Loans for College

The U.S. Department of Education administers loans for college in the form of the Federal Family Education Loan (FFEL) and the William D. Ford Federal Direct Loan (Direct Loan) Programs. Both programs consist of Stafford Loans (for students) and PLUS Loans (for parents).

Schools generally participate in either one or both programs. The funding provided under the FFEL program is administered by a bank, credit union, or any other lender that participates in the program. Under the Direct Loan Program, the loan funding is provided directly from the federal government. While the loan amounts and eligibility guidelines are similar, the loan repayment terms between each program may differ.

In order to participate in any Stafford loan for college program, you must complete a FAFSA used to determine loan eligibility. If you accept the loan, you will be required to sign a promissory note, a binding legal document that outlines the conditions under which you are borrowing the loan and the terms under which you agree to repayment.

If you qualify for the FFEL Stafford Loan program, you will need to choose a lender. (If you qualified and accepted the Direct Stafford Loan, the federal government, through the U.S. Department of Education, is considered your lender). Schools that participate in the FFEL Program will usually have a list of preferred lenders from which students can choose. There are a few things to consider when choosing loans for college from an FFEL lender:

The amount you borrow for your loan for college depends on your year in school and whether you have a subsidized or unsubsidized Direct or FFEL Stafford Loan. A subsidized loan is awarded on the basis of a student�s financial need. If you are eligible for a subsidized loan, the government will pay (subsidize) the interest on your loan under the following conditions:

while you are attending school;
for the first six months after you leave school and;
if you qualify for payment deferment.

Depending upon your financial need, you may borrow subsidized loans for college for an amount up to the annual loan borrowing limit for your level of study.

In some cases, loans for college may be borrowed beyond the subsidized loan amount, even in cases where no financial need is demonstrated. This type of loan is considered unsubsidized. To determine eligibility, the total amount of your other financial aid is subtracted from your cost of attendance. Unlike a subsidized loan, you are responsible for the interest from the time the unsubsidized loan is disbursed until paid in full. You can either pay the interest while you are in school, or allow the interest to accrue (accumulate) and be added to the principal amount. Of course, allowing it to accrue increases the amount you will need to repay.

You can receive both a Stafford subsidized and unsubsidized loan for the same enrollment period as long as you don't exceed the annual loan limits. You can check both the Undergraduate Stafford Loan Limits here or the Graduate Stafford Loan Limits here.

For both Stafford subsidized and unsubsidized loans for college programs, the funds are disbursed to your school in at least two installments. No installment may exceed one-half of the amount of the loan and will first be applied to pay for tuition and fees, room and board, and other school charges. Any funds remaining can be given to you in the form of a check, unless you authorize the school to hold the funds until later in the enrollment period.

Generally, if you're a first-year undergraduate student and a first-time borrower, your school cannot disburse loans for college until 30 days after the first day of your enrollment. This is to ensure that you won't have a loan to repay in the even you do not begin classes or withdraw during this 30 day period. A school with a cohort default rate of less than 10 percent for each of the three most recent fiscal years for which data are available are not required to delay the delivery or disbursement of the first disbursement of a loan for 30 days for first-time, first year undergraduate borrowers.

Upon graduation, or if your enrollment status drops below half-time enrollment, you will have a six-month "grace period" before you are expected to begin repayment of your loan. During this period, you'll receive repayment information, and you'll be notified of your first payment due date. You're responsible for beginning repayment on time, even if you don't receive this information. Payments are usually due monthly, but there are instances where quarterly payment schedules may be set up for special circumstances.

Under certain circumstances, you can receive a deferment or forbearance on your loan, as long as it�s not in default. During a deferment, no payments are required. You won�t be charged interest for a subsidized FFEL or Direct Stafford loan. If you have an unsubsidized Stafford Loan, you will continue to be responsible for the interest portion during this deferment period.

If, during the course of repaying your loans for college, you become temporarily unable to meet your repayment schedule (e.g., poor health or other unforeseen personal problems), and you do not qualify for a deferment, speak to your lender about granting you a forbearance for a limited period. Under few circumstances, your Stafford loan can be forgiven. However, it cannot be canceled because you didn�t complete the program of study at the school (unless the school closed), or because you didn�t like the school or the program of study, or you didn�t obtain employment after completing the program of study. Remember, loans are a commitment, just as choosing a career involves commitment. Research your career goals, thoroughly scour grant and other forms of educational finance assistance. Then commit to both the education and the financial institution that provides your loans for college to help you to pursue your dream.

What if the amount you've been awarded in Stafford Loans isn't enough to cover the cost of your education or you find that you are not eligible for the Stafford Loan or you need additional funding to cover your educational expenses? You should consider using other loan resources, specifically designed for student education. Read about other educational loan programs such as Federal Perkins loans, Federal Plus loans, and other alternative loan resources.

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