Loan Types And How Rates Will Change
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
Most families that apply for college financial aid receive one or more federal education loans. Stafford loans are for undergraduate, graduate and professional students and come from two sources. Direct Stafford loans are made by the federal government through the Department of Education. Stafford loans in the Federal Family Education Loan (FFEL) program are made by private lenders but are guaranteed by the federal government. That means that if the student fails to repay the loan, the government reimburses the lender.
Direct and FFEL Stafford loans are virtually identical. Interest rates, set by federal law, are the same, as are most loan terms. Which type of Stafford loan you get depends on the school you attend. About 22 percent of Stafford loans are Direct loans; the rest are FFEL loans. When a family has significant financial need, a Stafford loan may be subsidized, which means that the government pays the interest on the loan while the student is in school. The total borrowing limit for dependent undergrads is $23,000; for graduate students, it is $138,500.
Rates on Stafford loans are 4.7 percent while the student is in school or during a six-month grace period after graduation and 5.3 percent in repayment. On July 1, rates on existing loans increase to 6.54 percent and 7.14 percent, respectively, and rates on new loans will be a fixed 6.8 percent.
Parents of undergraduates may take out Parent Loan for Undergraduate Students, or PLUS loans. They, too, come from the federal government's Direct Loan program or from private lenders in the FFEL program, depending on the school the student attends. Parents may borrow up to the student's full cost of attendance, less any financial aid.
The rate on existing PLUS loans is currently 6.1 percent and will rise to 7.94 percent on July 1. Because of a legislative drafting error that hasn't been corrected, new Direct PLUS loans will be set at a fixed rate of 7.9 percent beginning in July, and new FFEL PLUS loans will be set at 8.5 percent.
-- Kristin Davis
