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A survey by the National Council of Higher Education Loan Programs (NCHELP) confirmed that student loans continue to be the largest source of student aid, with approximately $29 billion for the 1995-96 federal fiscal year provided to students to meet their postsecondary educational costs. ... Private lenders financed over 68 percent of the total, or an estimated $19.8 billion, under the Federal Family Education Loan Program (FFELP - formerly Guaranteed Student Loans). National Council of Higher Education Loan Programs (NCHELP) survey The most popular form of financial aid for students is Student Loans. While there are a variety of loan programs available, the largest programs are the Subsidized Federal Stafford Loans and the Unsubsidized Federal Stafford Loans. Subsidized Federal Stafford loans are Big Business and Big Profit for a huge number of banks and finance corporations in America. While you are attending school, the Federal Government (read: The Taxpayers) pay the interest charges that accumulate on your loan. If you have a subsidized loan, you do not pay this accumulated interest back, however if your loan is unsubsidized, the accumulated interest must be paid during the term of the loan, or it can be "deferred" until you begin making payments. For both subsidized and unsubsidized loans, most students do not make any payments on the principle OR the interest until six months after you graduate, leave school, or drop to less than half-time. If you attend school for four years and do not begin repayment until six months after you graduate, assuming you received a maximum loan every year, this can be as much as $5,200 that the Government has paid to the bank to cover your interest charges. With a subsidized loan, this is also a SAVINGS of $5,200 of the total interest charge that you would pay.
Tip:When given a choice between a SUBSIDIZED loan and an UNSUBSIDIZED loan, always choose the subsidized loan. The fact that you do NOT have to pay back the interest that accumulated on a subsidized loan while you were in school can result in thousands of dollars saved. The average college undergraduate leaves school $10,000 in debt, an increase of 15 percent from last year, says the nation's largest student loan guarantee agency. The Indianapolis-based USA Group attributes the increase to higher college costs, expanded loan eligibility and the growing amount of student aid offered through loans rather than grants. Education Daily - August 14, 1996 by Rebecca S. Weiner Unsubsidized Federal Stafford loans are also big business, except that YOU are responsible for the interest payments while you are in school. This can greatly increase the overall cost of your loan. While payment on the principle can be deferred until six months after you leave school, you are required to make payments on the interest (usually quarterly) while you are in school. In some cases, you may be permitted to defer all interest payments until you begin making payments on the loan. Banks may encourage you to take advantage of deferring interest payments, as this increases the overall amount of interest (read: profit) that they make over the lifetime of the loan. Remember... interest will accumulate on the deferred interest! Unsubsidized Federal Stafford Loans also have a higher maximum amount that you may borrow... and ultimately pay back. Tip: With UNSUBSIDIZED loans, if you can afford to do so, arrange to make monthly or quarterly payments on the accrued interest while you are in school. You will save a lot of money over the long run by doing so. Also, your monthly payments upon leaving school will generally be lower. ...$50.3 billion in total aid from federal, state and institutional sources was available to students in 1995-96, an increase of $3.3 billion over 1994-95. The study notes that most of that increase was in the form of loans rather than grants and that most of the increased borrowing was unsubsidized. Grants now represent 42 percent and loans 57 percent of total federal, state and institutional aid, compared with 10 years ago... College Board study, "Trends in Student Aid: 1986 to 1996 REMEMBER: YOU HAVE TO PAY BACK THE LOAN EVEN IF YOU DO NOT GRADUATE. This seems like a simple enough concept, yet in 1996 the Federal Government lost $2.7 BILLION to student loan defaults. The Government is not "guaranteeing" your ability to finish school. It's just guaranteeing that you will pay back the loan. Below is a chart that may give you an idea of what your payments might be and the total cost of your loan(s) over the life of the repayment. a Subsidized Federal Stafford Loan Based on 8.25% maximum variable interest rate, loan repayment starting after four years in college and six months after leaving school. Sources: PNC Bank, Crestar Bank, Florida Department of Education. Chart thanks to Robert Kiger.
The interest rate on loans is now variable, with a maximum amount set by the government every year. The current maximum rate of interest is 8.25%. The MINIMUM monthly payment is $50, no matter how small a loan you may have taken out. You have ten years to repay the loans, although the Government is considering a plan known as "Income Contingent Repayment Plan." This would allow you 25 years to pay back the loan. However, the cost is very steep over the life of the loan and under current tax law, can result in a big tax bite at the end of 25 years. Some banks now offer "bonuses" for paying your loan on time. PNC Bank and other banks have a plan where if you make your first 48 payments on time, the interest rate is reduced by two percent (2%) for the remaining repayment of the loan. This can result in a huge savings on the overall cost of the loan. However, according to the Department of Education, less than 17% of all students do manage to make the first 48 payments on time and get this bonus. Tip: It's a good idea to look for lenders that offer interest rate reductions for making your payments on-time, however, this rate reduction offer should not be the ONLY reason you select a specific lender.
Some Things You Need To Know About Student LoansThe minimum monthly payment is NOT necessarily $50.Only if you have a single or small loan will your minimum monthly payment be $50. If you have taken out multiple loans, you are required to pay the minimum amount that the bank determines.Balloon payment plans increase the overall cost of the loan.Some banks will set you up with a balloon payment plan, where you pay smaller amounts during the first few years, and the amount increases over the years. Since in effect you are only making interest payments the first few years, the principle does not decrease significantly during this time.The amount of interest you end up paying over the course of the loan repayment can be as much as 18% more than you would have paid if you went with the flat-payment plan (paying the same amount every month for the life of the repayment). You are NOT required to agree to a balloon payment plan if they offer you one. You do not receive the full amount of the loan when you get the check."Origination Fees" and "Guaranty Fees" are taken out of your check at dispersement time. Currently, Origination is 3% of the loan amount. This money actually goes back to the Federal Government. Then, 1% is taken out for what is known as "Guaranty" - this is basically an insurance premium. This money goes back to the bank lending you the student loan. Some banks will also take 1% or (more common) $10-$25 out of the loan amount for "document stamps." These fees are perfectly legal, and usually stated "up front" on your student loan application.Just remember when you are budgeting your school costs that the ACTUAL amount of money you receive from your loan is at minimum 4% LESS than the amount you borrow. While this is money you never see, you DO have to pay it back. Depending upon your school and the financial aid office's policies, your school may take a "handling fee" directly from the check, generally $150-$225, for the privilege of giving you your loan check. Again, this is money you never see, yet you have to pay it back. Example: You borrow $2,500. 3% Origination and 1% Guarantee is taken out - reducing the amount received to $2,400. On top of that, the bank charged you $10 for "document stamps" and the school took out $90 for "handling and processing," leaving you with a check for $2,300. But you WILL have to pay back the entire $2,500 (plus interest). The various fees ARE legal and quite normal. Some lenders, in the name of competition, are paying a portion of the origination fees for the students - always a nice thing! Tip: Plan and budget for "losing" 4%-5% of your loan before you receive it, due to the various fees. There is nothing worse than finding yourself short $200 or $300 at the beginning of the semester! Origination and Guarantee fees are only refundable if your disbursement is cancelled or repaid in full within 120 days of receiving it. The check is not given directly to you.It is mailed directly to the college or university you are attending, where they then disperse it to you. Assuming you are attending a school using the semester system, usually you will receive half of the loan amount at the start of the Fall semester, and the other half at the start of the Spring semester.The college or university will take whatever you currently owe them from the check first, and then give you whatever is left over. The Law allows the school the option of returning any remaining amount to the lender to be reapplied to your loan amount. This decreases the amount of loan you have taken out, however the fees you have paid (origination, etc.,) may not necessarily be reduced or refunded. Ask your financial aid office at the school if they automatically return remaining funds or if they disperse them to you. Tip: If this is your first year in college and your first loan, you will not receive your student loan check until thirty days after classes begin. Be sure to have available some money to help you cover your living expenses, etc., for the first 30-45 days of the school year. The loan can and probably will be sold.It is very common after you begin repayment on your loan for the issuing bank or agency to sell the loan to another bank or finance corporation, although sometimes your loan will be sold before you begin repayment.Your lender does not need your permission to sell the loan. Often times, the only affect on you is the address you send your check to. If you do not pay attention to notices that your loan has been sold, the impact can be far more negative. It is your responsibility to make sure you are sending your payment to the right place! More than a few students have found themselves in default because they did not pay attention to the letter their lender sent them informing them that their loan had been sold. Hardship deferments are available.Most banks will allow you, under the guidelines set up by the Federal Government, "hardship" deferments. Usually this is only approved for extreme hardship (unemployment is not necesarily considered a hardship!) and for only six months at a time up to a total of three years. The interest will continue to accrue while the payments are deferred.Cancellation of loan repayment due to disability can be very difficult to receive.A disability cancellation basically "forgives" the remaining balance on your loan. You do not have to pay back what remains on the loan.Be aware that disability cancellations are VERY difficult to receive. Just because your doctor(s) say you are unable to work doesn't mean that the lender will agree. Lenders may allow you "forbearance" but are not required to.Forbearance is a temporary deferment of payment, an extension of the repayment period, or allowing you to make smaller payments than required.If you find yourself in a situation where you cannot make your payments, call your lender and ask them about Forbearance. They are not required to agree to forbearance, but many banks will work with you. You MUST contact them before you have defaulted! Be aware that under the Law, the lender MUST agree to forbearance when you are in a medical or dental internship or residency, or if your payments exceed 20% of your income. Forbearance under these circumstances is NOT automatic - you must request it. Forbearance DOES increase the overall cost of your loan, however, due to making smaller payments/extending the repayment period, but if you are faced with the choice of defaulting or forbearance, choose forbearance every time! If you are in default, you are not eligible for any other form of Federal assistance for education.Defaulting on a student loan has SERIOUS and negative repercussions on your life.
Bottom line: Do NOT default on your student loan! Avoid default at all costs! Repaying your student loans should be your highest priority! Bankruptcy will NOT forgive the loans.Effective October 8, 1998, your obligation to repay Title IV, HEA student loan and grant liabilities can no longer be canceled (discharged) due to bankruptcy. There are NO EXCEPTIONS. Simply put, if you file bankruptcy, your student loans will not be forgiven.Additional information about Student Loans
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Deciding to get a student loan is one of the biggest decisions you may ever make. Do not take it lightly! Student Loans will have a large impact on your life for at least ten years, and possibly longer. Many a student has had to hold a second job or take a job that was undesirable solely because their student loan payments were more than they could handle.
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and APPLY ONLINE with major lenders at eStudentLoan.com. Visit Collegiatefunding.com for FREE personalized financial aid counseling detailing scholarship, grant and loan applications. FREE On-line pre-approval for Federal Family Education Loan Programs.
Coalition for Student Loan Reform A well designed and easy to navigate site, full of information about the politics behind the student loan industry, what bills are before Congress that may affect student federal financial aid, and a good selection of newspaper reprints and reports. Their aim does not seem to be as reform minded as I'd personally like, but still a good resource. July 1997
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