Status Of Federal Student Loans

1

• Status Of Federal Student Loans
• Presented by Trisha Malloy, Outreach
  Representative, FAME
• October 10, 2008

2
Agenda

• Basic educational loan information
• New loan limits
• Changes to the PLUS loan
• Current expected changes to federal loan
  availability

3
Types of Federal Loans

• Federal Perkins Loan
• Federal Stafford Loan
• Direct or FFELP
• Subsidized Unsubsidized
• Federal PLUS Loans
• Direct or FFELP
• Parent PLUS Grad PLUS

4
Federal Perkins Loan

• Federally regulated
• Student is the borrower must be enrolled at
  least half-time
• Money comes from the federal government and
  previously repaid Perkins loans at the school
• Only some schools have Perkins Loan Funds to
  offer to students

5
Federal Perkins Loan

• Must complete the FAFSA and meet eligibility
  guidelines
• Borrowers must complete a Master Promissory Note
  (MPN) - good for 10 years
• Disclosure form must be completed each year of
  borrowing
• Student will repay the loan to the school from
  which it was borrowed

6
Federal Perkins Loans

• Undergraduate up to 5500 a year
• Graduate up to 6000 a year
• Amount actually received depends on financial
  need, amount of other aid and availability of
  funds at school

7
Federal Perkins Loan

• Fees Repayment
• 5 Fixed Interest Rate
• No fees
• No interest accrues while in school
• Up to 10 year repayment period depending on
  amount owed
• Exit Interview must be completed once student is
  no longer enrolled at least half-time
• Numerous deferment cancellation provisions exist

8
Federal Stafford Loan Direct or FFELP

• Many schools choose to participate in either
  Direct Loan Program or FFEL Program.
• Direct Loans funded by the federal government
  student repays the feds
• FFEL Loans funded by banks and private lending
  institutions student repays the lending
  institution
• Some schools choose to offer both programs to
  students.
• Become more common over the past year with
  changes in lender programs.

9
Federal Stafford Loan

• Federally regulated
• Student is the borrower
• Student must be enrolled at least half-time
• Student must complete the FAFSA form each year
• Direct and FFEL Stafford Loans have same
  regulations and different funding source

10
Federal Stafford Loan Direct or FFELP

• Two types of Stafford Loan
• Subsidized Need-based
• Unsubsidized Can replace EFC or fill need.
• Maximum amount of Subsidized and Unsubsidized is
  determined based on
• Need
• Grade Level Maximum
• Aggregate Borrowing Limit

11
Federal Stafford Loan Loan Limit Increases

• Effective 7/1/08
• 1st Year - 5500 (no more than 3500 subsidized)
• 2nd Year - 6500 (no more than 4500 subsidized)
• 3rd, 4th 5th Year 7500 (no more than 5500
  subsidized)
• Dependent students whose parents are denied a
  PLUS loan and independent students still qualify
  for the additional 4,000 or 5,000 unsubsidized
  Stafford loan based on grade level.

12
Federal Stafford Loan Aggregate Loan Limits

• Dependent Undergraduate Student 31,000 (no more
  than 23,000 subsidized)
• Independent Undergraduate Student or Dependent
  Undergraduate Student whose parents are denied a
  PLUS Loan 57,500 (no more than 23,000 can be
  subsidized)
• Graduate/ Professional Student 138,500 (no more
  than 65,500 can be subsidized)

13
Stafford Loan Interest Rates

• Loans first disbursed between
• 7/1/08 - 6/30/09 6
• 7/1/09 - 6/30/10 5.6
• 7/1/10 - 6/30/11 4.5
• 7/1/11 - 6/30/12 3.4
• 7/1/12 and after 6.8
• Unsubsidized remains at 6.8 fixed
• Rate Reductions apply to Undergraduate Subsidized
  Stafford Loans only.

14
Stafford Loan Fees

• Up to 1 origination fee deducted proportionately
  from each disbursement
• 1 default fee
• The origination fee will drop by .5 each July
  until it is phased out completely

15
Stafford Loan Repayment

• Student has between 10 and 25 years (up to 30
  yrs. for direct loans) to repay, depending on the
  amount owed and the type of repayment plan
  selected
• Numerous deferment provisions as well as some
  cancellation provisions exist

16
Stafford Loan Application

• Student must complete the FAFSA
• Check with each individual school to determine
  Stafford Loan application process
• Student signs Master Promissory Note the first
  time they borrow and it is good for 10 years
• Entrance Interview is required the first time the
  student borrows Stafford Loan prior to receiving
  funds
• Exit Interview must be completed when the student
  is no longer enrolled at least half-time

17
PLUS Loan ProgramDirect or FFELP

• Schools may choose to participate in either
  Direct Loan Program or FFEL Program.
• Direct Loans funded by the federal government
  student repays the feds
• FFEL Loans funded by banks and private lending
  institutions student repays the lending
  institution
• Some schools choose to offer both programs to
  students.
• Many schools historically offered FFEL PLUS loans
  even if they offered only Direct Loan Program
  Stafford Loans

18
Federal PLUS Loan Program

• There are 2 PLUS Loan Programs
• Parent PLUS Loans allow parents of dependent
  undergraduate students to borrow to pay for
  educational expenses.
• Grad PLUS Loans allow graduate students to borrow
  to pay for educational expenses that are not
  covered by Stafford Loan or other financial aid.

19
PLUS Loan Program Changes

• Effective 7/1/2008
• Lenders are allowed to consider parents eligible
  for PLUS loans, even if parent has adverse credit
  during the period 1/1/07 to 12/31/09 if the
  adverse credit was a result of being delinquent
  on mortgage payments.
• PLUS Loan grace period now allows parents to
  defer payments on a parent PLUS loan until six
  months after the student ceases to be enrolled at
  least ½ time
• Accrued interest can be paid or capitalize
  quarterly

20
PLUS Loan Program

• Standard repayment 10 years
• Minimum 50 per month
• Interest accrues during periods of deferment
• Interest payments can be made during periods of
  deferment
• Interest may be capitalized no more frequently
  than quarterly

21
Current and Expected Changes to Federal Loan
Availability

• 2008-09 Some students experienced delays in loan
  process and funding
• FAME continues to provide information and
  assistance to schools and students facing federal
  loan issues
• Extension of ECASLA (Ensuring Continued Access to
  Student Loans ACT) to include 2009/2010 Academic
  Year Loans will help the continuation of FFELP
  Loan Programs

22
Current and Expected Changes to Federal Loan
Availability

• Some lenders have exited student loan market
• Some lenders have suspended student loan
  origination
• Many lenders have eliminated borrower benefit
  programs or significantly reduced these benefits
• Still many student lenders in the marketplace
• Many lenders are expecting to grow

23
Questions?

• Trisha Malloy
• Outreach Representative
• FAME
• tmalloy_at_famemaine.com
• 800-228-3734 ext. 3555