Fed programs give college funds
Originally published August 1, 2004 in The (Monroe, La.) News-Star
The most common loan program awarded to students is the Federal Family Education Loan Program. This program consists of the Subsidized and Unsubsidized Stafford Loan Program and the Parent PLUS Loan for parents of dependent undergraduates. Private lenders and the federal government provide the funding for this program. These loans are provided at low interest rates and have grace periods to help students prepare for repayment.
The Subsidized Stafford is based on financial need, and the student is eligible to receive this loan as a half-time to full-time student (at least six hours as an undergraduate student and five hours as a graduate student). While the student is attending school, the federal government pays the interest until the student graduates or leaves school. The federal government determines the interest rate every July 1, but the law requires the interest not to exceed 8.25 percent. The current interest rate is 2.77 percent, which is considered the lowest rate ever determined in the history of this program.
The amount students can borrow in a Subsidized Stafford Loan is based on their grade classification. For example, freshmen can borrow up to $2,625 for an academic year. An academic year is defined as the fall and spring semesters. As students progress, the loan levels increase to $3,500 as a sophomore, $5,500 as a junior and $5,500 as a senior.
Unlike the Subsidized Stafford loan, the Unsubsidized Stafford Loan is not awarded on the basis of need. The federal government will not pay the interest during a student's enrollment period in college. Although the interest rate is the same as the Subsidized Stafford, students can pay the interest during their time in college or allow the interest to accrue, which will be capitalized on top of the principal amount. That means the interest will be added to the principal amount of the unsubsidized loan, which will cause the principal amount to be higher at the time repayment begins.
The Unsubsidized Stafford Loan limit amounts are the same as a Subsidized Stafford Loan for dependent students. However, depending on need, students can borrow both the Subsidized and Unsubsidized Stafford Loans in order to be awarded the maximum loan amount based on their grade classification.
Independent students can borrow Subsidized and Unsubsidized Stafford Loans if necessary. Not only can independent undergraduate students be eligible for the maximum Subsidized Stafford Loan amount, but they can also receive an additional $4,000 in an Unsubsidized Stafford Loan as a freshman or sophomore or $5,000 as a junior and senior.
Parents can also get assistance for their student if necessary through the government's Parent PLUS Program. This loan program allows parents to borrow up to the college's cost of attendance; however, parents must have no adverse credit history and will be required to pass a credit check before the loan is awarded. The interest on this loan program is determined every July 1 but not to exceed 9 percent. Today, the interest rate for the PLUS loan is 4.17 percent.
Another excellent program offered to students is the Federal Perkins Loan Program. A need-based loan, the student can borrow up to $4,000 as an undergraduate and $6,000 as a graduate student. Unlike the FFEL program, these funds are allocated to the colleges by the federal government, so therefore only a limited amount is offered. If students request this loan, they should apply early because the loan is awarded on a first-come, first-serve basis. Nursing and education majors would be particularly interested in this program since the government will forgive a portion of these funds based on certain criteria listed in this program. Students can review this information at the U.S. Department of Education's Web site at www.ed.gov/finaid. For pharmacy majors, the Health Professions Loan is another source of funding. With loan limits up to $5,000 for an academic year, the Health Professions Loan is a need-based loan but does require a parents' income information regardless if the student is independent. The student must also be admitted in the School of Pharmacy before being considered. Both the Federal Perkins and Health Professions Loan have an interest rate that is set by law at 5 percent.
The Stafford Loan Program allows a six-month grace period after the student graduates to prepare for repayment. On the other hand, parents must begin repayment of their PLUS loan 60 days after the final disbursement. The Federal Perkins Loan Program requires a nine-month grace period, while the Health Professions Loan allows a 12-month grace period. Before choosing your lender, it is a good idea to review the repayment options offered. Financial Aid Offices that offer the FFEL programs provide a lender list of who they feel provides quality service and repayment options to the students. As always, file early for your loans.
This article was written by James E. Cofer, president; Ralph Perri, director of financial aid; and Roslynn Pogue, associate director of financial aid at the University of Louisiana at Monroe.