Are you one of the many college students still considering deferring enrollment for a semester, taking a gap year, or requesting a leave of absence? Do you feel pressure because the college financial aid office keeps knocking at your doors, imploring you to “accept” financial aid for the fall and complete your student loan promissory note and loan counseling? Are you concerned that you’ll be on the hook for those student loan funds if you complete all the student loan “to do” items now? Know that you are not alone.
Empower yourself with student loan knowledge. By understanding the student loan repayment terms, you’ll find out in which cases the loans become the latest additional to your credit report.
If you are a recent college bound high school graduate who is thinking about deferring your college enrollment for a semester or a full academic year, it’s important to understand the timing of student loans. Student Loans don’t really become your responsibility until after they are disbursed.
Most colleges want you to complete the student loan promissory note and loan counseling in the summer prior to your enrollment. Why? They want to ensure that the net amount of your student loan funds appear as anticipated financial aid on your college tuition bill (the invoice for the semester’s direct costs like tuition, fees, on campus housing, and meal plans). Since many colleges produce the first invoice 30 to 60 days prior for the fall semester, they want you to complete as much of the process as possible ahead of time.
The good news is that just because you complete the “accept” the student loan on the college’s student portal and complete the student loan promissory note and loan counseling does not mean you have really borrowed the loan yet. The student loan does not become “real” until it is disbursed to the college. In fact at some colleges, first-year, first-time undergraduate borrowers who have never been disbursed a federal student loan at any institution may be required to wait 30 days before receiving their first student loan disbursement.
What does this mean to you? Feel free to complete the college’s student loan process when asked. Then, if you decide to request a deferment for semester or gap year, contact the college’s financial aid office to cancel the student loan.
Taking a Leave of Absence
If you are a current college student considering taking a semester or year long leave of absence, some of the advice is similar - but there are some other considerations. As you may have remembered from your prior year(s) of receiving financial aid, the college may want you to accept your student loan in the summer because they want the anticipated student loan funds on your first college tuition bill for the semester. Accepting the student loan funds does not mean that you are under obligation to repay these funds. As a federal student loan borrower, you have the right to cancel any portion of the entire student loan up until 14 days after the disbursement date. As long as you request a student loan cancellation at the same time you complete the paperwork to request a leave of absence, any newly anticipated student loan funds will not be added to your repayment obligations.
Now comes in the tricky part. As a federal student loan borrower, you only get one six-month grace period for each student loan you have after you cease to be enrolled at least half time. So let’s use an example to illustrate this. If you borrowed a Federal Direct Student Loan for your first year and decide to take a leave of absence for a semester or one academic year, then you will enter into repayment 180 days after the official last day of the last semester you were enrolled taking 6 or more credits. After you re-enroll at least half-time, then your first year student loans will go into deferment, a period of time when you don’t have to make any payments on your student loans. Any new student loans you take out will still include a six-month grace period for after graduation, but your first year student loan will start repayment the month after you graduate.
Be aware that Federal Direct Student Loans offer a variety of benefits that include economic hardship, unemployment, and in-school deferments that may allow you to request that you don’t have to make payments during a full year leave of absence. Just know that you have to request and some of them have a long lifetime limit that you’ll be diving into.
What does this mean to you? Tell the college’s financial aid office that you will “accept” your next year’s student loans while you are in the midst of deciding to take a leave of absence or not. While you are considering this option, think about if you will be in a position to start repaying your student loans during your leave and will be in position to repay some of your student loans the month after you graduate college. If not, make certain that you know your deferment options and how to contact your student loan servicer for help to process your best option.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.