STUDENT LOANS

BORROWER'S RIGHTS AND RESPONSIBILITIES

FFELP Definition

The Federal Family Education Loan Program (FFELP) includes the subsidized Federal Stafford Loan formerly known as Guaranteed Student Loan (GSL); the former Federally Insured Student Loan (FISL); the unsubsidized Federal Stafford Loan, the Federal Supplemental Loans for Students (SLS) formerly known as ALAS; the Federal PLUS (parent) Loan and the Federal Consolidation Loan. The FFEL Program is authorized by Title IV; Park B of the Higher Education Act of 1965.

1. Maximum Loan Amounts - Under the Federal Stafford Loan program (including both subsidized and unsubsidized loans), I am subject to annual and aggregate loan limits that are based on my academic level, my dependency status, and the length of the academic program (refer to Maximum Loan Amounts chart). If I have received student loans from more than one lender or under the Federal Direct Student Loan Program, I am responsible for informing my school and lender of my other student loans. In some cases I may not be eligible for loans for which I have applied.
2. Loan Proceeds - I must use the loan money for authorized educational expenses for the school named on my Application and for the time period shown on my Application. Authorized expenses include: tuition, room, board, fees, books, supplies, equipment, dependent childcare, transportation and commuting expenses. Loan proceeds may not be used to purchase or lease an automobile. The loan money will be disbursed in a prorated amount based on the academic terms at the school. At a school without academic terms, disbursement will be made at the beginning and midpoint of my period of enrollment. If disbursed by check, the check will be sent to the school. If I approve, the loan money may be sent to the school by electronic funds transfer.
3. Change of Status - I must notify the financial aid office of my school if I reduce my enrollment status to less than half time, withdraw, or fail to re-enroll at the conclusion of a term. I must also notify my school of any change in my local or permanent address during enrollment. Shortly before I end enrollment, I must participate in an exit counseling session with my school during which I will update important loan records regarding my address, telephone number, future employer and repayment plans. Federal law also requires me to notify my lender (or any subsequent holder of my loans), in writing, if any of the following events occur before a loan is repaid:
   • I change my address;
   • I change my name (for example, maiden name to married name;
   • I fail to enroll: A) at least half-time, or B) for the loan period certified, or C) at the school that certified my Application;
   • I withdraw from school or begin attending less than half-time;
   • I transfer from one school to another school;
   • I graduate;
   • I change my employer or my employer's address changes; or
   • I have any other change in status that would affect my loan status (for example, the loss of eligibility for an unemployment deferment by obtaining a job).
4. Effect of Loans on Other Student Aid - As receipt of a loan will affect my eligibility for other student aid, it may be beneficial to determine first my eligibility for grants, Work-Study funds and other forms of student assistance. Before receiving a Federal Stafford Loan, I must receive a determination of my Pell Grant eligibility. My school must determine my subsidized Federal Stafford Loan eligibility before I accept an unsubsidized Federal Stafford Loan.
5. Interest - Except for interest charges the federal government will pay on my behalf for a subsidized Federal Stafford Loan, it is my responsibility to pay interest on the principal amount of my loan(s) from the date of disbursement until the loan is paid in full. The actual interest rate applicable to my loan(s) will be disclosed to me in a disclosure statement. The interest rate will be a variable rate, adjusted annually on July 1, not to exceed 8.25 percent. For loans made before July 1, 1998, the variable rate for each 12-month period will be equal to the bond equivalent rate of 91-day Treasury Bills auctioned at the final auction held prior to the preceding June 1, plus 3.1 percent. For loans made on or after July 1, 1998, the method of calculating the rate of and the actual interest rate applicable to my loan will be disclosed to me in a disclosure statement.
6. Cost of Deferring Interest Payments - Under certain circumstances, interest changes on an unsubsidized Federal Stafford Loan or a prior Federal SLS Loan will accrue and may be capitalized (added to loan principal) during the in-school and grace period, as well as during periods of deferment and forbearance. (See item 14 of the Application.) Capitalization may occur no more frequently than quarterly. If I choose to defer and capitalize interest charges on an unsubsidized Federal Stafford or a prior Federal SLS Loan, this will increase the principal balance of my loan and the total amount of interest cost I incur. The chart on the next page allows me to estimate this cost and estimate the effect of capitalization on my monthly payments. If necessary, I must add two or more estimates of my payments together to approximate more closely the total monthly payment.
7. Sale or Transfer of Loan(s) - The lender may sell or otherwise transfer one or all of my loans without my consent. Should ownership of a loan be transferred, I will be notified of the name, address and telephone number of the new holder of my loan, if the address where I make my payment changes. Sale or transfer of my loans to a subsequent holder does not affect my rights and responsibilities.
8. Consequences of Default - Default is defined in the Note. If I default, the entire unpaid balance and collection fees will become immediately due and payable. Failure to repay this, or any FFELP loan, may result in any or all of the following: loss of federal and state income tax refunds, legal action, assessment of collection charges including attorney fees, loss of professional license, loss of eligibility for other student aid and assistance under most federal benefit programs, loss of eligibility for deferments, negative credit reports, and administrative wage garnishment.
9. Credit Bureau Notification - Information concerning the amount, disbursement, and repayment of loans will be reported to one or more national credit bureau organizations. If I default on this or any FFELP loan, this will also be reported to national credit bureaus. I will be notified at least 30 days in advance that default information will be disclosed to a credit bureau unless I enter into repayment arrangements on the loan within 30 days of the date on the notice. I will be given a chance to ask for a review of the debt before it is reported. My holder and guarantor must provide a timely response to a request from any credit organization regarding objections I might raise with that organization about the accuracy and completeness of information.
10. Special Repayment Arrangements - A Federal Consolidation Loan Program is available under which I (or my spouse and I jointly) may consolidate into one debt federal education loans received from different lenders and/or under different education loan programs. This Program allows the repayment period to exceed the normal 10-year period and permits multiple debts to be combined into one monthly payment. For additional information, I should contact my lender(s), holder(s), or guarantor(s). Under certain circumstances, military personnel may have their loans repaid by the Secretary of Defense in accordance with 10U.S.C. 2141. Questions should be addressed to the local service recruiter. This is a recruiting program and does not pertain to prior service individuals or those not eligible for enlistment in the Armed Forces. I am responsible for any payments due on my loan(s) even though I may quality for military repayment programs.
11. Loan Cancellation - My loan debt(s) will be cancelled if documentation of my death is submitted to the holder of my loan(s). My loan debt(s) may also be cancelled if I become permanently disabled. An application for cancellation must be submitted to the holder of my loan(s) and documentation verifying the permanent and total disability must be certified by my doctor and accepted by the holder of my loan(s). Note: The holder of my loan(s) may not approve a request for cancellation for permanent and total disability for a condition that existed before I applied for this loan unless my doctor certifies that the condition substantially deteriorated after the loan was approved. My loan(s) will not automatically be discharged in bankruptcy. The Act provides for certain loan cancellations for borrowers who are unable to complete a course of study because the institution closes, or whose eligibility was falsely certified by the institution. Neither the lender, the guarantor, nor the Department of Education vouches for the quality or suitability of the academic programs offered by participating schools. Repayment of the loans is not conditioned upon the performance of my school of attendance nor my obtaining employment in my field of study.
12. Deferments - I have a right to postpone repayment if I provide the holder of my loan(s) or its servicing agent, with a request for a deferment together with evidence that verifies my eligibility. Upon request, the holder will provide me with a deferment application that lists deferment categories and eligibility requirements. The types of deferments that are available to me depend on when I first borrowed a FFELP loan (formerly called GSL). For Federal Stafford and Federal SLS Loans disbursed on or after July 1, 1993, to borrowers with no outstanding balance on a FFELP Loan made prior to July 1, 1993, the following types of deferments are available:
    • At least half-time study at an eligible school,
    • Provided the program is approved by the Department of Education, pursuing a graduate fellowship program or a rehabilitation training program for individuals with disabilities,
    • Up to three years, while I am conscientiously seeking but unable to find full-time employment,
    • Up to three years, for any reason (in accordance with federal regulations) that has caused me to have an economic hardship.
    Deferments for borrowers with an outstanding FFELP loan disbursed before July 1, 1993, include:
    • Full-time study at an eligible school or pursuit of a graduate fellowship program or a rehabilitation program for disabled individuals,
    • At least half-time study at an eligible school, if I borrow a new Federal Stafford Loan during the deferment period,
    • Active duty status in the Armed Forces of the United States, or serving as an officer in the Commissioned corps of the United States Public Health Service, or an active duty member of the National Oceanic and Atmospheric Administration Corps.
    • Serving as a full-time volunteer under the Peace Corps Act, in an ACTION Program or another comparable program determined eligible for deferment by the U.S. Department of Education,
    • Temporary total disability of the borrower or a dependent,
    • Conscientiously seeking but unable to find full-time employment in the United States,
    • Serving in an internship required to receive professional recognition to begin professional practice, or leading to a post-graduate degree or certificate,
    • Parental leave to care for a newborn or newly-adopted child,
    • Full-time teaching in a teacher shortage area as defined by the U.S. Department of Education,
    • A mother of preschool age children, who is entering or reentering the work force at a salary that is not more than one dollar above the federal minimum wage.
13. Forbearance - If I am unable to make my scheduled payments, the lender or holder of my promissory note may allow me to reduce the amount of my payment or to temporarily stop making payments as long as I intend to repay my loan. This action is called a forbearance. During a period of forbearance, interest charges continue to accrue while I am temporarily permitted to delay or reduce payments. If I am willing, but financially unable, to make payments under my repayment schedule, I may request forbearance to allow for any of the following:
    • A short period during which I make no payments,
    • An extension of time for making payments, or
    • A period during which I make smaller payments than were originally scheduled.
    My holder is generally not required to grant a forbearance and may require me to provide my reasons for the request and other information. However, if I am serving in a medical or dental internship or residency program, my holder is required to grant me a forbearance under certain conditions. In addition, if I am serving in a national service position for which I receive a national service education award under the National and Community Service Trust Act of 1993, my holder is required to grant me a forbearance. The Act also requires forbearance when my annual debt burden for FFELP loans equals or exceeds 20 percent of my disposable income.

CAPITALIZATION OF UNSUBSIDIZED FEDERAL STAFFORD LOAN INTEREST

What is Capitalization?

Capitalization is a process whereby a lender adds unpaid interest to the principal balance of a loan. You are responsible for paying the interest due on an unsubsidized Federal Stafford Loan from the date the lender disburses the loan until the loan is paid in full.

If you are granted a deferment (on an unsubsidized Stafford Loan) or forbearance and if you choose to defer and capitalize interest charges, the principal balance of your loan will increase each time your lender capitalizes unpaid interest. As a result, you will pay more interest charges over the life of the loan. When you leave school and begin repaying your loan, your monthly payment amount will be higher or, if your loan is subject to the $50 minimum payment, you will make more payments.

Contact your lender if you have questions or need more information.

This chart compares the monthly payments on loans where interest is paid while the borrower is in school (Option 1) and loans where the interest is capitalized (Option 2).

	Option 1: Interest Payment Made			Option 2: Interest Payment Deferred
Loan	Loan	Monthly	Monthly	Interest	Monthly
Type	Amount	Interest	Payment*	Capitalized**	Payment*
Unsubsidized	$2,625	$15.31	$50 (67 payments)	$189	$50 (76 payments)
Stafford Loan	$3,500	$20.42	$50 (99 payments)	$245	$50 (114 payments)
7% interest	$5,550	$32.08	$64	$385	$68
	$6,625	$38.65	$77	$464	$82
	$7,500	$43.75	$87	$525	$93
	$8,000	$46.67	$93	$560	$99

*120 monthly payments unless otherwise noted.

**The estimate of interest capitalized in these examples is based on quarterly capitalization over a 12-month period.