Student Loans

Published on May 2016 | Categories: Types, Business/Law | Downloads: 47 | Comments: 0 | Views: 400
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Student Loans

Quick facts
The size and growth of the student loan market are driven by various factors. For e.g.
† The

business cycle † Demographics † Enrollment and tuition costs etc.

About 60% of students attaining a bachelor·s degree use student loans to pay for their education

Student Loans

Private Loans

Federal Loans FDLP FFELP

Subsidized Stafford Loans

Unsubsidized Stafford Loans

PLUS Loans

Perkins Loans

Classification
PRIVATE LOANS FEDERAL LOANS

Private Loans - Characteristics
Used by about 10% of undergraduate borrowers Generally variable rate Do not have rates set by regulation Private student loans sometimes have third party guarantees Offer larger maximum loan balances than federal student loans

Federal Loans - Characteristics
They are generally at fixed a rate They have rates set by regulation Are less costly to borrowers Backed by federal guarantee protecting lenders against default Federal loans are made under two primary programs:
1.

2.

The William D. Ford Federal Direct Loan Program (FDLP or Direct Loan Program) and The Federal Family Education Loan Program (FFELP or FFEL Program)

Federal Loans - Characteristics
Federal Direct Loan Program (FDLP) ‡ FDLP began in 1993 ‡ Students borrow directly from the Department of Education Federal Family Education Loan Program (FFELP) ‡ FFELP was established under the Higher Education Act, 1965 ‡ Students obtain a federal loan from a private lender

Largest Originators of FFELP Loans
Lender
SLM Corporation Citibank, Student Loan Corp. Wachovia Education Finance Inc. Bank of America Wells Fargo Education Financial Services JPMorgan Chase Bank US Bank

Originations (mn $)
14,266 6,201 5,128 4,275 3,935 3,418 2,278

Subsidized Stafford loans

Available to students with demonstrated financial need

Federal government pays the interest while the student is in school and during grace and deferment periods

Generally be repaid within five to ten years

Unsubsidized Stafford loans

Students who cannot qualify for a subsidized Stafford loan can get an unsubsidized Stafford loan

Students are responsible for the interest on loan while enrolled in school and during any grace period or deferment

A student may defer these until after graduation by choosing to capitalize interest

Generally be repaid within five to ten years

PLUS loans

made either to parents of undergraduate students or to graduate students

parent borrower is responsible for all interest payments

Generally be repaid within five to ten years

Perkins Loans

Federal Perkins loans are offered to undergraduate and graduate students based on financial need. College financial aid offices determine eligibility for Perkins loans

The participating school acts as the lender; and the student borrower repays the loan to the school

Interest on Perkins loans are subsidized by the federal Government

Interest on Perkins loans are subsidized by the federal Government. The student begins repayment nine months after leaving school

Flowchart
Student Borrower
1. Borrower Defaults 6. Guarantee agency attempts to collect on the defaulted loan, retains a portion of any collection and passes the remainder to the Dept. of Edu.

FFELP Loan Holder
2. Loan holder submits claim to guarantee agency within 90 days of default

3. Guarantee agency purchases defaulted loans within 90 days of receipt of claim, Insurance is for 95-100% depending on loan disbursement date

Guarantee Agency
4. Guarantee agency submits reimbursement claim to Dept. of Edu. Within 30 days 5. Dept. of Edu. reimburses guarantee agency. Reinsurance is for 75-100% depending on loan disbursement date and the guarantee agency·s default rate

Dept. Of Education

Consolidation Loans
Combine multiple federal student loans (e.g., one for each year of college) into a single new loan One monthly payment at a fixed rate of interest for up to 30 years Student loan borrower can lock in a lower interest rate Borrower can approach any lender to consolidate.

Industry player
In 1972 Congress created the Student Loan Marketing Association ´Sallie Mae.µ Sallie Mae·s business was fairly simple: it purchased student loans from and made secured loans to banks and other lenders Over time, Sallie Mae began to issue SLABS and expanded into other parts such as loan consolidation, servicing, and college savings plans. by 2004 the privatization was complete and the company had been renamed SLM Corporation

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