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
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