Student loans have been a topic of news stories for months leading to questions and confusion regarding federal student loans and private alternative loans.To eliminate that confusion, students and parents should have some basic understanding about the Federal Family Education Loan Program (FFELP) and Ford Federal Direct Loan Program (FFDLP) and private loan industry. I 'll review the FFELP programs in this posting.
FFELP student loans include the Stafford Loan (both Subsidized and Unsubsidized), PLUS loans, GRAD PLUS loans and Consolidation loans. The US Department of Education regulates all aspects of the loans from the interest rates and fees, annual maximum borrowing levels, aggregate borrowing levels through to repayment terms and forgiveness/forbearance/deferment conditions. Borrowers apply for these loans through a bank or guarantee agency which must abide by the federal regulations for FFELP. Borrowers or the lender send the loan application to the college for certification. Once the school certifies the loan, the lender disburses the funds to the school based on the schedule set by the school.
Stafford loans are need based loans. This is why students who wish to apply for FFELP loans need to complete a FAFSA. (The Unsubsidized Stafford is not need based, however, the college must determine a students Subsidized Stafford eligibility first.) Students who are enrolled full or part-time (at least half-time) in an undergraduate or graduate program may apply for a Stafford. Students do not need a credit history or a co-borrower. Loan limits vary for Dependent and Independent students. Loans are repaid after graduation, if the student's enrollment falls below half-time, or leaves school. Subsidized loan borrowers make no payments until they meet one of these statuses. With the Unsubsidized Loan students are responsible for interest payments while in school, although they have the option to defer these payments. When deferred the interest is capitalized and added to the outstanding loan balance, which will add to the overall cost of the loan.
Parents looking to finance a portion of their child's college expenses may choose to apply for a PLUS loan.This loan requires a credit check. Parents may borrow up to the cost of attendance as certified by the school. You can submit a Stafford and PLUS loan at the same time, but the school must determine the Stafford eligiblity for the student prior to certifying a PLUS. If the parents are denied due to a poor credit history, the student may be eligible for an increased Unsubsidized Stafford. Repayment begins sixty days after the loan is fully disbursed.
The GRAD PLUS loan program is similar to the PLUS program but is exclusively for graduate and professional students and is limited to cost of attendance minus financial aid as certified by the college. It is a loan that the student borrows unlike the PLUS loan where the parent is the borrower. It also requires a credit check, but unlike the PLUS loan if the borrower is denied a loan due to a poor credit history, the student borrower is not eligible for an increase in Unsubsidized Stafford. Repayment begins sixty days after the loan is fully disbursed.
The newest loans are the Federal Consolidation Loans, which allow you to consolidate any of the following federal student loans: Federal Stafford, Federal PLUS, Federal Perkins, National Direct Student Loans, Federal Insured Student Loans, Federal Supplemental Loans For Students, Health Education Assistance
Loans, Nursing Student Loans, Loans for Disadvantaged Students. You may also consolidate Federal Consolidated Loans. The interest rate on a Consolidated loan is the weighted average of all loans being consolidated , rounded to the
When you are considering any of these loans you need to be aware of some basic points.
- You have the right as the borrower to choose any lender or guarantor for your loan. Schools must abide by your choice.
- Your college may have a preferred lender list, but you are not required to select a lender from the list.
- It is important to compare loans for a number of lenders, as borrower benefits will vary from lender to lender. For example: elimination/reduction of fees at signing, reduction of interest rate for on time payment or for direct deposit payments.
- Some colleges participate in the FFELP program and the Direct Student Loan Program, so you may choose to borrower from either program.
- If your college participates only in the Direct Loan Student Loan Program you can not participate in FFELP. These colleges have signed an agreement with the US Department of Education to only process Direct Loans.
- Defaulting on a student loan will adversely effect your credit history and may prevent you from getting a job, car loan, mortgage. It will prevent you from getting any additional student loans.
FFELP Interest Rates and Loan Limits:
- Stafford (Sub/Unsub Combos)--- interest rate:6.8% / loan limits 1st yr: $3,500 ,2nd yr: $4,500, 3rd/4th yr: $5,500, graduate level: $8,500.
- Additional Unsubsidized for Independent Students --- 1st/2nd year: $4,000, 3rd/4th yr: $5,000, graduate level: $12,000
- PLUS/GRADPLUS ---interest rate:8.5%/loan limits: cost of attendance minus financial aid
- Consolidation loan--- interest rate: weighted average of all loans being consolidated rounded to the nearest 1/8 of a percent, capped at 8.5%
For more information on FFELP Loan programs go to http://www.studentaid.ed.gov/.