An Overview about Government Subsidized Loan Programs Prior to the Health Reform Act
Prior to the enactment of the Health Care and Education Bill, the U.S. Department of Education extended the aforementioned terminated loans as a financial aid to college students. The subsidized and unsubsidized Stafford loans in particular, were granted through the participation of private financial institutions. For this purpose, the latter were qualified to act as lenders for this type of loan, by virtue of the funding they received from the federal government.
The accredited financial institutions were, likewise, responsible for selecting the students who qualified for the loans based on their own assessment, as well as the recommendations of the students’ respective schools. In accordance with the subsidy arrangement, lenders were authorized to collect from the government, all interests accruing on all subsidized loans granted to the students. The collection of the students’ payments for the principal amount was deferred until after the student graduated or withdrew from the program, but with a 6-months grace period. Information about government subsidized loan programs showed that most students graduated with heavy financial burdens on their shoulders.
Hence, the advent of the Health Care and Education Bill entailed the establishment of the Student Aid and Financial Responsibility Act (SAFRA). This Act institutes certain reforms intended to make all financial aid loans to students more affordable and less burdensome.
Instead of designating private institutions as lenders, the U.S. Education Department grants direct-to-student college loan programs, whether subsidized or unsubsidized through non-profit organizations. This reduces the costs involved in administering the funds granted as student loans. It also means the interest rates applicable to said loans are lower. Hence, effective July 01, 2010 all Stafford Loans, which represent the government subsidized loans, will be granted under the Direct Loan Program.
Information about Subsidized Direct to Student College Loans under the Direct Loan Program
Since the information in this article is related to another article entitled “Information about Unsubsidized Loan Programs”, please refer to the second article to find additional information about Student’s Loan Eligibility, Maximum Amount of Loan, and Amount of Subsidized Loans.
Below are other important details you need to know about the subsidized direct to student college loan programs, now granted under the Direct Loan Program.
The subsidized direct loans, also known as Stafford Loans, are open to U.S. citizens and qualified non-citizens, as long as they live in the U.S. as permanent residents. Acceptance for enrollment by an educational institution that is participating under the Federal Family Education Loan Program is also required. For this purpose, the student should be enrolled or planning to enroll at the said institution for at least half-time.
Only those students with demonstrated financial needs are qualified for the subsidized direct loans, and said need is demonstrated by the results of his or her FAFSA application, based on standards set forth by the participating school. The school informs the student if he or she is qualified to apply for the loan before any applications are submitted to the Direct Loan Lender. In addition, the school’s certification that the student is currently enrolled and meeting the required academic standards is a prerequisite before the loans are approved or renewed.
Required Fees and Charges:
Loans previously granted under the Federal Family Education Loan (FFEL) Program enjoy the conditions provided under the new SAFRA rules of the Direct Loan Programs, provided these loans are submitted for re-processing. A new promissory note is executed under the Direct Loan Program; in addition, a 1% federal default fee and 0.5% origination fee will be paid. These fees are applicable only to those loans granted and approved in July 01, 2009 up to June 30, 2010.
Interest Rates for Both Subsidized and Unsubsidized Loans
The following loan interest rates are applicable to all Stafford loans granted under the Direct Loan programs.
Academic Year__________________ Subsidized Rates________________ Unsubsidized Rates
Maximum Amount of Direct to Student Subsidized Loan
The following are the subsidized loan limits a student can make depending on his grade level. For details as to how much unsubsidized loan the student can make, please refer to the article about “Information about Unsubsidized Loan Programs”. The total subsidized and unsubsidized loans should not exceed the student’s loan eligibility as determined by the school. In like manner, the school attended will also determine the dependent or independent status of the student.
Grade Level _____________Subsidized Loan Limit_______________ Status________
1st Year or Freshman_____________$ 3.500___________________ Dependent/Independent
2nd Year or Sophomore___________ $ 4,500___________________Dependent/Independent
3rd Year or Junior and Beyond______$ 5,500___________________ Dependent/Independent
Graduate or Professional__________ $ 8,500___________________ Independent
Once approved, the proceeds of a subsidized direct-to-student loan will be released to the school in two parts; the first will be to pay for the fall semester tuition and fees, and the second for winter semester tuition and fees. The school is required to notify the student every time the loan is released; the notification should be received by the student within 30 days after the school has duly applied the loan payment for tuition and fees.
The funds will be released to the student only if the tuition and fees have been satisfied; any excess will be used by the student to defray other costs of attendance such as books, computer and lodging costs. The manner by which the excess funds will be released to the student will be in accordance with the school’s policy.
Renewal of the loan for the succeeding academic year will require the student to re-apply under the same eligibility requirements and procedures, including the submission of FAFSA and school certifications.
Cancellation or Withdrawal from the Direct Loan Program
In case a student wishes to cancel or withdraw from the Direct Loan Program, he is required to submit a written notice about such intentions. This should be done within 14 days after the notification that the student’s loan was applied as settlement of his tuition and fees, or by the first day that the notice regarding the due date of the first payment was received, or whichever of these two instances represents a later date. Thereafter, the school will be able to notify the student about the exact amount he or she will pay to settle fully the cancelled government subsidized loan.
Repayment Conditions and Options
The repayment of government subsidized loans will commence six months after the student’s graduation. Only the principal amount will be repaid by the student since the interests that accrued were shouldered by the government. However, in case the student does not pay in full his principal loan after the 6-months grace period, all succeeding interests therein will be for the account of the student and will be added to the amount due and demandable.
The following are the repayment options from which the student may choose as the manner of settling his account 6 months after graduation. The maximum length of time the account remains as unpaid and outstanding is 10 years.
Standard Repayment Plan- The new graduate is required to pay a monthly fixed amount of not less than $ 50 per month or the amount of interest that accrued.
Graduated Repayment Plan- The graduate is allowed to make lower monthly payments at the start, but payment amounts are increased in the long run. Usually, the payment covers the monthly interests accruing on the loan for the first few years.
Income Sensitive Repayment Plan- The graduate’s monthly repayment amount is based on his annual earning capacity, especially for those loans availed by independent or professional students. It may be allowed to increase or decrease in accordance with his earning capacity.
In case the new graduate anticipates he will not be able to make payments on his first payment due date, he is required to make proper arrangements with the Direct Loan Lender to avoid being considered in default. Otherwise, the federal government and the school will take action against him for any deliberate intentions not to settle his loan.
For more information about government subsidized loan programs, visit the Student Aid on the Web.
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