Types of Loans

All Stafford Loans are either subsidized (the government pays the interest while you're in school) or unsubsidized (you pay all the interest, although you can have the payments deferred until after graduation). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need. About 2/3 of subsidized Stafford loans are awarded to students with family AGI of under $50,000, 1/4 to students with family AGI of $50,000 to $100,000, and a little less than 10% to students with family AGI over $100,000. Stafford loans are loans that the student will borrower in his/her name.

Parent Loan for Undergraduate Students (PLUS): PLUS loans are loans made available to credit-worthy parents of dependent, undergraduate students. The maximum yearly amount a parent may borrow under this program is the student's cost of attendance minus any other financial aid he/she is receiving. This loan is not based on need. A parent may borrow for multiple children during the same year. For PLUS Loans disbursed on or after July 1, 2006, the interest rate is fixed at 7.90 for Direct PLUS Loans and 8.50 percent for FFEL PLUS Loans.Fees up to 4% may be deducted from these loans.

PLUS loans for graduate students: As a result of the Higher Education Reconciliation Act of 2005, PLUS loans are now available to graduate students. The same terms and conditions apply to these loans as those used in determining Parent PLUS loan eligibility...including a credit check. Applicants for a Graduate PLUS loan must first exhaust their Stafford loan eligibility; thus requiring the completion of the FAFSA. Fees up to 4% may be deducted from these loans.

Perkins Loan: These loans are funded by federal and institutional dollars and given to the neediest undergraduate and graduate students. They carry a 5% interest rate and do not have to be repaid until nine months after the student graduates or drops below half-time. The maximum an undergraduate student can borrow is $4,000 annually and $6,000 annually for graduate students. What Kind of Loan Should I Borrow?

It's possible that several loan options may appear on your award letter. If this is the case, it's best to go in this order:

1. Perkins Loan - Perkins Loans have a fixed interest rate of 5% and no fees. Going into the 2006-2007 academic year, this is the best deal. Again, not everyone will be eligible for a Perkins Loan. Consult your award letter.
2. Stafford Loan - Stafford Loans currently have a fixed interest rate of 6.0%. Also, an origination fee and/or guarantee fee of up to 4% can be deducted from the proceeds of the loan.
3. PLUS Loan - Currently, PLUS Loans have an interest rate that is fixed at 7.90 for Direct PLUS Loans and 8.50 percent for FFEL PLUS Loans. Also, an origination fee and/or guarantee fee of up to 4% can be deducted from the proceeds of the loan. (These terms and conditions apply to both Parent and Graduate PLUS loans.)
4. Private Loans - Typically, these loans have the highest interest rates and fees. Your credit rating can also affect your interest rate and fees. Use a private loan only if you have exhausted all programs listed above first.

You should also note any borrower benefits that may be offered on these loans. Many loan providers offer up-front and back-end benefits that can substantially reduce the cost of borrowing. Examples include: 1) lowering the interest rate after so many on-time payments, 2) waiving fees altogether, and 3) interest rate discounts for borrowers participating in auto-debit. These are important factors when choosing what loan to borrow and who the lender will be.

How Do I Get a Loan?

Below are the typical steps in securing a student loan:

1. Step 1: Complete the FAFSA and any other institutional forms the school requires.
2. Step 2: The schools you listed on your FAFSA will receive an ISIR and be able to calculate your loan eligibility.
3. Step 3: The school will send you an award letter displaying your loan eligibility and instructions on how to pursue the loan
4. Step 4: The borrower must complete a promissory note. In the case of a Stafford or PLUS loan, this is called an MPN.
5. Step 5: The school will certify your loan eligibility to the lender on the MPN.
6. Step 6: The lender will disburse funds via paper check or EFT to your school on the scheduled disbursement date (the disbursement date is established by the school and is included in their certification to the lender in Step 5).
7. Step 7: The school will apply the loan amount to your student account at the school.
8. Step 8: Any remaining balance can be refunded to the student to be used toward living expenses, books, etc.


How Much Will My Payment Be?

Your monthly payment of the loans you borrow throughout your college career will depend on the repayment term, interest rate and amount borrowed. Therefore, you'll have to look at each loan independently. Using the Stafford loan interest rate of 6.0% and standard repayment term of 10 years, you can expect to pay roughly $111/month for every $10,000 borrowed. Again, this is a standard repayment plan. Depending on the type of loan, other repayment options may exist. Here are some other plans that may be available:

* Extended Repayment Plan - This plan simply extends the repayment period of the loan. The maximum repayment term is limited to 25 years. The result is lower monthly payments, but more interest paid over the life of the loan.
* Graduated Repayment Plan - This plan typically allows borrowers to make interest-only payments for a period of time and then gradually increasing the amount they pay over the course of the repayment term. This plan can be combined with an extended repayment plan.
* Income-sensitive Repayment Plan - This plan is specific to the FFELP. It allows borrowers to make monthly payments equal to a percentage (between 4% and 25%) of their monthly gross income.
 Income-contingent Repayment Plan - This plan is specific to the FDLP. Each year, the borrower's monthly payment is based on their adjusted gross income (as reported on the U.S. income tax return) family size, the interest rate, and total amount of Direct Loan debt.

Loan Consolidation

Consolidation allows the borrower to combine multiple types of federal education loans into one loan, so that only one monthly payment is required. The repayment term can be between 10 and 30 years depending on how much you consolidate and which repayment option you choose. The primary benefit is a more manageable monthly payment, but the cost being in the form of substantially more interest being paid over the life of the loan. The consolidation interest rate is the weighted average of the underlying loans rounded up to the nearest one-eighth percent. Be sure to check with your loan provider before making this decision.

These loans are made through one of two U.S. Department of Education programs:

William D. Ford Federal Direct Loan (Direct Loan) Program

Loans made through this program are referred to as Direct Loans. Eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Loans include subsidized and unsubsidized Direct Stafford Loans (also known as Direct Subsidized Loans and Direct Unsubsidized Loans), Direct PLUS Loans, and Direct Consolidation Loans. You repay these loans directly to us.

Federal Family Education Loan (FFEL) Program

Loans made through this program are referred to as FFEL Loans. Private lenders provide funds that are guaranteed by the federal government. FFEL Loans include subsidized and unsubsidized FFEL Stafford Loans, FFEL PLUS Loans and FFEL Consolidation Loans. You repay these loans to the bank or private lender that made you the loan.

Whether you (or your parents) receive a Stafford or PLUS Loan depends on which program the school you attend participates in. Most schools participate in one or the other, although some schools participate in both.

It’s possible for you to receive both Direct and FFEL Loans but you can’t receive the same type of Direct or FFEL Loan for the same period of enrollment at the same school. Some schools use one loan program for Stafford Loans and another loan program for PLUS Loans. For example, a graduate or professional student could receive a Direct Stafford Loan and a FFEL PLUS Loan for the same period of enrollment at the same school.

What’s the interest rate on these loans?

For loans first disbursed on or after July 1, 2008, the interest is 6.0 percent for subsidized* Stafford loans for undergraduate students and 6.8 percent for unsubsidized* Stafford loans for undergraduate and graduate students.

FFEL PLUS Loans first disbursed on or after July 1, 2006 have a fixed interest rate of 8.5 percent. Direct PLUS Loans first disbursed on or after July 1, 2006 have a fixed interest rate of 7.9 percent.

Over a four-year period beginning July 1, 2008, the interest rate on subsidized Stafford loans made to undergraduate students, with a first disbursement date on or after July 1, 2008, will be reduced as shown in the following chart:

How do I apply for a Perkins or Stafford Loan?

As with all federal student aid, you apply for a Perkins or Stafford Loan by completing the FAFSA. A separate loan application is not required. However, you’ll need to sign a promissory note,* which is a binding legal contract that says you agree to repay your loan according to the terms of the promissory note.* Read this note carefully before signing it and save a copy for your records.

Can I cancel?

Yes. Before your loan money is disbursed, you may cancel all or part of your loan at any time by notifying your school. After your loan is disbursed, you may cancel all or part of the loan within certain timeframes. Your promissory note* and additional information you receive from your school will explain the procedures and timeframes for canceling your loan.

How to Choose and Evaluate Lenders

You'll need to choose a lender if you obtain a FFEL Stafford Loan. (If you have a Direct Stafford Loan, the federal government through the U.S. Department of Education is your lender.) Schools that participate in the FFEL Program will usually have a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer (for example, a credit union). Here are a few things to think about when selecting a FFEL lender.

When you graduate with a graduate or professional degree, the maximum total debt allowed from Stafford Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans. This maximum total graduate debt limit includes Stafford Loans received for undergraduate study. However, the aggregate loan limit for graduate and professional students enrolled in certain approved health profession programs is $224,000.

Other than interest, is there a charge for this loan?

For Stafford Loans that are first disbursed between July 1, 2009 and June 30, 2010, there is a fee of up to 1.5 percent of the loan, deducted proportionately from each loan disbursement. For a FFEL Stafford Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency (the organization that administers the FFEL Program in your state) to help reduce the cost of the loans. For a Direct Stafford Loan, the entire fee goes to the government to help reduce the cost of the loans. Also, if you don't make your loan payments when scheduled, you may be charged collection costs and late fees.

When do I pay back my Stafford Loans?

After you graduate, leave school, or drop below half-time enrollment, you will have a six-month "grace period" before you begin repayment. During this period, you'll receive repayment information, and you'll be notified of your first payment due date. You're responsible for beginning repayment on time, even if you don't receive this information. Payments are usually due monthly.

During the grace period on a subsidized loan, you don't have to pay any principal, and you won't be charged interest. During the grace period on an unsubsidized loan, you don't have to pay any principal, but you will be charged interest. You can either pay the interest or it will be capitalized (added to your principal loan balance, thus increasing the amount you'll repay).

What if I have trouble repaying the loan?

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

If you're temporarily unable to meet your repayment schedule (for example due to poor health or other unforeseen personal problems), but you're not eligible for a deferment, your lender might grant you forbearance for a limited and specified period. For more information, go to the Repayment Information section of this Web site.

Can my Stafford Loan ever be discharged (canceled)?

Yes, but only under a few circumstances. Your loan can't be canceled because you didn't complete the program of study at the school (unless you couldn't complete the program for a valid reason the school closed, for example), or because you didn't like the school or the program of study, or you didn't obtain employment after completing the program of study.

Postponing Repayment
Deferment: You can receive a deferment for certain defined periods. A deferment is a temporary suspension of loan payments for specific situations such as reenrollment in school, unemployment, or economic hardship. For a list of deferments, click here. You don’t have to pay interest on the loan during deferment if you have a subsidized FFEL or Direct Stafford Loan or a Federal Perkins Loan. If you have an unsubsidized FFEL or Direct Stafford Loan, you’re responsible for the interest during deferment. If you don’t pay the interest as it accrues (accumulates), it will be capitalized (added to the loan principal), and the amount you have to pay in the future will be higher. You have to apply for a deferment to your loan servicer (the organization that handles your loan), and you must continue to make payments until you’ve been notified your deferment has been granted. Otherwise, you could become delinquent or go into default.

Economic Hardship Deferment

A FFEL, Direct Loan, or Federal Perkins Loan borrower may qualify for an economic hardship deferment for a maximum of three years if the borrower is experiencing economic hardship according to federal regulations. The Loan Deferment Summary Chart here shows Stafford Perkins Loan deferments for loans disbursed on or after July 1, 1993. For information on deferments for loans received before that date, Direct Stafford and PLUS Loan borrowers should contact the Direct Loan Servicing Center at 1-800-848-0979. TTY users should call 1-800-848-0983. Or, go online at www.dl.ed.gov. FFEL Stafford and PLUS Loan borrowers should contact their lender. For more information on deferments, contact your lender or the financial aid office at your school.

Forbearance: Forbearance is a temporary postponement or reduction of payments for a period of time because you are experiencing financial difficulty. You can receive forbearance if you’re not eligible for a deferment. Unlike deferment, whether your loans are subsidized or unsubsidized, interest accrues, and you’re responsible for repaying it. Your loan holder can grant forbearance in intervals of up to 12 months at a time for up to 3 years. You have to apply to your loan servicer for forbearance, and you must continue to make payments until you've been notified your forbearance has been granted.

Other Forms of Payment Relief

Although you’re asked to choose a repayment plan when you first begin repayment, you might want to switch repayment plans later if a different plan would work better for your current financial situation. Under the Federal Family Education Loan ProgramSM, you can change repayment plans once a year. Under the Federal Direct Student Loan ProgramSM, you can change plans any time as long as the maximum repayment period under your new plan is longer than the time your Direct Loans have already been in repayment. Go to the Repayment Plans and Calculators section to learn more about options available to you to repay your loans.