In the United States both the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.^[1][2][3]

Interest rates and payments

Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some features of the original consolidated loans, such as postgraduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable for all debtors.^[3][2]

History

The Federal Loan Consolidation Program was created in 1986. In 1998, the United States Congress changed the interest rate to the aforementioned fixed rate weighted mean, effective February 1, 1999. Consolidation loans taken out before that date had a variable interest rate, determined by the individual FDLP loan origination center (e.g., in the case of a university, that university) or FFELP lender (e.g., a third party bank).^[3][4]

In 2005, the Government Accountability Office considered consolidating consolidation loans so that they were exclusively managed through the FDLP. Based on several assumptions about future variations in interest rates, the loan volume, the percentage of defaulters, cost estimates from the United States Department of Education, it concluded that while doing so would incur an additional cost of $46 million, caused by the higher administrative costs of the FDLP compared to the FFELP, this would be offset by a $3,100 million saving comprised in part of avoiding $2,500 million in subsidy costs.^[1]

Consolidation loan lenders

Top consolidation lenders ranked by total FY 2006 consolidation loan originations

^{SOURCE: Stafford (FFEL & Direct) and PLUS (FFEL & Direct) Loans, from the National Student Loan Data System (NSLDS), US Department of Education, Fiscal Year 2006.[1]}

References

1. ^ ^{a b a b} GAO-06-195 Highlights, STUDENT CONSOLIDATION LOANS: Potential Effects of Making Fiscal Year 2006 Consolidation Loans Exclusively through the Direct Loan Program (PDF). U.S. Government Accountability Office (2005-12-01).
2. ^ ^{a b a b} Frequently Asked Questions About Consolidation Loans. Washington State University Office of Student Financial Aid (2006-06-09).
3. ^ ^{a b c} Potier, Beth. “^{a b c} Potier, Beth. “Amid the hype, opportunity lurks for students with loans.“, Harvard Gazette, 2004-02-05. 
4. ^ ^ Types of Student Aid: Consolidation Loans. Student Guide 2001–2002. United States Department of Education.

Further reading

• Teresa Boldt (2005-06-03). “FFELP Consolidation for Students Enrolled or In-Grace: A How-To Guide for Financial Aid Administrators” (PDF). National Student Loan Program.
• Burd, Stephen. “House Committee Approves Bill to Extend Higher Education Act.”“, Chronicle of Higher Education, 2005-08-05. 
• Federal Loan Consolidation. Pepperdine University School of Law (2006).
• Federal Loan Consolidation. Northwestern University Office of Undergraduate Financial Aid (2006).

External links

• Fact sheet from the Federal Student Aid site
• Federal Student Loan Guide

This article does not cite any references or sources. (April 2008) Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed.

The William D. Ford Federal Direct Loan Program (FDLP), often referred to as “Direct Loans,” is a United States Department of Education program that provides loans to help students pay for education after high school. The Department of Education acts as a lender, providing funds for Stafford loans and PLUS loans in the same amounts as the Stafford and PLUS loans offered through the Federal Family Education Loan Program (FFELP).

The Department of Education allows schools to choose which program, FDSLP or FFELP, best suits the needs of its students. The Department of Education does not currently allow a student to choose an FDSLP loan if the school chooses to participate in FFELP, and vice versa. However, students may be able to choose to consolidate loans under either FDSLP or FFELP.

Political history of the program

Congress passed a version of the Direct Loan program under President George H. W. Bush, but Bush promised to veto it. Candidate Bill Clinton promised that he would sign such legislation into law if elected, and the Direct Loan program was one of the first laws he signed in 1993.

Funding for the Federal Direct Student Loan Program has decreased from just over $7 billion in 2006 to $509 million budgeted for 2008.[1]

Democrats made more student-favorable Direct Loan terms part of their platform, which contributed to their retaking Congress in 2006.^{[citation needed]}

In comparison, other countries have also experimented with government-sponsored loan programs. New Zealand, for instance, now offers 0% interest loans to students (retroactive for all former students who had government loans), who can pay their loans back as a percentage of income after they graduate. This program was a Labour Party promise in the 2005 general election.^{[citation needed]}

External links

• U.S. Dept. of Education: Direct Loans

The Federal Family Education Loan Program (FFELP) is a United States Department of Education program that provides for private organizations to market, originate, and service federally guaranteed loans, such as Stafford and PLUS loans to students and their parents. FFELP is a complement to the Federal Direct Student Loan Program, colloquially known as “Direct” or DL.

The private institutions that participate in FFELP include non-profit as well as commercial organizations. These can realize profits on these loans by collecting origination fees and with an interest margin.

While FFELP providers traditionally have set their interest rates to what has been offered by the Direct channels, there have been recent indications that they may be competing on price.^{[citation needed]}

Funding for FFELP has decreased from just over $28 billion in 2006 to just under $4 billion budgeted for 2008.[1]

A Federal Perkins Loan, or Perkins Loan, is a need-based student loan offered by the U.S. Department of Education to assist American college students in funding their post-secondary education. The program is named after Carl D. Perkins, a former member of the U.S. House of Representatives from Kentucky.

Perkins Loans carry a fixed interest rate of 5% for the duration of the ten-year repayment period. The Perkins Loan Program has a nine-month grace period, so that borrowers begin repayment in the tenth month upon graduating, falling below half-time status, or withdrawing from their college or university. Because the Perkins Loan is subsidized by the government, interest does not begin to accrue until the borrower begins to repay the loan. The loan limits for undergraduates are $4,000 per year with a lifetime maximum loan of $20,000. For graduate students, the limit is $6,000 per year with a lifetime limit of $40,000 (including undergraduate loans).

Perkins Loans are eligible for Federal Loan Cancellation for teachers in designated low-income schools, as well as for teachers in designated teacher shortage areas such as math, science, and bilingual education. A percentage of the loan is cancelled for each year spent teaching full-time.

See also

• Stafford loan

External links

• U.S. Dept. of Education: The Student Guide 2004-2005: Federal Perkins Loans
• U.S. Dept. of Education: Federal Perkins Loan Teacher Cancellation
• U.S. Office of Management and Budget: Federal Perkins Loans Program Assessment

A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.

In 1988, Congress renamed the Federal Guaranteed Student Loan program the Robert T. Stafford Student Loan program, in honor of U.S. Senator Robert Stafford, a Republican from Vermont, for his work on higher education.^[1]

Because the loans are guaranteed by the full faith of the US Government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict eligibility requirements and borrowing limits on Stafford loans.

Students applying for a Stafford loan or other federal financial aid must first complete a FAFSA. Stafford loans are available to students either directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a financial intermediary (such as Chase, Sallie Mae or Student Loan Corp.) through the Federal Family Education Loan Program (FFELP).

No payments are expected on the loan while the student is enrolled as a full or half time student. This is referred to as in-school deferment. Deferment of repayment continues for six months after the student leaves school either by graduating, dropping below half-time enrollment, or withdrawing. This is referred to as the Grace Period.

Stafford loans are available both as subsidized and unsubsidized loans. Subsidized loans are offered to students based on demonstrated financial need. The interest on Subsidized loans is paid by the federal government while the student is in school, during the grace period, and during authorized deferment. For unsubsidized Stafford loans, students are responsible for all of the interest that accrues while the student is enrolled in school. The interest may be deferred throughout enrollment. Unpaid interest that is deferred until after graduation is capitalized (added to the loan principal).

Interest on Stafford loans may vary and are determined based upon the date the loan was disbursed.

Calculations to determine Stafford loan rates

^{SOURCE: Stafford Loan Interest Rates [1]}

^{SOURCE: The Relationship between Treasury Bills and Education Loans [2]}

For variable rate loans, the rates are set annually using the price of the 91-day Treasury bill on the last Monday of May, and become effective for the following year on July 1. For fiscal year 2007-2008 the 91-day Treasury bill auctioned on May 29, 2007 at 4.919% (rounded to 4.92%) are used for the calculation.^[2] On May 27th, 2008 the 91-day [2] On May 27th, 2008 the 91-day Treasury bill was auctioned at an investment rate of 1.905%^[3] . On July 1, 2008, the base rate for variable rate Stafford loans will be adjusted to 1.91%. Loans issued prior to [3] . On July 1, 2008, the base rate for variable rate Stafford loans will be adjusted to 1.91%. Loans issued prior to July 1, 1998 will be adjusted to a rate of 5.01%. Loans issued July 1, 1998 thru June 30th, 2006 will be adjusted to a rate of 4.21%.

As of July 1, 2006 all Stafford loans are issued with a fixed interest rate. For Direct loans and most loan providers, the rate is currently set at 6.80%.

As the new rate goes into effect, some loan providers are foregoing portions of the margin they are entitled to under the Federal program, offering interest rates lower than the standard rate. Many are also offering price incentives related to payment history, direct debit, etc. Collectively, interest rate reductions, principal reductions, and origination fee discounts are known as Borrower Benefits.

In addition, in repealing the Single Holder Rule, Congress also allows loan providers to compete for college consolidation loans that are available to students and former students with multiple loans. Specialized consolidation lenders and student loan providers compete on various incentives to attract customers.

Stafford loan lenders

Top Stafford lenders ranked by total FY 2006 loan originations

^{SOURCE: Stafford (FFEL & Direct) and PLUS (FFEL & Direct) Loans, from the National Student Loan Data System (NSLDS), US Department of Education, Fiscal Year 2006.[3]}

References

External links

• U.S. Dept. of Education: Stafford Loans (FFELs and Direct Loans)
• U.S. Dept. of Education: How to Choose and Evaluate Lenders

Financial Aid at the Open Directory Project