Federal Family Education Loan Program

Last updated

Student loans in the U.S.
Regulatory framework
National Defense Education Act
Higher Education Act of 1965
U.S. Dept. of Education · FAFSA
Cost of attendance · Expected Family Contribution
Distribution channels
Federal Direct Student Loan Program
Federal Family Education Loan Program
Loan products
Perkins · Stafford
PLUS · Consolidation Loans
Private student loans

The Federal Family Education Loan (FFEL) Program was a system of private student loans which were subsidized and guaranteed by the United States federal government. The program issued loans from 1965 until it was ended in 2010. Similar loans are now provided under the Federal Direct Student Loan Program, which are federal loans issued directly by the United States Department of Education.

Contents

The FFEL was initiated by the Higher Education Act of 1965 and was funded through a public/private partnership administered at the state and local level. In 2007-08, FFEL served 6.5 million students and parents, lending a total of $54.7 billion in new loans (or 80% of all new federal student loans). Since 1965, 60 million Americans have used FFEL loans to pay for education expenses. Following the passage of the Health Care and Education Reconciliation Act of 2010 on January 5, 2010 the program was terminated, and no subsequent loans were permitted to be made under the program after June 30, 2010.

Overview

In the FFEL Program, private lenders made federally guaranteed student loans to parents and students. Commercial lenders (e.g. Sallie Mae; now Navient) would use their private capital to finance loans under the FFELP but received subsidies from the federal government. [1] These subsidies were used to maintain interest rates at the federally mandated levels, pay down fees associated with the loans and cover expenses associated with collection and defaults. [2] The government also guaranteed a large portion of the loans, insuring private lenders against default. If a parent or student defaults, the private lender was reimbursed by the government for its losses. In contrast, under the Direct Loan program, the government lends directly to students using federal funds provided to it by the US Treasury.

Loan types

The FFELP offers four types of loans: the subsidized Federal Stafford Loans, unsubsidized Federal Stafford loans, the Federal PLUS Loan for graduate students and for parents of dependent undergraduate students, and consolidation loans. [3]

The main federal student loan is the Stafford Loan. There are two types of Stafford loans:

Interest rates

Interest rates are set by law, as follows:

Loan forgiveness

Because they are private loans, loans granted under the FFEL program are not eligible for the Public Service Loan Forgiveness program. There have been media reports of many FFEL borrowers unaware their loans were ineligible. [5] [6] FFEL borrowers can gain access to loan forgiveness by consolidating an existing loan with the Federal Direct Student Loan Program, but payments made before consolidating do not typically count toward loan forgiveness. However, under a new limited waiver announced October 6, 2021 by the Department of Education, FFEL loans can now be consolidated with previous payments made before consolidation considered qualifying payments. [7]

End of new loans

On 24 April 2009, President Barack Obama called for an end to the FFEL program, calling it a wasteful and inefficient system of "taxpayers...paying banks a premium to act as middlemen—a premium that costs the American people billions of dollars each year....a premium we cannot afford." [8] A Congressional Budget Office review in July 2009 showed that if the government did the direct lending itself, rather than use private sector lenders via FFEL, it would save $80 billion over ten years. [9] That estimate was later downgraded to $61 billion after the Congressional Budget Office revised its estimates for 2010. [10]

America's Student Loan Providers, an industry lobbying group representing private lenders, issued a prepared statement on April 6, 2009 stating "a growing consensus" among legislators "that large scale changes in the financial aid delivery system should be carefully considered." [11]

The program was ended according to the provisions of the Student Aid and Fiscal Responsibility Act, which passed in 2010 as a rider bill to the Health Care and Education Reconciliation Act of 2010.

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In finance, a loan is the transfer of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.

<span class="mw-page-title-main">Debt consolidation</span> Form of debt refinancing

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or government debt. The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan or debt.

<span class="mw-page-title-main">Student loan</span> Type of loan for educational expenses

A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy. This article highlights the differences of the student loan system in several major countries.

The Free Application for Federal Student Aid (FAFSA) is a form completed by current and prospective college students in the United States to determine their eligibility for student financial aid.

Student financial aid in the United States is funding that is available exclusively to students attending a post-secondary educational institution in the United States. This funding is used to assist in covering the many costs incurred in the pursuit of post-secondary education. Financial aid is available from federal and state governments, educational institutions, and private organizations. It can be awarded in the form of grants, loans, work-study, and scholarships. In order to apply for federal financial aid, students must first complete the Free Application for Federal Student Aid (FAFSA).

A Federal Perkins Loan, also referred to as a Perkins Loan, was a need-based student loan offered by U.S. Department of Education from 1958 until 2017. Created as part of the Federal Direct Student Loan Program, the Perkins Loan served to assist American college students fund their post-secondary education. The program was named after Carl D. Perkins, a former member of the U.S. House of Representatives from Kentucky.

A Stafford Loan was a student loan offered from the United States Department of Education to eligible students enrolled in accredited American institutions of higher education to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965, which guarantees repayment to the lender if a student defaults. As of July 1, 2010, Stafford Loans are no longer being offered, having been replaced with the William D. Ford Federal Direct Student Loan Program.

A PLUS Loan is a student loan, which is part of the Federal Direct Student Loan Program, offered to parents of students enrolled at least half time, or graduate and professional students, at participating and eligible post-secondary institutions. The original, now obsolete, meaning of the acronym was "Parent Loan for Undergraduate Students".

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A private student loan is a financing option for higher education in the United States that can supplement, but should not replace, federal loans, such as Stafford loans, Perkins loans and PLUS loans. Private loans, which are heavily advertised, do not have the forbearance and deferral options available with federal loans. In contrast with federal subsidized loans, interest accrues while the student is in college, even if repayment does not begin until after graduation. While unsubsidized federal loans do have interest charges while the student is studying, private student loan rates are usually higher, sometimes much higher. Fees vary greatly, and legal cases have reported collection charges reaching 50% of amount of the loan. Since 2011, most private student loans are offered with zero fees, effectively rolling the fees into the interest rates.

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Graduate PLUS is a type of federal student aid, in the form of student loans, which is available to graduate and professional students. Similar to the Parent PLUS loan for parents of dependent undergraduate students, the Graduate PLUS loan is an unsubsidized federally guaranteed education loan with no annual or aggregate limits. It has no grace period and it goes into repayment as soon as the funds are disbursed to the borrower. It has the same deferment and forbearance options as the federal Stafford loan program. As such, graduate and professional students can postpone repayment using in-school deferment while enrolled at least half-time in a degree or certificate program of study.

In the United States, the Federal Direct Student Loan Program (FDLP) includes consolidation loans that allow students to consolidate Stafford Loans, Graduate PLUS Loans, and Federal Perkins Loans into one single debt.

The Higher Education Loan Authority of the State of Missouri, also known as the Missouri Higher Education Loan Authority or MOHELA is one of the largest holders and servicers of student loans in the United States. Its headquarters are in St. Louis, Missouri.

<span class="mw-page-title-main">Student loans in the United States</span> Loans incurred to pay for higher education

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Income-based repayment or income-driven-repayment (IDR) is a student loan repayment program in the United States that regulates the amount that one needs to pay each month based on one's current income and family size.

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Pay As You Earn (PAYE) is a federal student loan relief program signed into law on December 21, 2012, by President Barack Obama.

Navient Corporation is an American student loan servicer based in Wilmington, Delaware. Managing nearly $300 billion in student loans for more than 12 million debtors, the company was formed in 2014 by the split of Sallie Mae into two distinct entities: Sallie Mae Bank and Navient. Navient employs 6,000 people at offices across the U.S. As of 2018, Navient services 25% of student loans in the United States.

A repayment plan is a structured repaying of funds that have been loaned to an individual, business or government over either a standard or extended period of time, typically alongside a payment of interest. Repayment plans are prominent within the financial industry of a national economy where liquid funds are in high demand to assist in investment opportunities, governmental expenditure or personal finance. The term first saw prominence with its use by the International Monetary Fund to describe its form of financial loan repayment from individual nations. Typically, the term "repayment plan" refers to the system of Federal Student Aid in the United States of America, which assists in covering tertiary education expenses of domestic students.

References

  1. ↑ Tracey D. Samuelson (March 30, 2010). "Student loan reform: What will it mean for students?". The Christian Science Monitor. Retrieved November 11, 2018.
  2. ↑ "Archived copy" (PDF). Archived from the original (PDF) on July 7, 2010. Retrieved July 25, 2010.{{cite web}}: CS1 maint: archived copy as title (link)
  3. ↑ "US Department of Education Federal Family Education Loan (FFEL) Program" . Retrieved November 11, 2018.
  4. ↑ Philip Swagel (July 23, 2013). "Support for College Students and Banks: Not So Different". New York Times. Retrieved November 11, 2018.
  5. ↑ Katie Lobosco (January 2, 2018). "Student loan nightmare: 'I have to start all over'". CNN. Retrieved November 11, 2018.
  6. ↑ Zack Friedman (August 13, 2018). "This Woman 'Enrolled' In Student Loan Forgiveness -- And Then Learned This". Forbes. Retrieved November 11, 2018.
  7. ↑ "Studentaid.gov" . Retrieved January 11, 2022.
  8. ↑ "Remarks by the President on Higher Education". The White House Office of the Press Secretary. April 24, 2009. Retrieved November 11, 2018.
  9. ↑ "Archived copy" (PDF). Archived from the original (PDF) on October 12, 2011. Retrieved September 23, 2011.{{cite web}}: CS1 maint: archived copy as title (link)
  10. ↑ http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf [ bare URL PDF ]
  11. ↑ "Archived copy" (PDF). Archived from the original (PDF) on June 26, 2012. Retrieved April 28, 2009.{{cite web}}: CS1 maint: archived copy as title (link)
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