Understanding Student Loans

October 1st, 2007, 12:59 am

As a student loan borrower, you have rights and responsibilities :-Rights

You may pay off your loan at any time without penalty.
You may exercise applicable consumer protection rights under federal or state law.
Your lender, school or guarantor must answer your questions and provide complete and truthful information about your student loan.
If your original lender sells your loan to a new holder, you must be informed.

Responsibilities

Understanding your student loan options, rights and responsibilities is important for your future financial health. But studying the details is probably the last thing on your mind as you begin school. If you take away nothing else from your entrance counseling session, at least remember to keep your loan holder and school up to date with your contact information, and don’t hesitate to ask if you need help managing your financial obligation.

Types of FFELP Loans

The Federal Family Education Loan Program (FFELP) offers Stafford and PLUS Loans to help students and families pay for college.

St afford Loan Types

There are two types of Stafford Loans:

Subsidized. The federal government makes the interest payments on your loan while you’re in school and at certain other times. To qualify, you must demonstrate financial need.

Unsubsidized. You’re always responsible for the interest that accrues, even while you’re in school. You can postpone your interest payments while in school by adding the interest to the loan principal, a process called capitalization. You don’t have to demonstrate financial need to qualify for unsubsidized loans.

PL US Loan Types

There are two types of PLUS Loans:

Parent PLUS. Parents may borrow on behalf of their dependent students.

Grad PLUS. Graduate and professional students may borrow on their own behalf after qualifying for the maximum available through the Stafford Loan program.

Proceed with Caution

Eventually you’ll have to repay your student loans, including interest. Before taking on student loan debt, strongly consider your options. Pursue other forms of financial aid first, such as grants, scholarships and work study. Working part time can also help reduce reliance on student loans.

The players

During the lifetime of your student loan, you’ll come in contact with a number of people and organizations that play an important role. Here’s a breakdown of those you may meet along the way:

Financial aid administrators. These are the individuals on campus who assist you in the process of obtaining financial aid.

Department of Education. This division of the federal government oversees the federal student aid programs.

Lenders. Private banks, credit unions and other loan associations provide the funds you borrow under FFELP. Unless notified otherwise, your lender is your loan holder.

Servicers. Lenders often contract with separate organizations to handle student loan administration, including billing, payments and inquiries.

Secondary markets. To allow them to lend money to more students, lenders sometimes sell student loans to private companies. Should your lender do so, you will be notified.

Guarantors. These private, non profit and state agencies guarantee FFELP loans against default, allowing lenders to provide funds to students who don’t usually have an established credit history.