a.Define a student loan
b.Explain the application process
c.Explain the repayment process
d.What are the costs/fees
1). Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually charge lower interest than other loans, and are also usually issued by the government.
2). The U.S. Department of Education offers 2 types of loans. The FFEL (Federal Family Education Loan), and the Federal Direct Loan. Under the FFEL, Parents may also apply. Under the DL, only Students may apply.
Schools generally participate in either the FFEL or Direct Loan program but sometimes participate in both. 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. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.
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 also will have to sign a promissory note, a binding legal document that lists the conditions under which you're borrowing and the terms under which you agree to repay your loan.
3). 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'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.
During the grace period on a subsidized loan, you don’t have to pay any principal, and you won’t be charged interest. During the grace period on an unsubsidized loan, you don’t have to pay any principal, but you will be charged interest. You can either pay the interest or it will be capitalized (added to your principal loan balance, thus increasing the amount you’ll repay).
3). You’ll repay your FFEL Stafford Loan to a private lender or loan servicer. You’ll repay your Direct Loan to the U.S. Department of Education’s Direct Loan Servicing Center. Both the Direct Loan and FFEL programs offer four repayment plans you can choose from, but the terms differ slightly. You will receive more detailed information on your repayment options during entrance and exit counseling sessions your school will provide. To read more now about repayment plans under both programs, go to the Repaying Your Loans section of this Web site.
Under certain circumstances, if you're having trouble paying your loan, 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 are responsible for the interest during deferment.
If you’re temporarily unable to meet your repayment schedule (for example due to poor health or other unforeseen personal problems), but you’re not eligible for a deferment, your lender might grant you forbearance for a limited and specified period.
4). For all Stafford loans first disbursed on or after July 1, 2006, the interest rate is fixed at 6.8 percent. This change from a variable to a fixed interest rate does not affect a borrower's variable interest rate on loans made before July 1, 2006.
For Stafford Loans first disbursed between July 1, 1998 and June 30, 2006, the interest rate is variable (adjusted annually on July 1st) but will not exceed 8.25 percent. (You'll be notified any time the variable rate changes.) The interest rate for these loans in 2006-07 is 7.14 percent. (This rate applies to loans in repayment status; the rate may be lower during grace and deferment periods.)
You’ll pay a fee of up to 4 percent of the loan, deducted proportionately from each loan disbursement. For a FFEL Stafford Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency (the organization that administers the FFEL Program in your state) to help reduce the cost of the loans. For a Direct Stafford Loan, the entire fee goes to the government to help reduce the cost of the loans. Also, if you don’t make your loan payments when scheduled, you may be charged collection costs and late fees.
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