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December 20, 2007
School Loans Consolidation
Student loans in the U school loans consolidation . . S school loans consolidation .
Higher Education Act of 1965
US Dept of Education
FAFSA Cost of attendance
Federal Direct Student Loan Program
FFELP
Perkins · Stafford
PLUS · Consolidation Loans
Private student loan
While included in the term “financial aid” higher education loans differ from scholarships and grants in that they must be paid back school loans consolidation . They come in several varieties in the United States:
- Federal student loans made to students directly: No payments while enrolled in at least half time status school loans consolidation . If a student drops below half time status, the account will go into its 6 month grace period school loans consolidation . If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time again they will no longer have their grace period school loans consolidation . Amounts are quite limited as well school loans consolidation .
- Federal student loans made to parents: Much higher limit, but payments start immediately
- Private student loans made to students or parents: Higher limits and no payments until after graduation, although interest will start to accrue immediately school loans consolidation . Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances school loans consolidation . Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education school loans consolidation .
Federal loans
Federal loans to students
See Federal Perkins Loan, Stafford loan, Federal Family Education Loans, Ford Direct Student Loans, and Federal student loan consolidation
Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended school loans consolidation .
The first type are loans made directly to the student school loans consolidation . These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants, and work-study school loans consolidation . They may be subsidized by the U school loans consolidation .S school loans consolidation . Government or may be unsubsidized depending on the student”s financial need school loans consolidation .
Both subsidized and unsubsidized loans are guaranteed by the U school loans consolidation .S school loans consolidation . Department of Education either directly or through guarantee agencies school loans consolidation . Nearly all students are eligible to receive them (regardless of credit score or other financial issues) school loans consolidation . Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating school loans consolidation . Both types have a fairly modest annual limit school loans consolidation . The limit effective for loans disbursed on or after July 1, 2007 is as follows: is $3,500 per year for freshman undergraduate students, $4,500 for sophomore undergraduates, and $5,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs school loans consolidation . Subsidized federal student loans are offered to students with a demonstrated financial need school loans consolidation . Financial need may vary from school to school school loans consolidation . For these loans, the federal government makes interest payments while the student is in college school loans consolidation . For example, those who borrow $10,000 during college will owe $10,000 upon graduation school loans consolidation .
Unsubsidized federal student loans are also guaranteed by the U school loans consolidation .S school loans consolidation . Government, but the government does not pay interest for the student, rather the interest accrues during college school loans consolidation . Those who borrow $10,000 during college will owe $10,000 plus interest upon graduation school loans consolidation . For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000 school loans consolidation . Interest will begin accruing on the $12,000 school loans consolidation . The accrued interest will be “capitalized” into the loan amount, and the borrower will begin making payments on the accumulated total school loans consolidation . Students can choose to pay the interest while still in college; however, few students choose to exercise this option school loans consolidation .
Federal student loans for graduate students have higher limits: $8,500 for subsidized Stafford and $12,500 (limits may differ for certain courses of study) for unsubsidized Stafford school loans consolidation . Many students also take advantage of the Federal Perkins Loan school loans consolidation . For graduate students the limit for Perkins is $6,000 per year school loans consolidation .
Federal student loans to parents
See PLUS loan
Usually these are PLUS loans (formerly standing for “Parent Loan for Undergraduate Students”) school loans consolidation . Unlike loans made to students, parents can borrow much more — usually enough to cover any gap in the cost of education school loans consolidation . However, there is no grace period: Payments start immediately school loans consolidation .
Parents should be aware that THEY are responsible for repayment on these loans, not the student school loans consolidation . This is not a “cosigner” loan with the student having equal accountability school loans consolidation . The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers school loans consolidation . Also, parents are advised to consider “year 4″ payments, rather than “year 1″ payments school loans consolidation . What sounds like a “manageable” debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time four years have been funded through loans school loans consolidation . The combination of immediate repayment and the ability to borrow substantial sums can be expensive school loans consolidation .
Under new legislation, graduate students are eligible to receive PLUS loans in their own names school loans consolidation . These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans school loans consolidation .
Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8 school loans consolidation .5% on July 1, 2006 school loans consolidation .
Disbursement: How the money gets to student or school
There are two distribution channels for federal student loans: Federal Direct Student Loans and Federal Family Education Loans school loans consolidation .
- Federal Direct Student Loans, also known as Direct Loans or FDLP loans, are funded from public capital originating with the U school loans consolidation .S school loans consolidation . Treasury school loans consolidation . FDLP loans are distributed through a channel that begins with the U school loans consolidation .S school loans consolidation . Treasury Department and from there passes through the U school loans consolidation .S school loans consolidation . Department of Education, then to the college or university and then to the student school loans consolidation .
- Federal Family Education Loan Program loans, also known as FFEL loans or FFELP loans, are funded with private capital provided by banking institutions (i school loans consolidation .e school loans consolidation ., banks, savings and loans, and credit unions) school loans consolidation . Because the FFELP loans use private capital as their source, students who use FFELP loans are able to take advantage of payment options that are similar to those available to customers who take out a home loan or a consumer loan school loans consolidation . For example, some institutions will allow a discount for automatic payments or a series of on-time payments school loans consolidation . In 2005, approximately two-thirds of all federally subsidized student loans were FFELP school loans consolidation .
According to the U school loans consolidation .S school loans consolidation . Department of Education, more than 6,000 colleges, universities, and technical schools participate in FFELP, which represents about 80% of all schools school loans consolidation . FFELP lending represents 75% of all federal student loan volume school loans consolidation .
The maximum amount that any student can borrow is adjusted from time to time as federal policies change school loans consolidation . A study published in the winter 1996 edition of the Journal of Student Financial Aid, “How Much Student Loan Debt Is Too Much?” suggested that the monthly student debt payment for the average undergraduate should not exceed 8% of total monthly income after graduation school loans consolidation . Some financial aid advisers have referred this as “the 8% rule school loans consolidation .” Circumstances vary for individuals, so the 8% level is an indicator, not a rule set in stone school loans consolidation . A research report about the 8% level is available at Follow links to –> Reports and presentations –> How Much Student Loan Debt Is Too Much?
Private student loans
These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies school loans consolidation . Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap school loans consolidation . But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation school loans consolidation . This grace period ranges as high as 12 months after graduation, though most private lenders offer six months school loans consolidation .
Private student loan types
Private loans generally come in two types: school-channel and direct-to-consumer school loans consolidation .
School-channel loans offer borrowers lower interest rates but generally take longer to process school loans consolidation . School-channel loans are “certified” by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school school loans consolidation .
Direct-to-consumer private loans are not certified by the school; schools don”t interact with a direct-to-consumer private loan at all school loans consolidation . The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student school loans consolidation . While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days school loans consolidation . Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question school loans consolidation .
Direct-to-consumer private loans are the fastest growing segment of education finance and, as such, a number of providers are introducing products school loans consolidation . Loan providers range from large education finance companies to specialty companies that focus exclusively on this niche school loans consolidation . Such loans will often be distinguished by the indication that “no FAFSA is required” or “Funds disbursed directly to you school loans consolidation .”
Private student loan rates and interest
Private student loan rates are lower than non-specialized private loans (e school loans consolidation .g school loans consolidation ., “signature” loans) but slightly higher than government loan rates school loans consolidation . That may be changing, as pending legislation would raise government student loan rates to similar rates as private student loans school loans consolidation . Consumers should be aware that some private loans require substantial up-front origination fees school loans consolidation . These fees raise the real cost to the borrower and reduce the amount of money available for educational purposes school loans consolidation .
Most private loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge school loans consolidation . Because private loans are based on the credit history of the applicant, the overhead charge will vary school loans consolidation . Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit school loans consolidation . Money paid toward interest is now tax deductible school loans consolidation .
Private student loan fees
Private loans often carry an origination fee school loans consolidation . Origination fees are a one-time charge based on the amount of the loan school loans consolidation . They can be taken out of the total loan amount or added on top of the total loan amount, often at the borrower”s preference school loans consolidation . Some lenders offer low-interest, 0-fee loans, but these are usually available only to those with high credit scores (800 or more) school loans consolidation . Each percentage point on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan school loans consolidation . Some have suggested that this makes the interest rate more critical than the origination fee school loans consolidation .
In fact, there is any easy solution to the fee-vs school loans consolidation .-rate question: All lenders are legally required to provide you a statement of the “APR (Annual Percentage Rate)” for the loan before you sign a promissory note and commit to it school loans consolidation . Unlike the “base” rate, this rate includes any fees charged and can be thought of as the “effective” interest rate including actual interest, fees, etc school loans consolidation . When comparing loans, it may be easier to compare APR rather than “rate” to ensure an apples-to-apples comparison school loans consolidation . APR is the best yardstick to compare loans that have the same repayment term; however, if the repayment terms are different, APR becomes a less-perfect comparison tool school loans consolidation . With different term loans, consumers often look to “total financing costs” to understand their financing options school loans consolidation .
Eligible loan programs generally issue loans based on the credit history of the applicant and any applicable cosigner/co-endorser/coborrower school loans consolidation . This is in contrast to federal loan programs that deal primarily with need-based criteria, as defined by the EFC and the FAFSA school loans consolidation . For many students, this is a great advantage to private loan programs, as their families may have too much income or too many assets to qualify for federal aid but insufficient assets and income to pay for school without assistance school loans consolidation .
Additionally, many international students in the United States can obtain private loans (they are ineligible for federal loans in many cases) with a cosigner who is a United States citizen or permanent resident school loans consolidation . However, some graduate programs (notably top MBA programs) have a tie-up with private loan providers and in those cases no co-signor is needed even for international students school loans consolidation .
The terms for alternative loans vary from lender to lender school loans consolidation . A common suggestion is to shop around on ALL terms, not just respond to “rates as low as school loans consolidation . school loans consolidation . school loans consolidation .” tactics that are sometimes little more than bait-and-switch school loans consolidation . Examples of other borrower terms and benefits that vary by lender are deferments (amount of time after leaving school before payments start) and forebearences (a period when payments are temporarily stopped due to financial or other hardship) school loans consolidation . These policies are solely based on the contract between lender and borrower and not set by Department of Education policies school loans consolidation .
Federally subsidized consolidations are not available for alternative student loans, though several lenders offer private consolidation programs school loans consolidation . Borrowers of privately subsidized student loans may face the same restrictions to bankruptcy discharge as for government based loans: New legislation makes clear that these loans are, like federal student loans, not dischargeable under bankruptcy school loans consolidation . Even before the legislation was passed, however, private student loans that were guaranteed “in whole or in part” by a nonprofit entity are non-dischargeable in bankruptcy (and most private loans, regardless of the lender, were indeed guaranteed by a nonprofit) school loans consolidation .
Discharge of student loans
US Federal student loans and some private student loans can be discharged in bankruptcy only with a showing of “undue hardship school loans consolidation .” Bankruptcy Code Section 523(a)(8) determines what loans can and can not be discharged school loans consolidation . The undue hardship standard varies from jurisdiction to jurisdiction, but is generally difficult to meet, making student loans practically non-dischargeable through bankruptcy school loans consolidation . While US Federal student loans can be discharged for total and permanent disability, private student loans cannot be discharged outside of bankruptcy school loans consolidation .
Criticism of US student loan programs
“In 1997, under intense lobbying from student loan companies, The Higher Education Act (HEA) was amended, and defaulted student loans became among the most lucrative and easiest to collect type of debt school loans consolidation . These amendments allow for huge penalties and fees to be attached to defaulted student loan debt, take away bankruptcy protection for student borrowers, disallow refinancing of the debt, and also provide for draconian collection and punitive measures to be taken against student borrowers, including wage garnishment, tax garnishment, withholding of professional certifications, termination from employment, Social Security garnishment, and others school loans consolidation . According to Harvard professor Elizabeth Warren in a Wall Street Journal piece by John Hechinger, “Student-loan debt collectors have power that would make a mobster envious school loans consolidation .”"
References
This article does not cite any references or sources school loans consolidation . (February 2007)
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