As one of the millions of Americans who were able to attend college thanks to the availability of federally insured student loans, you have a responsibility to be informed about the repayment process. You're liable for your student loans even if you don't graduate, or if you graduate but can't find employment.

The most common type of student loan is a Stafford loan. These are either subsidized, meaning that the federal government pays the interest while you're in school and during grace and deferment periods, or unsubsidized, which means you're responsible for interest during these periods.

If you didn't pay the interest while you were in school, you'll have a larger loan balance to pay now that you've graduated or dropped out, because the interest was capitalized, or added to the balance of your loan. Your monthly payments will be higher and you'll pay more interest over the life of the loan.

You can use the online calculator on the Sallie Mae website to estimate the accrued interest on your loan and your new loan balance after deferment.

Grace Periods

The day after you graduate, withdraw, or drop to less than half-time status, your six-month grace period begins (some types of loans have different grace periods). You're allowed one grace period per loan, during which no principal payments are required. Your first loan payment will be due approximately thirty to forty-five days after the end of your grace period.

Deferments and Forbearances

Deferment is one option for relief during a period of financial difficulty. If you qualify for a loan deferment, you won't be required to make principal payments on your loan during that period. Interest payments are still due, but if you have a subsidized Stafford loan, the federal government will make the interest payments for you.

If you have an unsubsidized Stafford loan, you'll be responsible for making the interest payments yourself during the deferment period, or the interest will be added to your loan balance. You can qualify for a deferment under the following circumstances:

• Unemployment

• Enrollment in school

• Graduate fellowship

• Financial hardship

• Rehabilitation program due to disability

If you don't qualify for a deferment, you may qualify for forbearance, a special arrangement with your lender that allows you to reduce or postpone principal payments temporarily. Interest continues to accrue during this period on both subsidized and unsubsidized Stafford loans, and if you don't pay it during the forbearance, it will be added to the balance of your loan. This costs you more in the long run because you'll be paying interest on the interest.

To request a deferment or forbearance, you have to complete an application available from your lender. Some lenders provide these online. Within thirty days of submitting your application, you'll be notified in writing whether or not your deferment or forbearance was approved.

You can automatically receive a forbearance if you participate in a qualifying program such as a medical or dental internship or residency, or AmeriCorps — or if you're serving on active duty as a member of the U.S. armed forces.

You may also qualify for debt-burden forbearance if your student loan payments are high compared to your income. Other forbearances are granted at the discretion of the lender based on your individual circumstances.

Repayment Options

If you're trying to minimize your monthly payment, try to balance your immediate need for lower payments with your long-term financial goals, which include paying off debt at the lowest reasonable cost.

Review the status of your student loans annually to see if you're taking advantage of all the benefits offered by lenders and if the plan you're in still suits your changing financial situation. Just because the terms of your student loans include a particular repayment plan doesn't mean you're stuck with it; if it isn't working for you, you can apply for a change (you can even do it online). There are several options available:

• Standard repayment: You pay the same amount each month over ten years or less, which results in lower interest costs than most other options, except prepayment.

• Graduated repayment: You repay the loan over the same period but the payments are smaller in the early years and significantly larger in the later years. Because the lower payments include mostly interest and you don't pay the balance as quickly, you'll pay more interest.

• Income-sensitive or income-contingent repayment: If you're eligible for these options, your payments can be based on a fixed percentage of your gross income each month. The percentage is between 4 and 25 percent and your payments are made over fifteen years with the income-sensitive repayment plan and 25 years with the income-contingent repayment plan. You have to reapply every year.

• Extended repayment: You can use this plan if you owe more than $30,000 in federal student loans. It gives you lower monthly payments over a twelve- to thirty-year period using either the standard or graduated repayment plan.

• Loan consolidation: This option allows you to combine all of your eligible student loans into one loan with one monthly payment.

• Prepayment: No matter what plan you have, there's always the option of prepaying all or part of your student loans at any time without penalty, which can greatly reduce your interest costs.

Forgiveness of Loans

In limited circumstances, some student loans can be forgiven without requiring repayment. You may be eligible to have part of your Stafford loan canceled if you obtained it on or after October 1, 1998 and you've taught full-time for five years in a low-income school. You can obtain an application from your student loan lender.

The federal government recently instituted a new program whose purpose is to bring more highly qualified child-care providers into the profession and keep them longer. If you're eligible for this program, you may be able to wipe out part of your undergraduate Stafford loan.

To be eligible you must have an associate's or bachelor's degree in early childhood education, must have worked for at least two years as a child-care provider in an eligible facility serving a low-income community, and must have taken out your loan as a new borrower after October 7, 1998.

A similar program, the Nursing Education Loan Repayment Program (NELRP), exists for registered nurses who serve in eligible facilities located in areas experiencing nursing shortages.