with additional interest that capitalizes and gets added to your balance once the deferment period ends.

2. Preventing Loan Growth

If you’re concerned about your debt growing during deferment, paying down your loan during school can help keep your loan balance from getting out of control. Some borrowers prefer to tackle the loan while they’re in school so they have less debt when they graduate and enter the workforce.

Understanding Your Loan Terms

Whether you have federal or private student loans, it’s crucial to understand the terms of your loan. Each lender and loan servicer may have different rules regarding deferment, repayment, and interest accumulation. Here are some important things to check:

• Federal Loans – These generally have more flexible options for deferment, and the interest on Subsidized Federal Loans is paid by the government during deferment.
• Private Loans – These can vary greatly in terms of deferment options, interest accumulation, and payment terms. Check the original loan agreement for deferment policies, and contact your lender to explore available options.

What Should You Do Next?

Here are a few steps to ensure you handle your loans properly while attending school:

1. Contact Your Loan Servicer: If you have federal or private loans, reach out to your loan servicer to let them know you are returning to school. Ask them about deferment or forbearance options and any necessary documentation they need.
2. Understand Your Repayment Options: Review the terms of your loans to understand how interest will be handled during deferment and forbearance. For private loans, ask whether interest will accrue, and if so, how it will be capitalized once you resume payments.
3. Keep Making Payments If Possible: If you can afford to continue paying, at least make interest-only payments to prevent your loan balance from growing. This will save you money in the long term.
4. Look for Financial Aid: If your current financial situation makes paying your loans challenging, consider applying for additional financial aid, scholarships, or even looking into income-driven repayment plans.

Returning to school after a break can be exciting, but managing your student loans during this time is crucial to keeping your finances in order. If you have federal loans, you generally have more flexible options for deferment and a new grace period. For private loans, the terms will vary, so it’s essential to check with your lender and review the terms of your loan agreement. Whether or not you continue making payments while in school is entirely up to you, but paying at least the interest on unsubsidized loans can help prevent your balance from growing. Whatever you decide, make sure to stay proactive and keep in communication with your loan servicer to avoid any surprises in the future.