I. Types of Student Loans
A basic understanding of the different types of loans is critical. There are federal student loans and private student loans. Different laws and regulations apply to the different loan types, and the way you obtain information about your loans and repayment options varies depending on the type.
A. Federal Student Loans
Historically, federal education loans have been available either through the William D. Ford Federal Direct Loan Program ("Direct Loans") or the Federal Family Education Loan Program ("FFEL Program" or "FFELP"), but the Direct Loan Program has been the only source for federally-funded student loans since late 2010. These student loans are funded directly from the US Treasury. The federal government is authorized to make several types of direct loans at specified interest rates: Subsidized and Unsubsidized Stafford, Perkins, PLUS and Consolidation Loans.
The FFEL Program was ended in mid-2010, but many borrowers still have outstanding FFEL student loans. FFEL loans were funded by private lenders. The federal government guaranteed FFEL loans, so it reimburses a private lender when a borrower defaults. The FFEL Program is sometimes referred to as the federally guaranteed student loan program. FFELs are often confused with private loans, but they should be considered as federal student loans. The choice of loan programs available to a borrower depends on the college they attend. Borrowers had their choice of lenders in the FFEL program, but not in the Direct Loan program. The different "labels" of each direct loan are:
STUDENT LOAN BASICS
1. Subsidized Stafford
The Subsidized Stafford loan offers the lowest interest rate. Borrowers must meet a financial needs test to qualify. Graduate and professional students are not eligible for these loans.
2. Unsubsidized Stafford
Unsubsidized Stafford loans are made without regard to financial need. That means any student can get one.
The schools that participate in the Perkins Loan program select the students who are eligible to receive these favorable loans from a limited pool of funds made available by the government. The student borrowers must prove financial need. The interest rate on these loans is set at a relatively low rate, and is paid by federal government while the student is enrolled in school.
PLUS Loans (Parents Plus) are available to parents with dependent undergraduate, graduate, and professional degree students. PLUS Loan applicants must have a qualifying credit history.
5. Consolidation Loans
Consolidation Loans are available for borrowers with existing federal student loans (Direct or FFEL) in order to combine the loans and extend payment schedules and terms. A borrower’s existing loans are paid off and a new consolidation loan is created. Although the monthly payment amount on a consolidation loan usually is lower than for the combined existing loans, this benefit comes at the price of a longer repayment period. Interest rates for these loans currently are fixed, but have historically been priced based on U. S. Treasury bill interest rates. Whether based on a fixed or variable rate, the interest rate does not reflect the borrower’s risk – if the borrower is eligible for a loan, he or she will be charged the same rate as any other eligible borrower.
Obtaining Information About Federal Student Loans
The federal government, through the United States Department of Education (“ED”), maintains a website through which every federal student loan borrower can obtain critical information. It is the starting point for most student loan borrowers who are researching their payment options because options depend on the types of loans, and borrowers need to know the identity of their lenders and loan servicers. National Student Loan Data System (“NSLDS”) is a database that contains information, including chain of custody, interest rate, loan type, loan status, etc., regarding every federal student loan a person has borrowed. Lenders, servicers, and guarantors have access to borrower NSLDS reports if they hold the loan. Private student loans are not included in the NSLDS database and must be researched separately.
Borrowers may access their own NSLDS reports by going to www.nslds.ed.gov.
They must first obtain a PIN at www.pin.ed.gov. NSLDS is available 24/7, with occasional downtime for maintenance. For help, you may call the Federal Student Aid
Information Center at 1-800-4-FED-AID/TDD 1-800-730-8913, which is available 8AM to 10PM (Eastern Time), Monday through Friday, except federal holidays.