Can you imagine buying a car without test driving it, or purchasing
a new stereo without comparing its price and features to other
systems? Probably the answer is no. The same smart consumer sense
you use in making these major purchases should be applied to your
student loan. Before you decide to borrow look into other options
like grants, scholarships and even part-time employment. If you
are considering borrowing, make sure you fully understand the
terms of the loan. Interest rate, deferment, and capitalization
are just a few of the terms you need to know before you sign your
promissory note.
Student loans can help you meet today's education expenses but
they will also bind you to a future financial commitment that
can last as long as ten years. That's why it's important to fully
understand your rights and responsibilities as a borrower before
you take out a loan.
The Stafford Loan Program is a part of the Federal
Family Education Loan Program (FFELP). The Stafford Loan Program provides
two types of loans: subsidized Stafford Loans and unsubsidized Stafford
Loans. To understand the loan programs discussed in this booklet
you need to familiarize yourself with the terms subsidized and
unsubsidized. Subsidized means the government makes the interest
payments on your loan while you are in school, in your grace period,
or in deferment. Unsubsidized means that you are always responsible
for interest payments even while you are in school.
To qualify for a subsidized Stafford Loan you must demonstrate
financial need. You do this by providing detailed information
about your income and assets on a financial aid form provided
by your school. A need analysis service and your financial aid
office will analyze the information and determine your need for
financial aid.
To qualify for an unsubsidized Stafford Loan you do not have to
demonstrate financial need but the costs of your education must
exceed any other financial aid you have been awarded.
Stafford Loan Program Eligibility
The student borrower must:
- Be either a U.S. citizen, U.S. national or eligible
non-citizen;
- Not be in default on any education loan or owe a refund
on any education grant.
Lending Institutions
Loans are provided by lending institutions. A variety of commercial
banks, savings and loan associations and credit unions offer Stafford
Loans. Contact your bank or credit union to see if it participates
in the Stafford Loan Program.
Loan Fees
Loans first disbursed on or after July 1, 1994, for periods
of enrollment that either include that date or begin after that
date have the following loan fees: a guarantee fee of 1% of the
principal amount; and an origination fee of 3% of the principal
amount.
All Stafford Loans first disbursed on or after July 1, 1994,
for periods of enrollment that either include that date or begin
after that date have variable interest rates. This holds true
even for borrowers who have other outstanding Stafford Loans at
different interest rates. The variable interest rate will change
annually and can never exceed 8.25%.
Loan Funds
The loan funds are disbursed in multiple installments throughout
the school year. Loan funds are sent either electronically or
by check to your school.
When you leave school or enroll less than half-time your grace
period begins. If you leave school or enroll less than half-time
for six consecutive months your grace period will expire and loan
repayment will begin.
If you have a subsidized Stafford Loan you
do not have to make any principal payments on your loan during your grace
period and the federal government will pay the interest on your
loan for you.
If you have an unsubsidized Stafford Loan
you do not have to make loan principal payments during your grace period, however,
you are responsible for all interest payments. You have the option
of postponing interest payments during your grace period. If you
make no interest payments, the accrued interest may be capitalized
(added to the loan principal). Capitalization may occur no more
frequently than quarterly.
To reduce interest charges, you may choose to make loan payments
on your unsubsidized Stafford Loan before your grace period expires.
Your lender can explain your options for early repayment.
You must pay a minimum of $50.00 a month or the interest due toward
your student loans, whichever is greater. You will receive a repayment
period of at least five years as long as the minimum monthly payment
is met. The first payment will become due approximately 30-45
days after your grace period ends, unless you choose to begin
repayment at an earlier date. The maximum amount of time that
you have to pay off your loan is ten years. Periods of forbearance
and deferment are not counted in the ten-year time period.
Capitalization
Capitalization can occur when you postpone interest payments
on your unsubsidized Stafford Loan during
your grace or deferment period. It can also occur when you postpone interest
payments on your subsidized or unsubsidized Stafford Loan during
a period of forbearance. At the end of deferment or forbearance
interest may be paid off in a lump sum payment or it may be capitalized.
Capitalization may occur no more frequently than quarterly. Capitalization
means the lender will add the outstanding interest to your loan
principal. Interest will then be calculated on the increased principal
amount. Consequently capitalization may significantly increase
your interest costs and monthly payments. For this reason you
should carefully consider the pros and cons of capitalization
before you agree to it.
Tips for Loan Repayment
Keep track of your loan documents. Your promissory note, repayment
schedule, and your lender and servicers' names are all important
information you will need throughout loan repayment.
Default
When you fail to make payments on your Stafford Loan for an extended
period of time, it goes into default. Borrowers who default on
their student loans face serious consequences such as:
- A loss of deferment rights and monthly payment options
(the full amount could be immediately due and payable).
- A loss of eligibility for federal and state financial
aid programs.
- A damaged credit rating.
- Exposure to a civil suit.
- Liability for additional interest charges, late charges,
collection charges and court and attorney fees.
- Wage garnishment.
- A loss of state and federal income tax refunds.
- A referral of your account to a collection agency.
Servicers and Secondary Markets
Many lenders employ an agency to manage their student loan accounts.
These agencies are known as servicers. If your loan is handled
by a servicer, all of your inquiries and payments must be directed
to them.
Lenders sometimes sell Stafford Loans to provide additional capital
for new student loans. The institutions that buy student loans
are known as secondary markets.You will be notified if your loan
is sold. Under a sale, the terms of the loan as outlined in your
promissory note remain the same.
Many students borrow more than once or from more than one source.
This can mean sizeable or multiple payments after leaving school.
The Federal Loan Consolidation program was created to help student
borrowers manage this type of debt. Under the consolidation program,
eligible federal education loans may be combined into one new
loan. In doing so, you will make one monthly payment to one lender
and possibly reduce your payment amount as well. Repayment periods
in the Loan Consolidation program range from 12 to 30 years. Your
lender, school financial aid office or NELA can provide you with
more information about this program.
The Northwest Education Loan Association (NELA) has a toll-free
hotline to help you with any questions you might have about loan
repayment. Hotline staff can also help you determine the name
of your lender or servicer, how much you borrowed and whether
or not you might be eligible for deferment. If you have questions
call us.
Check out how much your borrowing will cost you. The chart below
will help you estimate monthly payment amounts. The amounts shown
are for a $1,000 loan. To calculate your payments, multiply the
appropriate payment by the number of thousands of dollars you
plan to borrow. For example if you borrow $5,000 at 8% and repay
it over 5 years your monthly payment would be $101.40 (5 x $20.28).
Repayment Period - Per $1,000 of Debt
Interest 1yr. 2yr. 3yr. 4yr. 5yr.
Rate
7% 86.53 44.78 30.88 23.95 19.81
8% 86.99 45.23 31.34 24.42 20.28
8.25% 87.10 45.34 31.45 24.53 20.40
9% 87.46 45.69 31.80 24.89 20.76
10% 87.92 46.15 32.27 25.37 21.25
Interest
Rate 6yr. 7yr. 8yr. 9yr. 10yr.
7% 17.05 15.10 13.64 12.51 11.62
8% 17.54 15.59 14.14 13.02 12.14
8.25% 17.66 15.71 14.26 13.15 12.27
9% 18.03 16.09 14.66 13.55 12.67
10% 18.53 16.61 15.18 14.08 13.22
These repayment charts do not reflect capitalization
of any interest that accrued to your unsubsidized Stafford Loan while
you were in school. To examine the effects of capitalization on
your loan principal amount and monthly payments see the section
on capitalization in this booklet.
Federal Stafford Deferments
For borrowers with no outstanding balance on FFELP
Loans made before July 1, 1993, whose Stafford Loans were
first disbursed on or after July 1, 1993.
Deferment
Time Limit
- Full-time enrollment at an eligible school
Unlimited
- Half-time enrollment at an eligible school if you borrow under the Stafford or SLS programs during the enrollment period *1
Unlimited
- Graduate fellowship program
Unlimited
- Rehabilitation program for the disabled
Unlimited
- Peace Corps, Action, Vista or comparable full-time volunteer work for tax-exempt organizations
Up to three years
- Active U.S. military, Commissioned Corps of U.S. Health service,
active duty National Oceanic and Atmospheric Administration Corps
Three years total
- Temporary total disability or caring for a spouse or dependent
who has a temporary total disability
Up to three years
- Full-time teaching in a shortage area designated by U.S. Department
of Education
Up to three years
- Eligible Internship
Up to two years
- Unemployment
Up to two years
- Mother of preschool child entering or re-entering work force for no more than $1 over minimum wage *1
Up to one year
- Parental leave
Up to six months
Federal Stafford Deferments
For borrowers with any outstanding FFELP Loans disbursed
before July 1, 1993, whose Stafford or SLS Loans were first disbursed
on or after July 1, 1993
Deferment
Time Limit
- At least half-time enrollment at an eligible school
Unlimited
- Graduate fellowship program
Unlimited
- Rehabilitation program for the disabled
Unlimited
- Unemployment
Up to three years
- Economic hardship
Up to three years
1. Available only for borrowers who have no outstanding
Stafford, PLUS, SLS or Consolidation Loans on the date the Promissory Note
was signed for loans disbursed on or after July 1, 1987.
2. NOAA is available only for borrowers who have no
outstanding Stafford, PLUS, SLS or Consolidation Loans on the date the Promissory
Note was signed for loans disbursed on or after July 1, 1987.
Borrowers who qualify for deferment may postpone loan principal
payments during periods of deferment. The government will pay
the interest on the loan for borrowers with subsidized Stafford
Loans.
Borrowers with unsubsidized Stafford Loans are not required to make interest
payments while they are in deferment; however, they will be responsible
for all interest that accrues. If you choose not to make interest
payments the lender may capitalize the accrued interest either
quarterly, annually or at the end of the deferment period.
Forbearance
Occasionally, borrowers experience temporary financial hardship
for reasons which do not qualify them for deferment. Lenders can,
at their discretion, offer forbearance under such circumstances.
During a period of forbearance principal payments are postponed
or reduced. Interest will continue to accrue on the loan and must
be paid. Interest may be paid at intervals during the forbearance,
or it may be capitalized (added to the principal balance).
You can get a Stafford Loan application from your financial aid
office, your lender, or click on "Order Materials" at the end of this
section.
Dependent Students
Academic Level Sub & Unsub Maximum Limit
First year $2,625
Second year $3,500
Third year & beyond $5,500
Cumulative
undergrad $23,000
Independent Students
For enrollment periods beginning on or
after July 1, 1994
Academic Level Subsidized* Additional Sub & Unsub
Maximum Limit Unsubsidized Maximum Limit
Maximum Limit
1st year $2,625 + $4,000 = $6,625
2nd year 3,500 + $4,000 = $7,500
3rd year & beyond 5,500 + $5,000 = $10,500
Cumulative Undergrad $46,000**
Graduate or Professional Student
For enrollment periods beginning on or
after July 1, 1994
Academic Level Subsidized Limits Unsubsidized Limit Sub & Unsub
Limit
Graduate or
professional $8,500 + $10,000 = $18,500
student
Cumulative Grad & Professional $138,500**
* If the student doesn't qualify for entire subsidized limit,
the student may get an unsubsidized loan to make up the difference.
**Any amounts borrowed through the SLS Program are included in
the total aggregate unsubsidized loan limits.
Repayment Examples
All examples are based on the following:
Loan Amount $4,000 Interest Rate 8.25%
Example 1
Borrower pays interest during two year deferment
Monthly Interest Payment
$27.50
After leaving deferment, borrower's payments of principal and interest with no capitalized interest. --Ten-year repayment--
Monthly Payment Total Cost to Borrower
$49.07 $5,888
Example 2
Borrower makes no interest payment during deferment. --Ten-year
repayment--
Monthly payments after two years of deferment with interest capitalized once at the end of deferment.
Monthly Payment Total Cost to Borrower
$57.16 $6,859
Example 3
Borrower makes no interest payment during deferment. --Ten-year
repayment--
Monthly payments after two years of deferment with interest capitalized quarterly each year.
Monthly Payment Total Cost to Borrower
$57.77 $6,932
Remember to keep your lender informed if:
- Your address or name changes.
- You withdraw from school.
- You believe yourself to be eligible for deferment.
- You are having problems making your monthly payments.
NELA operates a toll-free information line for students who have
questions about loan repayment. NELA staff can help you with questions
about your loan repayment options such as deferment and forbearance.
Staff can also provide information on loan amounts borrowed, and
the name of your lender or servicing agency.
Repayment Information
Borrowers with Stafford or SLS Loans that were first disbursed
on or after July 1, 1993, and who had no outstanding balance on
a FFELP Loan at the time, have the option of repaying their loan
using a graduated or income-sensitive repayment plan. With graduated
repayment, your monthly payments will start out low and gradually
increase over your repayment period. With income-sensitive repayment
your monthly payments will be adjusted annually based on your
income. Ask your lender for more information on income-sensitive
or graduated repayment.
How To Apply
You will complete a Free Application for Federal Student Aid (FAFSA).
The financial aid office at the school will analyze the information
on the FAFSA and determine your eligibility for grants, work-study
and need-based loans. The financial aid office will notify you
of any aid awarded. If your financial aid award includes a subsidized
or unsubsidized Stafford Loan you must complete a separate loan
application to apply.
Northwest Education Loan Association
811 First Avenue
500 Colman Bldg.
Seattle, WA 98104
1-800-732-1077
(206) 461-5470
Loan Repayment Hotline
1-800-356-6924
Student Loan Information
1-800-732-1077
(206) 461-5470
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For More Information Contact the Student Loan Center at 800/242-1200