Financial Aid...Types of Student Loans

Student loans fall into two main types: The Stafford Loan and the PLUS loan. Students apply for Stafford Loans, while parents apply for a PLUS loan. Both are provided by the federal government, and you apply for both by filling out the FAFSA.

If you qualify for student loans, your financial aid award letter will include the type and amount of your Stafford loan eligibility.

You must complete a Master Promissory Note (MPN) before student loan processing can continue. First-time loan borrowers must also complete a loan entrance interview. This process is described in more detail in the How To Apply page.

Important Note for Summer 2008 Financial Aid Recipients

Effective July 1, 2008, the Stafford loan limits for subsidized and certain will increase. Dependent students may be eligible forup to an additional $2000 without a PLUS loan denial. Independent students and dependent students whose parent has been denied a PLUS loan may be eligible for up to $6000.

Students who request unsubsidized loan before July 1 will see multiple loans on their award letter. The additional loan funds cannot be disbursed until July 1, so will not be available for Summer 2008 fee payment.

Once the student has completed the Master Promissory Note, the disclosure notice sent to the student by Great Lakes Higher Education Corp. will confirm the disbursement schedule for summer loan disbursements.

Federal Stafford Loan
This is a variable-rate loan that you borrow from a bank or credit union which is insured by the federal government.

There are two types of Stafford Loans: Subsidized and unsubsidized. With subsidized loans, the government pays the interest on the loan until the student leaves college. Students who meet certain income guidelines can qualify for a subsidized Stafford loan.

There may be loan origination fees deducted proportionally from every disbursement of your loan. These fees are determined by the lender.

Federal Stafford Loans have a six-month grace period after you drop below six hours, leave school, or graduate before you must start making payments.

• Interest rate update

For all Stafford loans initially 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.

First Stafford loans first disbursed July 1, 1998 and June 30, 2006, the interest rate is variable (adjusted annually on July 1st) but will not exceed 8.25 percent. (Borrowers will be notified any time the variable rate changes.) The interest rate for these loans in 2007-2008 is 7.22 percent. (This rate applies to loans in repayment status; the rate may be lower during grace and deferment periods.)

Beginning July 1, 2008, the interest rate on subsidized Stafford loans made to undergraduate students will be reduced over a four-year period. The applicable interest rates for loans made during this period will be:

These changes apply to subsidized Stafford loans first disbursed on or after July 1 of each year through June 30 of the next year. The change does not affect any prior loans to borrowers; the terms and interest rates of those loans remain the same. These reduced interest rates apply only to subsidized loans; any unsubsidized Stafford Loan for the same undergraduate borrower would continue to be made at the current fixed interest rate of 6.8 percent.
 

The Formula for Financial Need
Every college uses the same basic formula for awarding financial aid. It goes like this:

Cost of Education -
Expected Family Contribution
= Financial Need


Student Loan Comparison Chart

For all loan options: origination fees vary by lender, but required by law to be no more than 4% of the loan amount.

The maximum time to repay the loan is 10 years (there is no prepayment penalty).

NOTE: Loan funds must be credited to your account within 3 days of receipt. This means you must meet all eligibility criteria and be registered when funds arrive.

Federal PLUS Loan
The Federal PLUS Loan program is designed to enable the parents of a dependent student to borrow a loan to pay the education expenses of students who are enrolled at least half-time (6 hours). Before eligibility can be determined, the student and parent(s) must file the Free Application for Federal Student Aid (FAFSA).

To be eligible to receive a PLUS Loan, the parent(s) generally will be required to pass a credit check. The parent must meet citizenship requirements and not be in default or owe a refund on any federal student aid program. The student for whom the loan benefits must be maintaining satisfactory progress towards his/her degree intent.

The yearly limit on a PLUS loan is equal to the cost of attendance minus any other financial aid the student is receiving.

The interest rate is variable and is adjusted each year on July 1. The interest rate is capped by law at 9 percent.

Rate effective July 1, 2006: 8.5 percent fixed.