Federal Perkins Loan

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Federal Perkins Loan
The Perkins Loan is awarded to students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government.

Interest rate is fixed at 5%
No loan fees
You must have a FAFSA on file with Wayne State University
The Perkins Loan is a subsidized loan, with the interest paid by the federal government during the in-school and 9-month grace periods.

Complete Required Federal Perkins Loan Entrance Counseling

Perkins Promissory Note

If you are awarded a Federal Perkins Loan, you must complete and sign a Master Promissory Note (MPN) before the loan can be disbursed. The MPN lists the terms under which you are borrowing and agree to pay back the loan.

You must complete a new Federal Perkins Loan MPN every year.
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Federal Perkins Loan Repayment Assistance
MappingYourFuture.org Loan Cancellation, Forgiveness, and Discharge Chart

Repayment assistance (not cancellation) is available through the U.S. Department of Health and Human Services’ Nursing Education Loan Repayment Program (NELRP). This program will help repay student loans for registered nurses in exchange for their service in eligible facilities located in areas experiencing a shortage of nurses. All NELRP participants must enter into a contract agreeing to provide full-time employment in an approved eligible health facility for two or three years. Click here for more information.

Federal Perkins Loan Cancellation

Under certain conditions, a Federal Perkins Loan that is not in default can qualify for cancellation. A summary of the cancellation conditions is provided in The Student Guide.

Only the school that grants the Federal Perkins Loan can determine if the borrower is entitled to have any portion of the loan cancelled.

If you borrowed a Federal Perkins Loan while enrolled at Wayne State University, questions concerning cancellation should be directed to:

Office of Student Accounts Receivables
Wayne State University Welcome Center, 4th Floor, 42 West Warren Avenue
Detroit, Michigan 48202
(313) 577-3656

Perkins loan account information is sent to the National Student Loan Data System (NSLDS) near the end of each month. The billing agency receives enrollment updates on a bi-weekly basis.

Department of Education Student Loans

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Department of Education Student Loans. The student loan programs provide students and their families with Federal loans to help meet postsecondary education costs. Student loans meet an important Administration strategic goal to help ensure the affordability, accessibility and accountability of higher education, and to better

STUDENT LOANS OVERVIEW

prepare students and adults for employment and future learning. With passage of the Student Aid and Fiscal Responsibility Act (SAFRA) of 2010, the Federal Family Education Loan (FFEL) program ceased making new loans as of July 1, 2010. (However, the billions of FFEL loans outstanding will continue to flow through the system and be serviced by lenders.) As of July 1, 2010, all Subsidized and Unsubsidized Stafford Loans, PLUS, and Consolidation Loans are originated in the Direct Loan program. The combined FFEL and Direct Loan new loan volume in FY 2010 was approximately $104 billion. New loan volume typically reflects new student loan demand, and therefore does not include Consolidation volume, which relates to students consolidating prior existing loans. (Consolidation volume would be included when reporting total student loan volume.) New volume in the Direct Loan program is estimated to be $116 billion in FY 2011 and $124 billion in FY 2012. This represents a substantial increase from the combined new FFEL and Direct Loan volume of $33 billion in FY 2000. In FY 2012, total loan volume in the Direct Loan program (including Consolidations) is estimated to be $147 billion, accounting for nearly 78 percent of all postsecondary aid available from the Department of Education.

The Higher Education Reconciliation Act (HERA) of 2005 (P.L. 109-171), signed into law on February 8, 2006, and the College Cost Reduction and Access Act (CCRAA) (P.L. 110-84), which became law on September 27, 2007, made substantial changes to the FFEL and Direct Loan programs. Many of the changes are discussed within the following program descriptions.

In addition, due to the deteriorating credit conditions during 2008, Congress passed the Ensuring Continued Access to Student Loans Act (ECASLA) of 2008 (P.L. 110-227), which was signed into law on May 7, 2008. This law allowed the Department of Education to provide access to capital needed by private lenders to make Federal student loans. ECASLA also increased Unsubsidized Stafford loan amounts in both the FFEL and Direct Loan programs. Given the continued concerns around capital liquidity, the ECASLA authority was extended for the 2009-2010 academic year. Using this authority, the Department established four programs designed to ensure the availability of student loans. This original need for ECASLA was eliminated after passage of SAFRA in 2010, whereby all new student loans now occur in the Direct Loan program. Other activity in ECASLA-related financing accounts will continue.

Federal Student Loans
Federal student loans were initiated under the FFEL program beginning in 1965. The Direct Loan program has operated since July 1, 1994. Because funding for the loan programs is provided on a permanent indefinite basis, for budget purposes student loans are considered separately from other Federal student financial assistance programs. However, as part of the overall Federal effort to expand access to higher education, student loans should be viewed in combination with these other programs. Since all new loans now originate as Direct Loans, this program description primarily highlights the operations of the Direct Loan program.

Generally, loan capital in the FFEL program was provided by private lenders, facilitated by the Federal guarantee on the loans. The Government also promised interest subsidies to lenders for certain situations, as well as most costs associated with loan defaults and other write-offs. In addition, State and private nonprofit guaranty agencies acted as agents of the Federal Government, providing a variety of services including collection of some defaulted loans, default avoidance activities, and counseling to schools, students, and lenders. The Government continues to provide substantial payments to these FFEL guaranty agencies.

STUDENT LOANS OVERVIEW

transition to Direct Loans in FY 2011, the Secretary plans to execute Voluntary Flexible Agreements (VFA) with guaranty agencies to develop, implement, and evaluate alternative ways of fulfilling guaranty agency legal obligations. The VFA arrangements are intended to facilitate a more efficient use of guaranty agencies.

The VFAs, which are required by law to be cost-neutral, will focus on enhancing the integrity of the student loan programs and eliminating redundancy and unneeded or ineffective activities. The Department expects to solicit VFA proposals from guaranty agencies in FY 2011 and negotiate and execute agreements after these proposals have been reviewed. Joint proposals from two or more agencies may be submitted.

The Direct Loan program was created by the Higher Education Amendments of 1992 as a pilot program and expanded by the Student Loan Reform Act of 1993. Under this program, loan capital is provided by the Federal Government while loan origination and servicing is handled by postsecondary institutions and private sector companies under contract with the Department. The Direct Loan program began operation in academic year 1994-1995 with 7 percent of overall loan volume. It now accounts for all new loan volume as of July 1, 2010.

Four types of loans are available: Subsidized Stafford, Unsubsidized Stafford, PLUS, and Consolidation. Financial need is required for a student to receive a subsidized Stafford loan, where the Federal Government pays the interest during in-school, grace, and deferment periods. The other three loan types are available to borrowers at all income levels. Loans can be used only to meet qualified educational expenses.

The CCRAA of 2007 included a phased interest rate reduction for new undergraduate Subsidized Stafford Loans, with fixed interest rates dropping from 6.8 percent to 6.0 percent on July 1, 2008, to 5.6 percent on July 1, 2009, 4.5 percent on July 1, 2010, and 3.4 percent on July 1, 2011. Rates for Stafford loans to graduate and professional students and for all new loans originated on or after July 1, 2012, are 6.8 percent. For all subsidized Stafford loans, interest payments are fully subsidized by the Government while a student is in school and during grace and deferment periods. However, under the proposed FY 2012 budget policy, only undergraduate students would continue to receive this in-school interest subsidy.

Graduate and professional students would no longer be eligible. The borrower interest rate on all Unsubsidized Stafford loans was fixed at 6.8 percent as of July 1, 2006. The fixed borrower interest rate on Direct PLUS loans made on or after July 1, 2006,
is 7.9 percent.

Although no new loans will originate in the FFEL program, those FFEL loans that are outstanding will continue to be serviced by lenders. In the FFEL program, lenders may receive an interest subsidy, called a special allowance, from the Government to ensure a guaranteed rate of return on their loans. Special allowance payments vary by loan type, are determined quarterly, and are based on current borrower interest rates and market-yield formulas. For periods when the borrower interest rate exceeds the special allowance rate on loans made on or after April 1, 2006, lenders remit the difference back to the Government; lenders retain such difference on loans made on or before April 1, 2006. Special allowance rates differ for for-profit and not-for-profit loan holders on some loans. For Stafford and Unsubsidized Stafford loans made on or after October 1, 2007, for example, the Federal Government must pay lenders a special allowance if the average 3-month commercial paper rate for a given quarter plus 1.79 percent for for-profit holders, or 1.94 percent for not-for-profit holders, is higher than the current interest rate charged to borrowers. The guarantee percentage paid to lenders on most defaults

STUDENT LOANS OVERVIEW

(for loans disbursed as of July 1, 2006) is 97 percent of unpaid loan principal (including any accrued interest on the full loan principal).
Consolidation loans allow borrowers to combine other loans made under Title IV of the Higher Education Act—FFEL, Direct Loans, and Perkins Loans as well as some loans made under the Public Health Service Act—into one loan, thereby eliminating multiple monthly payments during the repayment term. The interest rate for new Direct
Consolidation loans equals the weighted average of the interest rate on the loans consolidated, rounded up to the nearest 1/8 of 1 percent. Interest rates for all new Direct Consolidation Loans are capped at 8.25 percent.

Direct Loan borrowers are charged an origination fee equal to 1 percent of principal. Loan limits apply as shown in the “loan maximum” table on page S-10. Borrowers in both FFEL and Direct Loan programs may be offered financial incentives to encourage prompt repayment. Loans may be discharged when borrowers die, are totally and permanently disabled, or, under limited circumstances, declare bankruptcy.

Under both programs, new borrowers after October 1, 1998, who are employed as teachers in schools serving low-income populations for 5 consecutive, complete school years, qualify for up to $5,000 in loan forgiveness; this benefit is increased to $17,500 for mathematics, science, and special education teachers considered highly qualified under criteria established in the No Child Left Behind Act of 2001. In addition, the CCRAA of 2007 established a public-service loan forgiveness program for nonprofit and public-sector employees. Eligible borrowers who have worked for 10 years while making payments on their student loan will have any remaining loan balance forgiven. This benefit is only available in the Direct Loan program, though FFEL borrowers may access the benefit by taking out a Direct Consolidation Loan, which is available for all borrowers, regardless of when they took out their loans.
FFEL borrowers may choose from among four repayment plans. Repayment periods under standard, graduated, and income-sensitive repayment may not exceed 10 years. An extended repayment plan of up to 25 years is available for new borrowers with outstanding loans totaling more than $30,000. FFEL borrowers may change repayment plans annually. Qualifying student borrowers may also choose an income-based repayment (IBR) plan under which FFEL loans (except Parent PLUS) are paid according to the borrower’s income, and outstanding balances, if any, are forgiven after 25 years in repayment. (In the first 3 years, an interest subsidy is available for Stafford loans and for the Stafford Loan portion of Consolidation Loans.) To ensure that student debts are manageable, SAFRA adopted most of the Administration’s 2011 budget policy—reducing monthly payments in IBR from 15 percent of a borrower’s prior-year discretionary income to 10 percent, and reducing the maximum length of time a borrower is in the IBR program from 25 years to 20 years, after which any remaining balance is forgiven. New loans beginning July 1, 2014 are eligible for this treatment.

Borrowers under Direct Loans may choose from the same payment plans as in FFEL, except that instead of the FFEL income-sensitive repayment plan, an income-contingent repayment (ICR) plan is available in Direct Loans (with terms similar to the newer income-based repayment plan). Direct Loan borrowers may switch between repayment plans at any time.

In FY 2011, the first year in which Direct Loans will account for all new student loans, net commitment loan volume is estimated at $135.6 billion, which includes almost $20 billion in Consolidation loans. Approximately $221 billion in total Direct Loans was outstanding at the end

STUDENT LOANS OVERVIEW

of FY 2010. Across the FFEL guaranteed program—including the Liquidating account composed of loans issued before 1992—there were approximately $424 billion in FFEL loans and $100 billion in ECASLA program loans outstanding at the end of FY 2010.
Funding

Both FFEL and Direct Loans are mandatory programs whose costs are largely driven by Federal borrowing costs, prevailing interest rates, defaults, and loan volume. The programs are funded by indefinite budget authority and do not require annual congressional appropriations. A loan subsidy—the portion of cost paid by the Federal Government—is calculated for each loan cohort based on the Federal Credit Reform Act of 1990, and reflects the net present value of future cash flows associated with the Direct Loan or loan guarantee.

Both the FFEL and Direct Loan programs incur various administrative expenses, some of which are funded through subsidy while most are funded through administrative funds. In FY 2012, the Administration requests $1.1 billion in discretionary funding to administer the Federal student aid programs in the Student Aid Administration (SAA) account. This includes $725 million for student aid administration, and $370 million for loan servicing activities. In addition, $247 million in mandatory funds will be used for student loan servicing. This request is discussed in detail in the justification for Student Aid Administration, beginning on page AA-1.

Credit Reform Estimates
Student loan program costs are estimated consistent with the terms of the Federal Credit Reform Act of 1990. Under the Act, future costs and revenues associated with a loan are estimated for the life of the loan and discounted back to the date of disbursement using Treasury interest rates. Costs related to pre-1992 loans in the FFEL Liquidating account and most Federal administrative costs are statutorily excluded from credit reform calculations. For FFEL, credit reform costs include reimbursements to lenders for in-school interest benefits, special allowance payments to lenders, and default reinsurance payments. These costs are partially or, in 2010, more than completely offset by student and lender origination fees, negative special allowance payments—referred to as rebates—and collections on defaulted loans.
In the Direct Loan program, cash transactions consist of Federal Government loan disbursements to students, payments of student loan fees, and borrower loan repayments. Defaults and loan discharges reduce future student loan repayments. In FY 2011 and FY 2012, the Direct Loan program reflects a net total negative subsidy due in part to reduced discount rates that lower the Federal Government’s borrowing costs, while borrower repayments and origination fees contribute to increased cash flows as collections to the Federal Government helping to offset Federal costs.
Federal loan programs are often compared using subsidy rates, which represent the Federal cost (the appropriation) as a percentage of loan originations. For FFEL guaranteed loans in 2010, the Budget estimates the overall weighted average subsidy rate was -0.22 percent: that is, for this 2010 cohort, Government revenues from fees and, in particular, negative special allowance, exceed the cost of loan guarantees. (This is largely driven by historically low commercial paper rates, which result in unusually high negative special allowance payments.) For Direct Loans, the overall weighted average subsidy rate was estimated to be -7.82 percent in FY 2010; that is, the program is projected to earn about $7.82 on every $100 of loans originated.

STUDENT LOANS OVERVIEW

In an effort to better reflect interest rate variability of future estimates, the Administration in 2006 implemented probabilistic scoring for the FFEL and Direct Loan programs similar to the Congressional Budget Office methodology. Previously, estimates for both the FFEL and Direct Loan programs were developed using point estimates of future interest rates. The updated method factors in the probability that a range of interest rate scenarios may differ from current economic projections.
Estimated Program Subsidy Costs

The largest loan subsidy costs involve in-school interest subsidies for borrowers and costs associated with borrowers who default on their loans. In FY 2012, the FFEL program will not originate any new loans or result in any new subsidy costs because the Direct Loan program assumed all new lending beginning July 1, 2010. Based on proposed policies, the Direct Loan subsidy costs in fiscal year 2012 are estimated at -$27.2 billion, supporting over $162 billion in estimated total Direct Loan gross commitments, which equates to $147 billion in net loan volume commitments—after loan cancellations.

Generally, subsidy costs may reflect a combination of positive and negative subsidy by loan type with the relative weightings by loan type and other accounting rules determining the overall net positive or negative subsidy. A negative subsidy occurs when the present value of cash inflows to the Government is estimated to exceed the present value of cash outflows. In that case, the Federal Government is earning more than it is spending.

Subsidy rates represent the Federal portion of non-administrative costs—principally interest subsidies and defaults—associated with each borrowed dollar over the life of the loan. Under Federal Credit Reform Act rules, subsidy costs such as default costs and in-school interest benefits are embedded within the program subsidy, whereas
Federal administration costs are treated as annual cash amounts and are not included within the subsidy rate.

The subsidy rate reflects the estimated unit cost per loan, over the life of the loan, to the Federal Government. For example, a $1,000 loan with Federal subsidy costs of $100 would have a subsidy rate of 10 percent. If loan subsidy costs were negative, such as -$100, the loan would have a negative subsidy rate of -10 percent, indicating that the Federal Government was earning 10 percent on each loan instead of incurring a cost. Program changes, economic conditions, as well as borrower repayment patterns can affect subsidy estimates and reestimates.

For FY 2012, the Direct Loan program weighted average subsidy rate is estimated to be -16.77 percent. Annual variations in the subsidy rate are largely due to the relationship between the OMB-provided discount rate that drives the Government’s borrowing rate and the interest rate at which borrowers repay their loans. Technical assumptions regarding defaults, repayment patterns, and other borrower characteristics would also apply. The loan subsidy estimates are particularly sensitive to fluctuations in the discount rate. Even small shifts in economic projections may produce substantial movement, up or down, in the subsidy rate.

Reestimates
Under credit reform, the Department annually reestimates the cost of all outstanding loans by cohort to reflect updated modeling assumptions, the President’s Budget economic assumptions,

STUDENT LOANS OVERVIEW

and actual experience. In essence, the reestimating process allows for a “reality check” each year whereby the most recent economic and technical assumptions get applied to prior cohorts.
For the approximately $221 billion in Direct Loans outstanding at the end of 2010, the Budget projects net future Federal costs will be lower in FY 2011 than estimated in last year’s President’s Budget. The total change in costs for all outstanding Direct Loan program account loans at the end of FY 2010 is depicted as the 2011 reestimate. The 2011 total net downward reestimate of approximately -$5.7 billion reflects an upward component of about +$2.8 billion and a downward component of -$8.5 billion. The upward reestimate requires a current-year (i.e., FY 2011) mandatory appropriation.

The total change in costs for all outstanding FFEL guaranteed program account loans at the end of 2010 is reflected as the 2011 reestimate. The 2011 FFEL guaranteed loan reestimate reflects an upward component of +$146 million and a downward component of -$18.8 billion for a total net downward reestimate of approximately -$18.6 billion.

Thus, the estimated Federal cost of prior FFEL guaranteed loan cohorts (1992-2010) is now lower by $18.6 billion as reflected in the net downward reestimate.
The four ECASLA programs, discussed on page S-3, show a net downward reestimate of -$5.9 billion which when combined with the FFEL guaranteed portion produces an overall net downward FFEL reestimate of about -$24.5 billion. This large net downward FFEL reestimate is due primarily to decreases in the OMB-provided interest rates released under the 2012 President’s Budget economic assumptions.

Loan Terms
Generally, the Federal Government provides four types of student loans:
Subsidized Stafford Loans are subsidized, low-interest, fixed rate loans based on financial need. The Federal Government pays the interest while the student is in school and during grace and deferment periods. For loans made on or after July 1, 2006, interest rates are fixed at 6.8 percent. The CCRAA authorized a phased reduction to the interest rate for undergraduates borrowing Stafford Loans so that by July 1, 2011, the rate would be cut in half to 3.4 percent for loans originated for a period of 1 year. The scheduled reduction follows: 6.0 percent starting July 1, 2008; 5.6 percent starting July 1, 2009; 4.5 percent starting July 1, 2010; 3.4 percent starting July 1, 2011. The interest rate reverts to 6.8 percent for loans originated as of July 1, 2012.

Unsubsidized Stafford Loans are low-interest, fixed rate loans that are available to student borrowers, regardless of financial need. The Federal Government does not pay accrued interest. Borrowers may defer payment of interest while in school and have it capitalized until entering repayment. For loans made on or after July 1, 2006, the interest rate is fixed at 6.8 percent.

PLUS Loans are available to parents of dependent undergraduate students and to graduate and professional students. The Federal Government does not pay interest accruing on PLUS Loans. The PLUS interest rate is fixed at 7.9 percent.
Consolidation Loans allow borrowers with existing student loans to combine their obligations and possibly extend their repayment schedules based on their total student loan debt outstanding. The interest rate for Consolidation Loans is based on the weighted average of the underlying loans being consolidated rounded up to the nearest 1/8 of 1 percent.

Stafford Loan

Stafford Loan - Forgiveness is a student loan forgiveness program for people who meet certain requirements. If you don't qualify for federal loan forgiveness, consolidating your student loans can help ease your repayment. Consolidation can stretch the repayment term from 10 years to a maximum of 30 years, making the monthly impact on your cash flow much lower. Read more about Student Loan Consolidation .

Circumstances for Federal Stafford Loan Forgiveness

Under certain circumstances, the federal government will cancel all or part of an educational loan. This practice is called "loan forgiveness". To qualify for Federal loan forgiveness, you must:

Perform volunteer work qualify for public service loan forgiveness
Perform military service
Teach or practice medicine in certain types of communities
Meet other criteria specified by the forgiveness program

Stafford Loan Forgiveness for Volunteer Work

These volunteer organizations offer federal Stafford loan forgiveness:

AmeriCorps: Serve for 12 months and receive up to $7,400 in stipends plus $4,725 to be used towards your loan. Call 1-800-942-2677.

Peace Corps: Volunteers may apply for deferment of Stafford, Perkins and consolidation loans and partial cancellation of Perkins Loans (15% for each year of service). Volunteers make a real difference in the lives of real people with two years of service in more than 70 developing countries. Contact the Peace Corps at 1111 20th St., NW, Washington, DC 20526 or call 1-800-424-8580 or 1-202-692-1845.

Volunteers in Service to America (VISTA): Volunteer with private, non-profit groups that help eradicate hunger, homelessness, poverty and illiteracy. Provide 1700 hours of service and receive $4725. Call 1-800-942-2677 or 1-202-606-5000.

Military Stafford Loan Forgiveness

Students who are in the Army National Guard may be eligible for their Student Loan Repayment Program, which offers up to $10,000. (Note, the military and veterans' associations provide many scholarships and tuition assistance programs. See the section on Military Aid for details.) This practice is comparable for federal Stafford loan forgiveness.

Teaching Stafford Loan Forgiveness

Students who become full-time teachers in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins Loan forgiven under The National Defense Education Act. This program forgives 15% of your loan for the first and second years of teaching service, 20% for the third and fourth and 30% for the fifth. Contact your school district's administration to see which schools are eligible for federal loan forgiveness.

Students who majored in education and teach in Mississippi may be eligible for the William Winter Teacher Scholar Loan. This program forgives one year of your loan in exchange for one year of service (it forgives two years of your loan if you teach in a shortage area). Contact the Mississippi Office of State Student Financial Aid, 3825 Ridgewood Rd., Jackson, MS 39211-6453; 1-601-982-6663.

Stafford Loan Forgiveness for Legal and Medical Studies

Many law schools forgive law school loans of students who serve in public interest or non-profit positions. Contact the National Association for Public Interest Law (1666 Connecticut Ave., Suite 424, Washington, DC, 20009; 1-202-466-3686).

Similarly, groups like the National Health Service Corps offer medical school loan forgiveness programs to physicians who agree to practice for a set number of years in areas that lack adequate medical care (including remote and/or economically depressed regions). If you're a California resident, contact the Office of Statewide Health Planning and Development (State Loan Repayment Program, Primary Care Resources and Community Development Division, 1600 Ninth St., Room 440, Sacramento, CA 95814; 1-916-654-1833), or a similar agency in your state.

Many hospitals and private healthcare facilities use loan forgiveness to recruit occupational and physical therapists. Contact the American Physical Therapy Association (1111 North Fairfax St., Alexandria, VA 22314-1488; 1-800-999-2782) or the American Occupational Therapy Association (P.O. Box 31220, 47200 Montgomery Lane, Bethesda, MD 20824-1220; 1-301-652-2682)

Other Paths to Federal Loan Forgiveness

Students who receive the Michael Murphy Loan to study law enforcement, law, probation and parole, penology, or other related fields are eligible to work off one-fifth per year as a State Trooper (or related law enforcement official) in Alaska. Contact the Alaska State Troopers, Director's Office Scholarship Fund, 5700 East Tudor Rd., Anchorage, AK 99507; 1-907-269-5511.

Maryland state and local government employees who earn less than $40,000 gross annually may be eligible for a loan assistance/repayment program to study law, nursing, physical and occupational therapy, social work and education. Contact the Maryland State Scholarship Administration, 16 Francis St., Annapolis, MD 21401; 1-410-974-2971 x146.

Perkins loans can be cancelled for full-time service as a teacher in a designated elementary or secondary school serving students from low-income families, special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school), qualified professional provider of early intervention services for the disabled, teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas, employee of a public or non-profit child or family service agency providing services to high-risk children and their families from low-income communities, nurse or medical technician, law enforcement or corrections officer, staff member in the educational component of a Head Start Program, service as a Vista or Peace Corps Volunteer and service in the Armed Forces (up to 50% in areas of hostilities or imminent danger).

See also the US Department of Education's pages on Cancellation/Deferment Options for Teachers and Cancellation for Childcare Providers at www.ed.gov .

Circumstances and Conditions for Loan Forgiveness

If you have taken out a loan to help pay for your education, all or part of it may be cancelled for several reasons. You may qualify for total or partial cancellation if:

The school closed within 90 days of your enrollment and they were unable to finish their program of study.
The school did not properly qualify your status before they began studies.
You did not receive a refund that was due to you.
Your signature was forged.
The school did not properly evaluate your ability to benefit from the coursework before beginning studies.
You become totally and permanently disabled.
If you or the dependent for whom the loan was borrowed, dies.
Your loan is discharged due to bankruptcy. (Typically, student loans cannot be discharged in a bankruptcy.) Consult your legal counsel regarding your particular situation.
Federal Stafford loan forgiveness cannot take place solely because you believe that the school your child attended did at least one of the following:

Provided poor training, had unqualified instructors, or inadequate equipment
Did not provide job placement or other services that it promised; or
Engaged in fraudulent activities (other than falsely certifying the loan)
If you believe you are eligible for loan forgiveness, contact the holder of your loan.
Consider Federal Student Consolidation

Consolidating your student loans can help to ease the repayment of the loan. Consolidation can stretch the repayment term from 10 years to a maximum of 30 years, making the monthly impact on your cash flow much lower. Consolidate your Student Loans

Student Financial Aid

Student financial aid in the United States is funding that is intended to help students pay education-related expenses including tuition and fees, room and board, books and supplies, etc. for education at a college, university, or private school. General governmental funding for public education is not called financial aid, which refers to awards to specific individual students. Certain governments, e.g., Nordic countries, provide student benefit. A scholarship is sometimes used as a synonym for a financial aid award, although grants and student loans are also components of financial aid packages from students' intended colleges.

The United States government and all U.S. state governments provide merit- and need-based student aid including grants, work-study, and loans. As of 2010 there are nine federal and 605 state student aid programs and many of the nearly 7,000 post-secondary institutions provide merit aid. Major federal grants include the Pell Grants, Federal Supplemental Educational Opportunity Grants, Federal Work-Study Program, federal Stafford Loans (in subsidized and unsubsidized forms), state student incentive grants and Federal PLUS Loans. Federal Perkins Loans are made by participating schools per annual appropriations from the U.S. Department of Education. Federal Stafford Loans and Federal PLUS Loans are made by the U.S. Department of Education. As of April 2010, Congress voted to eliminate the Federal Family Education Loan Program (FFELP) which had allowed private lenders to make student loans guaranteed by the federal government.

State governments also typically provide some types of need- and non-need-based aid, consisting of grants, work-study programs, tuition waivers, and scholarships. Individual colleges and universities may provide grants and need- and merit-based scholarships.

Students requiring financial aid beyond what is offered by their institution may consider a private (alternative) education loan, available from most large lending institutions. Typically, education loans obtained through the federal government have lower interest rates than private education loans. Institutions may also offer their own student financial assistance, in the form of need- or merit-based aid, as well as endowed scholarships (with varying need and/or merit-based criteria). Some institutions may only require the FAFSA; some may also require a need-based analysis document, such as the CSS/Profile, to apply for such funds to apply a more stringent need analysis for the rationalization of institutional funds.

Types of financial aid and application process

Financial aid may be classified into two types based on the criteria through which the financial aid is awarded: merit-based or need-based.
Student aid is awarded as grants and scholarships, low-interest, government-subsidized loans, and education tax benefits.

In the United States, to apply for most student aid, a student must first complete the Free Application for Federal Student Aid (FAFSA). The application must then be submitted either electronically to the United States Department of Education, using the Department of Education's website, mailing a paper form, or, as the law also authorizes, by getting professional assistance from a fee-based preparer.[1] A student's aid application (FAFSA) may be submitted to the Department of Education as early as January 1 before the summer or fall when the student enrolls and must be re-submitted with updated information each year.[2] The FAFSA typically consists of 130 questions regarding a family's financial situation, typically consisting of 130 questions regarding a family's financial situation.[3] The Department of Education processes each request and tells a student how much the federal government expects their family to contribute toward paying for college—the Expected Family Contribution (EFC). However, an EFC is not necessarily how much a student will pay for college — aid can reduce an individual's cost. Then, the post-secondary institutions to which a student applies, determine how much federal, state, and college-specific aid a student will receive. An individual's student aid award is likely to vary from institution to institution.

Grant programs include the Pell Grant and the TEACH Grant. Federal loan programs include the Federal Direct Subsidized Loan and Federal Direct Unsubsidized Loans, the Perkins Loan and the Parent PLUS Loan and Graduate PLUS. Unlike with federal grants, a borrower must repay the loan amount and any interest. Federal loans offer lower interest rates and better repayment terms than private student loans from banks and other financial institutions.

Students (or their parents/guardians) can take advantage of education tax benefits to ease the financial burden of attending college. Education tax benefits added up to more than $6.8 billion in 2008–2009. Education benefit programs include the American Opportunity Tax Credit and the Lifetime Learning Tax Credit. These programs reduce a student's (or his or her parents'/guardians') taxable income while the student attends college.
In addition to federal student aid, students may be eligible for state-based aid. States provide students more than $10.2 billion of aid every year. Each state aid program is different. Usually, a student must reside and attend college in the state providing his/her aid. In some cases, a student can spend state aid on colleges in neighboring states.

Most aid is provided on a first-come, first-served basis so it is essential that students prepare and submit their aid applications in as close to January 1 as possible. The aid "window" stays open 18 months in case student's financial circumstances change and require adjustment to their aid application.

The application — approximately 130 questions each year — considers household size, income, assets, the number in college and other financial factors to determine a student's aid eligibility and an expected family contribution (EFC). Institutions use EFC to guide their decision about how much need-based financial aid to award a student. The EFC also takes into consideration any participation in college savings or pre-paid tuition plans. In the past, financial aid officers weighed pre-paid tuition plans more heavily than other 529 college savings plans when determining a student’s eligibility. In February 2006, Congress passed legislation to treat both types evenly.

Merit-based aid
Merit-based grants or scholarships include scholarships awarded by the college or university and those awarded by outside organizations. Merit-based scholarships are typically awarded for outstanding academic achievements and maximum SAT or ACT scores, although some merit scholarships can be awarded for special talents, leadership potential and other personal characteristics. Scholarships may be given because of group affiliation (such as YMCA, Boys Club, etc.). Merit scholarships are sometimes awarded without regard for the financial need of the applicant. At many colleges, every admitted student is automatically considered for merit scholarships. At other institutions, a separate application process is required. Scholarships do not need to be repaid as long as all requirements are met.

Athletic scholarships are a form of merit aid that take athletic talent into account.
In February 2012 the Arizona Legislature proposed a bill, HB 2675, that required students that attended a public university in the state of Arizona to pay an additional $2,000 fee in order to attend one of the 3 universities. The bill also stated that students should pay this fee by their own means, meaning that no federal or state grants would cover this fee. Originally, this bill did not exempt students who had outstanding academic achievement but solely students who were awarded an athletic scholarship. The most recent revision of the bill on February 22, 2012 included a section where students who demonstrated high academic merit were also granted an exemption from the rule.

Need-based aid
Need-based financial aid is awarded on the basis of the financial need of the student. The Free Application for Federal Student Aid application (FAFSA) is generally used for determining federal, state, and institutional need-based aid eligibility. At private institutions, a supplemental application may be necessary for institutional need-based aid.

A recent trend shows that what is purely need based aid is not entirely clear. According to the National Postsecondary Aid Survey (NPSAS), SAT scores have an impact on the size of institutional need-based financial aid.[5] If a student has a high SAT score and a low family income, they will receive larger institutional need-based grants than a student with a low family income that has low SAT scores. In 1996, public higher education institutions gave students with high SAT scores and a low family income $1,255 in need-based grants. However, only $565 in need-based grants were given to students with low SAT scores who had low family incomes. The lower a student’s SAT score, the smaller the amount of need-based grants a student received no matter what their family income level was. The same trend holds true for higher education private institutions. In 1996, private institutions gave students with high SAT scores and a low family income $7,123 versus $2,382 for students with low SAT scores and a low family income. Thus, “institutional need-based awards are less sensitive to need and more sensitive to ‘academic merit’ than the principles of needs analysis would lead us to expect.” [6] It has been found that increasing an SAT score in the range of 100-200 points can result in hundreds of dollars more in institutional grants and on average substantially more if one is attending a private institution.

While providing financial information to the government is a reasonable expectation to calculate a student’s financial need, it does not necessarily follow that colleges should have access to this information. Providing that information to schools may be problematic because schools learn about students’ other sources of funding and may adjust their financial aid packages accordingly. There is an asymmetric information problem since schools have full knowledge of their customers' ability to pay while students and their families have little information about costs that colleges face to provide their services. That is, when planning for the next academic year, a school will know its current and projected costs as well as each student’s ability to pay after receiving state and federal grants. According to the Center for College Affordability and Productivity (CCAP), “If the federal or state authorities increase financial support per student, the institution has the opportunity to capture part or all of that increased ability to pay by reducing institutional grants and/or raising their charges for tuition, fees, room, or board.”

Importantly, it also notes that “the exception to this general pattern is modest aid targeted at only low-income students, like the Pell grant.” The center uses data about net proceeds (tuition plus room, board and other fees) as a percentage of median income to show that financial aid practices have not been effective in decreasing prices in an effort to increase access. Net proceeds at public four-year institutions rose from 15% to 20% of median income from 1987 to 2008. In that same time, productivity has declined in the form of lighter teaching loads for professors and increased expenditures on administrative staff.

A bill proposed by the Arizona Legislature named HB 2675 required that all students who attend Arizona State University, University of Arizona, or Northern Arizona University pay a $2,000 fee by their own means with no federal or state grants. The bill was was both strongly supported by several Arizona State legislators and strongly opposed by legislators, students, and university administrators alike. Some of the outcry against the bill stated that the bill targeted the neediest of students and that the minimum requirement of $2,000 is enough to bar students from enrolling.[9] Proponents of the bill stated that students who could not afford the fee could simply acquire a loan. One proponent of the bill, (the main sponsor of the bill John Kavanagh, stated that he “couldn’t understand what would drive student loan up to tens of thousands of dollars.” The bill was meant to increase the incentives of students who actually want to go to college, so that they would have some “skin in the game.”

College cost calculators

Main article: College cost calculator
Post-secondary institutions post a Cost of Attendance or Price of Attendance, also known as a "sticker price." However, that price is not how much an institution will cost an individual student. To make higher education costs more transparent before a student actually applies to college, federal law requires all post-secondary institutions receiving Title IV funds (federal funds for student aid) to post net price calculators on their websites by October 29, 2011.

As defined in The Higher Education Opportunity Act of 2008, the net price calculator’s purpose is:
“…to help current and prospective students, families, and other consumers estimate the individual net price of an institution of higher education for a student. The [net price] calculator shall be developed in a manner that enables current and prospective students, families, and consumers to determine an estimate of a current or prospective student’s individual net price at a particular institution.”

The law defines estimated net price as the difference between an institution’s average total Price of Attendance (the sum of tuition and fees, room and board, books and supplies, and other expenses including personal expenses and transportation for a first-time, full-time undergraduate students who receive aid) and the institution’s median need- and merit-based grant aid awarded.

Elise Miller, program director for the U.S. Department of Education's Integrated Postsecondary Education Data System (IPEDS) stated the idea behind the requirement: "We just want to break down the myth of sticker price and get beyond it. This is to give students some indication that they will not [necessarily] be paying that full price."[12]
The template was developed based on the suggestions of the an IPEDS’ Technical Review Panel (TRP), which met on January 27-28, 2009, and included 58 individuals representing federal and state governments, post-secondary institutions from all sectors, association representatives, and template contractors. Mary Sapp, Ph.D., assistant vice president for planning and institutional research at the University of Miami, served as the panel’s chair. She described the mandate’s goal as “to provide prospective and current undergraduate students with some insight into the difference between an institution’s sticker price and the price they will end up paying.”

To meet the requirement, post-secondary institutions may choose between a basic template developed by the U.S. Department of Education or an alternative net price calculator that offers at least the minimum elements the law requires.

Debt vs. grants

No-loan financial aid
In 2001, Princeton University became the first university in the United States to eliminate loans from its financial aid packages. Since then, many other schools have followed in eliminating some or all loans from their financial aid programs. Many of these programs are aimed at students whose parents earn less than a certain income — the figures vary by college or university. These new initiatives were designed to attract more students and applicants from lower socioeconomic backgrounds, reduce student debt loads, and provide the offering institutions with an advantage over their rivals in attracting commitments from accepted students. This is an attractive way for students to relieve the amount of debt they are in after college.

The following colleges and universities offer such no-loan financial aid packages as of March 2008:

Student Loan Repayment

CLICK HERE to learn Student Loan Repayment Options video

In this blog, we will discuss your options on student loan repayment. When it comes time to start repaying your student loan(s), you can select a repayment plan thats right for your financial situation. Generally, you'll have from 10 to 25 years to repay your loan, depending on which repayment plan you choose.

Standard Repayment

With the standard plan, you'll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you'll have up to 10 years to repay your loans.

Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. For that reason, having a 10-year limit on repayment, you may pay the least interest.

To calculate your estimated loan payments, go to the Standard Repayment plan calculator .

Extended Repayment

Under the extended plan, you'll pay a fixed annual or graduated repayment amount over a period not to exceed 25 years. If you're a FFEL borrower, you must have more than $30,000 in outstanding FFEL Program loans. If you're a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans. This means, for example, that if you have $35,000 in outstanding FFEL Program loans and $10,000 in outstanding Direct Loans, you can choose the extended repayment plan for your FFEL Program loans, but not for your Direct Loans. Your fixed monthly payment is lower than it would be under the Standard Plan, but you'll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.

This is a good plan if you will need to make smaller monthly payments. Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan. However, you may pay more in interest because you're taking longer to repay the loans. Remember that the longer your loans are in repayment, the more interest you will pay.

Graduated Repayment

With this plan, your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.

Income Based Repayment is a new repayment plan for the major types of federal loans made to students. Under IBR, the required monthly payment is capped at an amount that is intended to be affordable based on income and family size. You are eligible for IBR if the monthly repayment amount under IBR will be less than the monthly amount calculated under a 10-year standard repayment plan. If you repay under the IBR plan for 25 years and meet other requirements you may have any remaining balance of your loan(s) cancelled. Additionally, if you work in public service and have reduced loan payments through IBR, the remaining balance after ten years in a public service job could be cancelled. For more important information about IBR go to IBR Plan Information.

Income Contingent Repayment (ICR) (Direct Loans Only)

This plan gives you the flexibility to meet your Direct LoansSM obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:

The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
20 percent of your monthly discretionary income.
If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized (added to the loan principal).

The maximum repayment period is 25 years. If you haven't fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.

As of July 1, 2009, graduate and professional student Direct PLUS Loan borrowers are eligible to use the ICR plan. Parent Direct PLUS Loan borrowers are not eligible for the ICR repayment plan.

Income-Sensitive Repayment Plan (FFELSM Loans only)

With an income-sensitive plan, your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years. Ask your lender for more information on FFEL Income- Sensitive Repayment Plans.

Additional Information

The publications Funding Your Education: The Guide to Federal Student Aid and Your Federal Student Loans: Learn the Basics and Manage Your Debt provide additional information on repayment options. For additional information on the Income Based Repayment plan, see the IBR Fact Sheet.

Federal Student Loan

CLICK HERE to watch video on Federal Student Loans
Federal Student Loan Interest Rate Set to Double. Emily Lail dreamed of earning her doctorate and conducting groundbreaking research about the gene that causes autism.

But with thousands of dollars in student loans piling up, Lail might drop out of Appalachian State University before she has the chance to earn her undergraduate degree.

Lail, 22, owes $26,000 in federal Stafford loans. With the interest rate on Stafford loans set to double in July, the 2008 Crest High graduate can’t afford the additional debt. She made the painful decision to drop out of school if the interest rate of federally subsidized Stafford loans increases from 3.4 percent to 6.8 percent.

The additional debt from increasing interest rates would be too much for Lail to manage, she decided.

“I’m kind of on standby,” Lail said. “… If this does go through, I can’t afford to go back to college.”

The increase in Stafford loan interest rates will affect about 7 million students and cost each student an average of $1,000 over the life of their loans, according to the White House website.

Lail said she already owes about $36,000 from her Stafford loans and other student loans to help pay for her college expenses. The higher interest rates mean she could owe a lot more, she said.

‘How much are you willing to go in the hole?’

Subsidized Stafford loans are federal loans given to students based on financial need. Students aren’t required to pay back the loans until they complete schooling, and the federal government pays the interest in the meantime, according to Alexandra Forter Sirota, director of the N.C. Budget and Tax Center.

Lail, like millions of other students, took advantage of the Stafford loans to help pay her college expenses. She started college as an elementary education major, but then changed her course of study to psychology. She now has one school year left in college before earning her undergraduate degree.

The change in interest rates isn’t retroactive and doesn’t affect current Stafford loans, Sirota said. But students who take out Stafford loans in the future will be paying the higher interest rate.

“You have to ask, ‘How much are you willing to go in the hole to educate yourself?’” Lail said.

Senate action?

Five years ago, a Democratic congress enacted a bill that kept the Stafford loan interest rates at 3.4 percent until doubling to 6.8 percent for the 2012-13 school year. Sirota said the bill was passed as the financial crisis hit in an effort to make post-secondary education affordable for American students.

If nothing changes, the rates will automatically double July 1.

The U.S. House of Representatives voted 215-195 on April 27 to extend current interest rates on the Stafford loans and prevent the rates from doubling in the coming months. The Associated Press reported that both Democrats and Republicans say students’ interest rates shouldn’t increase, but the parties disagree about how to pay for that $6 billion difference. Republicans want spending cuts and Democrats prefer higher revenues, according to the AP.

“The goal would be to see a similar effort on the Senate’s side,” Sirota said. “… With the impending change coming quickly, congressional action would need to be pretty quick.”


Congressman opposes rate increase

U.S. Rep. Patrick McHenry, R-District 10, is opposed to the sudden increase on Stafford loan interest rates, according to McHenry’s chief of staff, Parker Poling.

McHenry, however, doesn’t agree with government involvement in student lending.

“He has long been opposed to government control of student lending and the government takeover of student lending,” Poling said.

McHenry didn’t actually vote on the measure when it came before the U.S. House of Representatives because he was at a funeral, Poling said.

“How many kids are going to have to stop (attending school)?” Lail wondered.

She knows she isn’t the only student affected by potentially higher student loan interest rates. But that doesn’t make the reality any easier.

President Barack Obama’s budget request for next year includes a proposal that, if approved by Congress, would maintain the current 3.4 percent interest rate on new undergraduate subsidized loans made for the 2012-13 school year, according to the U.S. Department of Education.

Lail is in limbo until lawmakers reach a decision about the increasing interest rates. She studies for her final exams at Appalachian State and hopes they’re not the last of her college career.

Lail talked with representatives from area community colleges about the possibility of transferring her college credits to their campuses. She has already started chipping away at her debt by paying back “$20 here and there.”

“Every little bit helps,” she said.

Private Student Loans

It has been revealed that colleges can reduce risky Private Student Loan borrowing, Study Shows. Your Student Loan Ranger has been talking quite a bit recently about the importance of disclosing information to student loan borrowers. Last week, we discussed how the focus on the interest rate increase on subsidized Stafford loans—which we don't favor—can obscure systemic problems such as reporting requirements designed to provide consumer information that aren't working well.

Earlier, we voiced our support for Sen. Dick Durbin's (D-Ill.) proposed Know Before You Owe Act that would help ensure that borrowers are informed of the advantages of federal loans over private loans.

All this reminded us that the Institute for College Access and Success discussed how colleges and universities can make sure students maximize federal aid before turning to private loans in their July 2011 study "Critical Choices: How Colleges Can Help Students and Families Make Better Decisions about Private Loans." It is based on interviews with financial aid administrators at 22 widely varying colleges.

[Explore the Best Colleges rankings.]

The study demonstrates that institutions of higher education can meaningfully reduce risky private student loan borrowing by explaining to prospective student loan borrowers the differences between federal and private student loans and the availability of any untapped federal, state, or college aid.

In most instances, the best time to do this will be during "school certification," when a private lender asks a college to certify a student's enrollment and for other information before issuing a loan. This is often the first indication a school has that a student has applied for a private loan, and it is a critical "teachable moment" when a borrower is making a major financial decision but has not yet committed to it.

Critical Choices lists seven promising practices for which there is evidence they reduce private student loan borrowing. One particularly effective practice is requiring counseling for all private loan applicants. Barnard College saw private student loan volume drop by almost 75 percent in the first year it implemented this policy. In the most recent year, only 30 of approximately 2,400 students used private student loans, and all but one of them had first maximized their federal funds.

[Discover four overlooked ways to pay for college.]

An effective practice at colleges where counseling all private loan applicants may not be feasible is requiring counseling for private loan applicants who have not exhausted their federal loan options before certifying a private loan. In recent years, Colorado State University has found that about half the students it contacted over the phone decided to exhaust their federal loan options first.

Other promising practices include contacting students who have previously borrowed private loans, because they are more likely to borrow private loans; monitoring unpaid bills, since several colleges reported a spike in private loans when tuition was due or when unpaid bills resulted in registration holds; and asking lenders to make checks co-payable to the college and the student. This provides an opportunity for counseling and cancellation if the lender does not require school certification.

The report also highlights practices schools should avoid, including approving all certification requests, as this misses the crucial opportunity to counsel students before they commit to a private loan, and packaging private student loans in financial aid award letters, which conveys tacit approval.

[Avoid five assumptions about college financial aid packages.]

Borrowers should pay particular attention to widespread misinformation that may be reported by financial aid counselors as reasons students and parents apply for private loans. This misinformation includes assuming they earn too much to qualify for federal student loans when there is no income limit; believing the application process for federal loans is too long and complicated, even though it has recently been improved; or thinking private loans will be disbursed earlier than federal loans.

Students and parents often don't understand the difference between fixed and variable rate loans and are attracted to the apparently lower interest rates on private student loans. Unlike federal loans, which contain strong borrower protections, private loans are a risky way to pay for college that most people should avoid if possible.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works' educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.