Your Questions About Direct Loans

Nagesh answers:

Yes. There are two basic federal loan programs: FFELP (Federal Family Education Loan Program) and Direct Lending (a.k.a “DL”). As such, there are two Stafford Loans programs: Federal Stafford and Direct Stafford. Both programs are backed by the federal government. The fundamental difference between the two is that FFELP loans are channeled from the government to the student VIA a private lender (e.g. Sallie Mae, Citibank). Direct loans don’t involve the private “intermediate” company.

Their are advocated for both programs. FFELP is a much more widely-used program (3x the volume as DL). This arguably has a lot to do with the “competition” that the private lender environment creates (i.e. Having a lot of lenders vying for your students’ business can be a good way to ensure that your students get the best benefits possible).

Quite frankly, though, you as a borrower won’t be given a choice as to which program your school uses. They can only select one and the “switching” process is extensive (to say the least). Both programs are good and will offer you the same security as the other.

Nagesh answers:

On an unsub the interest will start when you get the loan and it adds up daily. My daughter fall her freshman year got out a 4500 unsub loan and so far the interest is about 259.00.

Make absolutely sure before you have to start making payments beginning 6 months after you quit, fall below half time or graduate you pay that interest that build up on unsub loans. If you do not pay the interest before it goes into repayment then they will add the interest onto the amount of the loan and then as you go into repayment the interest will continue on the higher balaance making you pay way more for the loan. Pay the interest yearly of the unsub loans so that the final year you dont have to pay so much at one time before repayment starts on the loans.

Http://www2.ed.gov/offices/OSFAP/DirectLoan/calc.html

Nagesh answers:

A loan that you are legally obligated to repay is NEVER taxable income. This goes for ALL types of loans: student loans, personal loans, car loans, etc.

Sometimes grants & scholarships are taxable, but usually they’re not.

Nagesh answers:

The PLUS loan program (Parent Loan for Undergraduate Students) is a loan that your parent(s) can take out for you. So legally, it is a loan that your parents will pay back instead of you (such as with Stafford loans).

There are two methods in which a parent may apply for a PLUS loan: Through an outside lender under the FFELP loan program or directly from the US Dept of Education under the Direct loan program.

Either way, there will be a credit checked involved on these loans (in contrast to Stafford loans). The parents credit need not be superb, but it can be denied if the credit history is significantly negative.

To inquire on how to apply for a PLUS loan, it is best to contact your school’s Financial Aid Department because with most school’s they will certify the loan first and give you or your parent instructions on where to go to complete the Master Promissory Note.

Nagesh answers:

My daughter got sub and unsub Stafford as part of her award. She got half of each type per semester. So her sub award was 1000, so she got 500 sem 1, 500 sem two and the same way with unsub. So all federal aid you get including loans get deposited into your college account. My daughter’s college charges per semester so they will charge tuition, fees, housing and meal plan and they will use the federal aid in your account to pay these first and then any left over is refunded to you for books etc.

I do know you can change the amount downward. I do not know if you can change your mind later and request more or deny the loan at first and then change your mind and want it later.

I do know there is no penalty to repay it early. So if you do not need it just pay it back. The unsub Stafford does accure interest right when you get it, so you know how much that is my daughter last fall got 5,500 and so far her interest is around 100.00. You just want to make sure if you do take an unsub loan make sure to pay the interest before the loan goes into repayment which is 6 months after you quit, graduate or fall below half time. The reason you pay the interest seperately is because it will save you a lot of money because if you do not the interest that adds up will be added to your loan amount when it goes into repayment giving you this larger balance and as you start making payments interest continues on this higher balance making you pay more throughout the life of the loan payback.

Also my daughter the first year accepted 3000 too much loan because the college in her financial aid budget included 3000 worth of travel expenses, but my daughter attends 45 minutes away so we did not need that. So she got that as a refund and instead of paying it back used it for groceries, gas, summer courses she took, summer dorm charges and she still has some left so this year we accepted less since she has some left so she will use that for books etc this year etc.

Iwould call your FA office just to verify how it works in your state and college.