Federal Family Education Loan Program, Student Loans, College Planning, Education Finance, College Education, High-school Education, Universities   Federal Family Education Loan Program, Student Loans, College Planning, Education Finance, College Education, High-school Education, Universities 
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Federal Family Education Loan Program

Home > College Planning > Federal Family Education Loan Program

Federal Family Education Loan Program, Student Loans, College Planning, Education Finance, College Education, High-school Education, Universities
The Federal Family Education Loan Program (FFELP) is the largest federal source of financial aid for college. The FFELP is a public-private partnership started by Congress in 1965 to deliver and administer guaranteed education loans for students and their parents. The program has provided more than $377 billion in low-cost loans to more than 50 million Americans.

The FFELP makes available the following types of student loans for postsecondary education and training:

• Stafford loans
Stafford loans are the largest component of the FFELP, supplying more than $29 billion in aid for college each year. Subsidized Stafford loans are given to students who demonstrate financial need. The federal government pays the interest on these loans while the student is in school, during a six-month grace period after the student leaves school, and during authorized periods of loan deferment. Unsubsidized Stafford loans are available to students regardless of their financial need, but, the student is responsible for all interest that accrues on the loan.

• PLUS loans for parents
Parents may borrow up to the total cost of their children's undergraduate education, less financial aid from other sources. The FFELP annually supplies more than $3.6 billion in PLUS loans to parents.

• Federal Consolidation loans
Borrowers can consolidate their federal education loans into one loan with a single monthly payment. Depending on their outstanding loan balance, they can also extend their repayment period. During fiscal 2002, borrowers combined approximately $22.7 billion in existing education debt through Federal Consolidation loans.

How the FFELP works to offer vital financial aid
The process starts when a student applies for financial aid by completing the Free Application for Federal Student Aid (FAFSA). Based on an analysis of the information provided in the FAFSA, the school that the student plans to attend creates a financial-aid package for the student. The financial-aid package could include a combination of grants, scholarships, work-study and a recommended loan amount. The aid package is designed to cover students' "unmet need" the difference between the money that students and their families are expected to contribute toward their education and the cost of attending that school.

If the student accepts an award package that includes a FFELP loan, the student, with the help of the school's financial-aid office, chooses a lender. The lender is willing to give the loan, despite the student's lack of employment, credit history or collateral, as a guarantor stands behind the loan. Behind the scenes, the school, lender, guarantor and U.S. Department of Education work together to ensure that the student is eligible to borrow the amount needed. Due to advances in technology and streamlined processes, a FFELP loan can be approved in a matter of minutes.

The guarantor also could help the school and lender disburse the student's loan to campus. The school applies the proceeds to the student's tuition, fees and other expenses, and gives the remaining balance to the student.

Specialized third-party loan servicers could assist guarantors and lenders with their responsibilities. For example, loan servicers work on behalf of the lender by issuing repayment booklets, collecting payments, tracking loan balances and being in touch with the borrower during the life of the loan. A FFELP loan could eventually be sold through a student-loan secondary market. These secondary-market activities replenish the supply of private funds available to support new education loans to more students and parents.

Repayment on the loan begins 6 months after the student leaves school. FFELP borrowers can choose from several flexible repayment options, including equal monthly installments, payments that gradually rise over the repayment term, payments linked to the borrower's current income, and extended repayment terms. Borrowers who are facing temporary financial problems may qualify to defer or reduce their loan payments for a designated period.

Most FFELP borrowers generally make their loan payments on time. If a borrower falls behind in payments, the lender will attempt to contact the borrower. If payments become two months or more past due, the lender contacts the guarantor, and together they start a series of telephone calls and letters in an effort to prevent the borrower from defaulting on the loan.

Despite these intensive default-prevention efforts, some borrowers default on their loans by failing to make a payment for 9 months. Less then 5.5 percent of all Stafford loan borrowers who started repayment during fiscal 2001 were in default as of the end of fiscal 2002. Officially a loan is in default if the payment is 270 days or more past due. The lender presents the guarantor with a claim for partial payment on the defaulted loan. If the claim is in order, the guarantor buys the loan from the lender. The guarantor then files for partial reimbursement from the U.S. Department of Education. After default, the guarantor continues efforts to collect from the borrower.

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