AwardYear: 1996-1997 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs SectionNumber: 3 SectionTitle: Unsubsidized Federal Stafford Loans PageNumbers: 33-36 A borrower unable to qualify for a need-based Federal Stafford Loan may always apply for an unsubsidized Stafford Loan--a loan that does not qualify for a federal interest subsidy. The Higher Education Amendments of 1992 added specific provisions for an unsubsidized Stafford Loan Program for borrowers who do not qualify for a subsidized Stafford Loan or who, based on need analysis, qualify for only a part of their subsidized Stafford Loan limit. A borrower must have his or her eligibility for a subsidized Stafford Loan determined before he or she may borrow an unsubsidized Stafford Loan. Under the Higher Education Amendments of 1992 provisions, a borrower meeting the student eligibility requirements for a FFEL may borrow an unsubsidized Stafford Loan. A single application form and a single repayment schedule may be used for both unsubsidized and subsidized Stafford Loans. (See Section 7 for more information on the loan application process.) Changes to the Stafford Loan Program that affect both subsidized and unsubsidized Stafford Loans are discussed in Section 2. As mentioned in the introduction to this chapter, the Omnibus Budget Reconciliation Act of 1993 eliminated the Federal Supplemental Loans for Students (SLS) program as a separate program. Effective July 1, 1994, the SLS was repealed. The SLS program was merged into the unsubsidized Stafford Loan Program. Therefore, unsubsidized Stafford Loans made for periods of enrollment BEFORE July 1, 1994 may have benefits and conditions different from unsubsidized Stafford Loans made AFTER that date; pre-July 1, 1994 loans will retain those different conditions and benefits. Changes to unsubsidized Stafford Loans as the result of legislation will be explained in this section. If, due to circumstances such as an adverse credit history, a dependent undergraduate students parents are unable to borrow a Federal PLUS, the student will be allowed the loan limits applicable to independent students under the unsubsidized Stafford Loan program. STAFFORD LOAN LIMITS Loan limits for unsubsidized Stafford Loans MADE TO A DEPENDENT UNDERGRADUATE STUDENT are the same as those for subsidized Stafford Loans. A dependent undergraduate student who takes out both subsidized and unsubsidized Stafford Loans must not exceed the annual and aggregate limits allowed under the Stafford Loan Program. The unsubsidized Stafford Loan amount, subject to the loan limits described above, is the difference between the borrowers cost of attendance for the loan period in question and the borrowers estimated financial assistance (including a subsidized Stafford Loan, if the borrower qualifies for one). This example shows how to determine an unsubsidized Stafford Loan for a dependent undergraduate student. Michael, a first-year student at State U. who has a dependent student status, applies for a Stafford Loan to attend a school term beginning in September 1996. His cost of attendance is $8,000, and he qualifies for a subsidized Stafford Loan of $1,000. He may apply for an unsubsidized Stafford Loan of $1,625, which is the difference between the maximum Stafford Loan allowed him ($2,625) and the amount of his subsidized Stafford. (His parents may borrow a PLUS to cover the remainder of his cost of attendance.) [[Loan limits for independent undergrads]] Following are loan limits for unsubsidized Stafford Loans first disbursed on or after July 1, 1994 and made to INDEPENDENT UNDERGRADUATE STUDENTS (or to dependent students whose parents are unable to borrow a PLUS). THE FOLLOWING UNSUBSIDIZED STAFFORD LOAN LIMITS MAY BE ADDED TO THE BORROWERS SUBSIDIZED STAFFORD LOAN LIMITS. - For a student who has not completed the first two years of undergraduate study, loan limits are - up to $4,000 for a program of study at least an academic year in length; - up to $2,500 for a program at least two-thirds of an academic year but less than a full year; - up to $1,500 for a program at least one-third of an academic year but less than two-thirds of an academic year. - For a student who has completed the first and second years but who has not completed the remainder of the program, the loan limit is - up to $5,000 for a program of study at least an academic year in length; - the loan must be prorated for programs less than an academic year in length or for programs more than an academic year when the remaining portion of the program in excess of an academic year is less than an academic year in length. Here is an example of how to determine the amount of an unsubsidized Stafford Loan for an independent undergraduate student. Mary is a first-year independent undergraduate student at Community U. whose cost of attendance is $7,000 per academic year. She qualifies for a subsidized Stafford Loan of $1,500. Mary may apply for an unsubsidized Stafford Loan of $5,125 ($1,125 remaining under her Stafford Loan limit, plus a $4,000 maximum unsubsidized Stafford Loan). Her total loan limit for her subsidized Stafford Loan and her unsubsidized Stafford Loan is $6,625. [[Loan limits for grad students]] GRADUATE OR PROFESSIONAL STUDENTS with unsubsidized Stafford Loans first disbursed on or after July 1, 1994 may borrow up to $10,000 per academic year, in addition to the amounts borrowed under the subsidized Stafford Loan program. [[Aggregate loan limits]] The aggregate limit for subsidized and unsubsidized Stafford Loans is $23,000 for a dependent undergraduate student, $46,000 for an independent student and $138,500 ($65,500 subsidized and $73,000 unsubsidized) for a graduate or professional student (including loans for undergraduate study). An unsubsidized Stafford Loan may be used to offset the borrowers Expected Family Contribution (EFC). (See Section 7 for more on the EFC.) INTEREST RATES AND GRACE PERIODS Generally, interest rates and grace periods for unsubsidized Stafford Loans are the same as those for subsidized Stafford Loans. However, only loan principal is deferred for these loans; payment of interest for an unsubsidized Stafford Loan must be made during the in-school period, the grace period, and during periods of deferment. Or, interest may be allowed to accrue and be capitalized (no more frequently than quarterly) and added to the loan principal when repayment begins, thus increasing the principal. As with subsidized Stafford Loans, unsubsidized Stafford Loans disbursed on or after July 1, 1994 have a variable interest rate, as explained under "Interest rates and grace periods" in Section 2. ADDITIONAL COSTS OF BORROWING The combined origination fee and insurance premium was renamed the "origination fee" and the amount has been reduced to 3% of the loan principal. The cost is deducted proportionately from each disbursement of the loan. Also, the guaranty agency may charge the lender an insurance premium not to exceed 1% of the loan principal. If the lender passes this charge on to the borrower, the fee must be deducted proportionately from each disbursement of the loan. REPAYMENT Repayment of an unsubsidized Stafford Loan begins the day after the expiration of the six-month grace period. For loans first disbursed on or after July 1, 1994, the repayment period begins on the date the first payment of principal is due from the borrower. (Previously, the repayment period began the day after the grace period ended.) DEFERMENT Borrowers receiving unsubsidized Stafford Loans qualify for the same deferments as subsidized Stafford Loan borrowers. The most recent deferment provisions are listed on pages 10-30 to 10-31 of Section 2. A chart and accompanying footnotes on all FFEL deferment provisions are provided at the end of Section 6. |