Schools generally participate in either the Federal Family Education Loan (FFEL)
Program or the William D. Ford Federal Direct Loan (Direct Loan) Program. Under
the Direct Loan Program, the funds for your loan come directly from the federal
government. Funds for your FFEL will come from a bank, credit union, or other lender
that participates in the program.
The terms and conditions of both loans are similar. The amounts you may borrow are
the same whether you get a Direct Stafford Loan or a FFEL Stafford Loan. The major
differences between the two programs are the source of the loan funds and certain
repayment provisions.
How Can I get a FFEL or Direct Loan?
For either type of loan, you must fill out a
FAFSA. After your FAFSA is processed, your school will review the results
and will inform you about your loan eligibility. You will also have to sign a promissory
note.
If you have financial need remaining after your EFC, the amount of any
Federal Pell Grant funds you are eligible for, and aid from other sources
are subtracted from your cost of attendance, you can borrow a FFEL or Direct Loan
to cover some or all of that remaining need. If you are eligible, the government
will pay the interest on your loan while you're in school, for the first six months
after you leave school, and when you qualify to have your payments deferred. This
type of loan is a subsidized loan. If you are eligible for a subsidized loan, the
government will pay interest while you're in school, for the first six months after
you leave school, and when you qualify to have your payments deferred.
Depending on your financial need, you may borrow subsidized money for an amount
up to the annual loan borrowing limit for your year in school. (Annual loan limits
are listed below.)
You might also be able to borrow loan funds beyond your subsidized loan amount or
even if you don't have demonstrated financial need. In that case, you'd receive
an unsubsidized loan. Your school will subtract the total amount of your other financial
aid from your cost of attendance to determine whether you are eligible for an unsubsidized
loan. Unlike a subsidized loan, you are responsible for the interest from the time
the unsubsidized loan is disbursed until it is paid in full. You can choose to pay
the interest or allow it to accumulate and be capitalized (that is, added to the
principal amount of your loan).
You can receive a subsidized loan and an unsubsidized loan for the same enrollment
period as long as it does not exceed the annual loan limits.
So, how will I get the loan money?
For both the Direct Loan and FFEL programs, you'll be paid through your school in
at least two installments. No installment may exceed one-half of your loan amount.
Your loan money must first be applied to pay for tuition and fees, room and board,
and other school charges. If loan money remains, you'll receive the funds by check
or in cash, unless you give the school written authorization to hold the funds until
later in the enrollment period.
If you're a first-year undergraduate student and a first-time borrower, your school
generally cannot disburse your first payment until 30 days after the first day of
your enrollment period. This practice ensures that you won't have to repay the loan
if you don't begin classes or if you withdraw during the first 30 days of classes.
How much can I borrow?
If you're a dependent undergraduate student, each year you can borrow up to:
- $2,625 if you're a first-year student enrolled in a program of study that is at
least a full academic year;
- $3,500 if you've completed your first year of study and the remainder of your program
is at least a full academic year;
- $5,500 if you've completed two years of study and the remainder of your program
is at least a full academic year.
If you're an independent undergraduate student or a dependent student whose parents
have applied and were unable to get a PLUS loans
(a parent loan), each year you can borrow up to:
- $6,625 if you're a first-year student enrolled in a program of study that is at
least a full academic year (at least $4,000 of this amount must be in unsubsidized
loans);
- $7,500 if you've completed your first year of study and the remainder of your program
is at least a full academic year (at least $4,000 of this amount must be in unsubsidized
loans.);
- $10,500 if you've completed two years of study and the remainder of your program
is at least a full academic year (at least $5,000 of this amount must be in unsubsidized
loans).
These amounts are the maximum yearly amounts you can borrow in both subsidized and
unsubsidized FFELs or Direct Loans, individually or in combination. Because you
can't borrow more than your cost of attendance minus both the amount of any
Pell Grant you're eligible for and any other financial aid you'll get, you
may receive less than the annual maximum amounts.
What's the interest rate?
The interest rate for loans disbursed after July 1, 2006 is 6.8%. The interest rate
for loans disbursed between July 1, 1998 and June 30 2005 is variable (adjusted
annually) but will never exceed 8.25 percent. You'll be notified any time the variable
rate changes.
When do I pay back the loan?
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 will
receive repayment information, and you'll be notified of your first payment due
date. You are responsible for beginning repayment on time, even if you don't receive
this information. Payments are usually due monthly.