Federal Loans
The William D. Ford Federal Direct Loan Program is a service of the US Department of Education. Eligible students and parents who borrow through the program do so at lower interest rates as compared to most other loans. There are two loans available through this program: Federal Direct Stafford Loans and Federal Direct PLUS Loans. Students should also visit the US Department of Education website for more information about these programs.
Federal Direct Stafford Loans
In order for students to be eligible for a Federal Direct Stafford Loan, they must be officially admitted to the AA or ALB program and enrolled at least half-time (8 units or more per fall or spring term, 4 units in the summer) in courses that count toward their undergraduate degree.
Federal Direct Stafford Loans have a variable annual interest rate up to a maximum of 8.25 percent. The interest rate from July 1, 2004 through June 30, 2005 is 3.37 percent. The US Department of Education deducts a loan fee of 1.5 percent of the amount borrowed upon disbursement.
There are two basic types of Federal Direct Stafford Loans: Direct Subsidized Loans and Direct Unsubsidized Loans. On a Direct Subsidized Loan the federal government pays the interest while students are enrolled in school at least half-time and during the six-month grace period. These loans are awarded based on financial need. On a Direct Unsubsidized Loan students are responsible for the interest from the date of disbursement. Students may pay interest quarterly or allow the interest to accrue.
The US Department of Education sets certain borrowing limits that vary by a student's year in school (see chart below) and dependency status. (Dependent students are limited to borrowing a maximum of the amounts in the Subsidized column.) Direct Subsidized Loan amounts may not exceed financial need as calculated by the US Department of Education. Students who qualify for a Direct Subsidized Loan that is less than the annual Direct Subsidized Loan limit may receive a Direct Unsubsidized Loan to cover the difference between the annual limit and the Direct Subsidized Loan amount.
The US Department of Education also maintains limits on total outstanding debt. The total outstanding Stafford Loan debt a student may have as a dependent undergraduate is $23,000; as an independent undergraduate, $46,000.
Maximum loan amounts. The chart below lists the maximum loan amounts for Direct Subsidized and Direct Unsubsidized Loans that students can borrow per term.
Student's Academic Level Subsidized Total* First year undergraduate (fewer than 32 units) $1,313 $3,313 Second year undergraduate (32-64 units) $1,750 $3,750 Three or more subsequent years undergraduate (64 units or more) $2,750 $5,250 * Total includes unsubsidized amount.
Repayment of loans. Repayment of Stafford Loans is deferred (students do not have to make payments) while they are in school at least half-time and for a six-month grace period after that. During this grace period, students may make payments on their Stafford Loans but they are not required to do so.
Once repayment begins, a borrower is entitled to a deferment if he or she meets certain requirements and provides the required documentation to the lender or servicer. Deferments are authorized for:
- at least half-time enrollment at an eligible school
- study in an eligible graduate fellowship program, including study outside the US
- study in an approved rehabilitation training program for the disabled
- up to three years during which the borrower is seeking and unable to find full-time employment
- up to three years during which the borrower will experience economic hardship (as determined by the lender)
Cancelling/reducing loans. Students have the right to cancel or reduce the amount of their Federal Direct Stafford Loans. If their loans have not been disbursed, they must notify the Financial Aid Office in writing that they wish to cancel or reduce the amount of their loans. If a loan has already been disbursed, the student must indicate in writing the amount he or she wants reduced or cancelled and return that amount to the Financial Aid Office. The loan origination fee is forgiven if the loan is cancelled or returned within 120 days of disbursement.
Federal Perkins Loan
This federal loan has a 5 percent fixed interested rate. No interest is charged while students are in school at least half-time and during the nine-month grace period beginning when students leave school or enroll less than half-time. The annual borrowing limit is $4,000 for undergraduate students. Perkins Loans are awarded to students with exceptional financial need.
After accepting a Federal Perkins Loan award, a student must attend an entrance counseling session and sign a promissory note. The student must also attend an exit counseling session before leaving school. An annual loan is disbursed in two equal amounts over two semesters, once in each semester. If all requirements are met, including the entrance counseling and the completion of a promissory note, disbursement of funds will be early in each semester.
Federal Direct PLUS Loans
The Federal Direct PLUS Program is a federally guaranteed loan program for parents of dependent students. Repayment of this loan begins within 60 days after the loan is fully disbursed.
Parents may apply to borrow any amount up to but not exceeding total education costs, less any other financial aid the student is receiving. The interest rate for new loans is variable to a maximum of 9 percent. The interest rate from July 1, 2004 through June 30, 2005 is 4.17 percent. The US Department of Education deducts a loan fee of 2.5 percent of the amount borrowed upon disbursement. In order for a parent to be eligible to apply for a PLUS Loan, the student must be officially admitted to the AA or ALB Program, enrolled at least half-time (8 units or more per fall or spring term, 4 units in the summer), and classified as dependent by the US Department of Education.
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