In 1965 Congress examined government policy on student loans and established The Federal Family Education Loan Program (FFELP) to provide financial aid to students and today it receives more than 14 million student loan applications each year and disburses more than $80 billion dollars in funding to schools.
There are three main forms of student loan available to fund college education today:
- Federal Student Loans.
- Parental Loans.
- Private Loans.
In additional there is one further class of loan (both federal and private) for existing student loan holders:
- Consolidation Loans.
There two main forms of federal student loan – Stafford loans and Perkins loans.
Stafford loans are by far and away the most popular US Department of Education student loans and can be issued as either subsidized or unsubsidized loans.
To be eligible for a Stafford loan you must be a US citizen or national (or a US permanent resident or eligible non citizen) and be enrolled in (or accepted for) a suitable course at least as a half-time student at a school which participates in the Federal Family Education Loan Program. You must also not be in default on any other education loan. In the case of a subsidized Stafford loan you must also be able to show particular financial need.
The amount of money you can borrow will depend upon the stage of your course and whether or not you are classed as a dependent (in receipt of parental support) or independent student. Current annual limits are as follows:
|Dependent||Annual Loan Limit|
|Junior or senior||$5,500|
|Independent||Annual Loan Limit|
|Junior or senior||$10,500|
|Graduate or professional||$20,500|
|Graduate or professional||138,500|
Interest will be charged on the loan from the date on which it is issued. For applicants granted a subsidized loan this interest charge will be paid by the government during the period of education and for an agreed period (usually 6 months) following the completion of studies. For unsubsidized loans the student is responsible for interest payments throughout the life of the loan. Interest is charged at a fixed rate determined by the year in which the loan is issued.
A fee of up to 4% will also be charged and this will be deducted proportionately from each loan disbursement.
The standard repayment period for a Stafford loan is 10 years with monthly repayments representing the repayment of both capital and interest. In the case of subsidized loans, while the government makes interest payments initially, capital payments are not made. For unsubsidized loans the student may either make interest payments while undergoing study (and for up to 6 months after completion of the course) or these can be added to the loan. In both cases capital repayment is not required to start until 6 months after the completion of study.
Perkins loans are similar in nature to Stafford loans but are designed specifically for students in financial need and, although they are funded by the US Department of Education, they are issued by schools on the basis of need.
Interest on Perkins loans is fixed at 5% and undergraduates may borrow up to $4,000 each year (with a lifetime limit of $20,000) and graduates up to $6,000 a year (with a lifetime limit of $40,000 – including any undergraduate loans). Loans are normally repaid over a period of 10 years, dependent upon the amount borrowed.