Federal Financial Aid Programs

Loans

Loans, unlike grants or work-study, are borrowed money that must be repaid, with interest. These are real loans-just like car loans or mortgages. Students cannot have these loans canceled because they do not like the education they receive or because they are having financial difficulty. These loans are a serious obligation, so students need to think about the amount that must be repaid over the years before taking out a loan.

There Are Several Types of Loans:

• Federal Perkins Loans are made through participating schools to undergraduate and graduate/professional students.
• Stafford Loans are for undergraduate or graduate and professional students made through one of two U.S. Department of Education programs:
• William D. Ford Federal Direct Student Loan Program-referred to as Direct Stafford Loans or Direct Loans
• Federal Family Education Loan (FFEL) Program-referred to as FFEL Stafford Loans or Federal Stafford Loans
• PLUS Loans are loans parents can take out for their dependent undergraduate children and are made through either the Direct Loan or the FFEL program mentioned above.

Effective July 1, 2006, graduate or professional students are now eligible to borrow under the PLUS Loan Program up to their cost of attendance minus other estimated financial assistance in both the Federal Family Education Loan Program (FFEL) and the Direct Loan Programs. The terms and conditions applicable to the Parent PLUS Loans also apply to Graduate/Professional PLUS loans.

Click here for more information about the Direct PLUS Loans for graduate or professional students.

Which Schools Offer FFEL Program Loans and Which Offer Federal Direct Loans?

To see which schools have participated in which loan program in recent years, click here to visit a page where you can access an Excel spreadsheet.

How Much Can a Student Borrow?

It depends on the student's year in school and whether he/she will have a subsidized or unsubsidized Direct or FFEL Loan or a Perkins Loan. A subsidized loan (Direct, FFEL or Perkins) is awarded on the basis of financial need. When a student is eligible for a subsidized loan, the government will pay (subsidize) the interest on the loan while he/she is in school, for the first six months after he/she leaves schools (the first nine month for Perkins loan borrowers), and when he/she qualifies to have loan payments deferred. Depending on the student's financial need, he/she may borrow subsidized money for an amount up to the annual loan borrowing limit for his/her level of study.

A student can borrow up to $4,000 each year under the Federal Perkins Loan program. The total amount a student can borrow is $20,000. The amount the student receives depends on when he/she applies, financial need, and the funding level at the school.

How Will the Student Receive the Loan Money?

Students will be paid through the postsecondary school in at least two installments for the Direct Loan, FFEL, and Perkins Loan programs. No installment may exceed one-half of the loan amount. The loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, the student will receive the funds by check or in cash, unless the student gives the school written authorization to hold the funds until later in the enrollment period.

Students who are in their first-year and are first-time borrowers, the school cannot disburse the first payment until 30 days after the first day of the enrollment period. This practice ensures the student won't have a loan to repay if he/she don't begin classes or withdraw during the first 30 days of classes.

How Much Can Parents Borrow?

The yearly limit on a PLUS Loan is equal to the cost of attendance minus any other financial aid the dependent student receives. For example, if the student receives $4,000 in financial aid and his or her cost of attendance is $6,000, the parent can borrow up to $2,000.

What Is the Interest Rate?

The interest rate for the Perkins Loan is 5 percent for both undergraduate and graduate students.

The interest rate for all Stafford loans first disbursed on or after July 1, 2006 is fixed at 6.8 percent. This change does not affect variable interest rate loans made before July 1, 2006.

The interest rate for Stafford Loans first disbursed between July 1, 1998 and June 30, 2006 is variable (adjusted annually on July 1st) but does not exceed 8.25 percent. Students will be notified any time the variable rate changes. The interest rate for loans currently in repayment that were disbursed during 2007-08 is 7.22 percent. The rate may be lower during the grace and deferment period.

The interest rate for PLUS Loans (both Parent and Graduate/Professional Students) disbursed on or after July 1, 2006 is fixed (at 7.90 percent for Direct PLUS Loans and 8.50 percent for FFEL PLUS Loans). For PLUS Loans disbursed between July 1, 1998 and June 30, 2006, the interest rate is variable and is determined on July 1st of every year. For 2007-08, the variable rate for PLUS Loans (in both the Direct and FFEL programs) is 8.02 percent. Interest is charged on a PLUS Loan from the date of the first disbursement until the loan is paid in full.

Click here for more information on interest rates.

Other Than the Interest Rate, Is There a Charge for the Loan?

There are no other charges for a Perkins Loan unless the student skips a payment, it's late, or the student makes less than a full payment. The student may then pay a late charge plus any collection costs.

Students and parents pay a fee of up to 4 percent of the loan, deducted proportionately from each loan disbursement. For a FFEL Stafford or PLUS Loan, a portion of this fee goes to the federal goverment, and a portion goes to the guaranty agency (the organization that administers the FEEL Program in the state) to help reduce the costs of the loans. For a Direct Stafford or PLUS Loan, the entire fee goes to the government to help reduce the cost of the loans.

Student and parent borrowers may be charged collection costs and late fees when payments are not made as scheduled.

When Do Students and/or Parents Pay Back the Loan?

Students repay the loan after they graduate, leave school, or drop below half-time enrollment. Students will receive a six-month (nine-month for Perkins Loan) "grace period" before repayment begins. During this period, the student will receive repayment information, and be notified of the first payment due date. The student is responsible for beginning repayment on time, even if he/she does not receive this information. Payments are usually due monthly.

During the grace period on a subsidized loan, students don't have to pay any principal, and are not charged interest. During the grace period on an unsubsidized loan, students do not have to pay any principal, but will be charged interest. Students can either pay the interest or it will be capitalized (added to the principal loan balance, thus increasing the amount to be repaid).

There is no grace period for Parent and/or Graduate/Professional Students PLUS Loans. Generally, the first payment is due within 60 days after the loan is fully disbursed, and interest begins to accumulate at the time the first disbursement is made. Graduate/professional students may be eligible for a deferment or forbearance while they are in school.

How Do Students and/or Parents Repay Their Loans?

Students repay a FFEL Stafford Loan to a private lender or loan servicer. Students repay a Direct Loan to the U.S. Department of Education's Direct Loan Servicing Center. Both the Direct Loan and FFEL programs offer four repayment plans the student can choose from, but the terms differ slightly. Students will receive more detailed information about repayment options during entrance and exit counseling sessions the postsecondary school provides.

Parent borrowers repay a FFEL PLUS Loan to a private lender or servicer and a Direct PLUS Loan to the U.S. Department of Education's Direct Loan Servicing Center.

What Options Do Students and Parents Have if They Encounter Difficulty Repaying Their Loans?

Under certain circumstances, students can receive a deferment or forbearance on a loan, as long as it's not in default. During a deferment, no payments are required and interest is not charged for a subsidized FFEL or Direct Stafford Loan. If students have an unsubsidized Stafford Loan, the student is responsible for the interest during deferment.

If the student is unable to temporarily meet his/her repayment schedule (for example due to poor health or other unforeseen personal problems), but not eligible for a deferment, the lender might grant the student forbearance for a limited and specified period.

Under certain circumstances, parents can receive a deferment or forbearance as long as the loan is not in default. During forbearance, the payments are postponed or reduced. Generally, the conditions for eligibility and procedures for requesting a deferment or forbearance apply to both Stafford Loans and PLUS Loans. However, since PLUS Loans are unsubsidized, parents (and graduate/professional students) are charged interest during periods of deferments or forbearance. Interest is capitalized (added to the principal amount of the loan) when it is not paid as it accrues.

Remember, the same terms and conditions of the Parent PLUS Loans apply to the Graduate/Professional Student PLUS loans. Click here for more information on the terms and conditions of Parent PLUS Loans.

Can a Loan Be Forgiven for Service?

Federal student loans can be forgiven for service as a teacher or for other specified work.

Our newest loan forgiveness program is for workers in public service jobs such as public child care, social work, government, certain tax-exempt organizations, and more. Click here for a fact sheet that you can distribute to your students or colleagues.

Click here to visit our student web site for full details about loan forgiveness—for service or for other reasons.

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