Student loans in Canada

Government Loans

Canadian citizens, permanent residents of Canada, and protected persons (including convention refugees) are normally eligible for loans provided by the federal government, through the Canada Student Loans Program (CSLP), in addition to loans provided by their province of residence.

Loans issued to full-time students are interest free while a student is in full-time studies. Students receiving a CSL for the first time on or after August 1, 1995 are eligible for up to 340 weeks (approx 6.5 years) of interest-free assistance. Students in doctoral programs are eligible for an additional 60 weeks, up to 400 weeks (approx 7.5 years). Students with permanent disabilities and students who received their first CSL prior to August 1, 1995 are eligilbe for up to 520 weeks of assistance (10 years).

As the length of North American graduate degree programs often exceed this 400 week maximum, students considering graduate study are advised to think carefully before taking out student loans. For example, an honours BA from a Canadian University takes four years, assuming satisfactory progress. MA programs in Canada very in length from 1-3 years, with two years being the average minimum. A PhD, takes on average, 5 years to complete, although many students take significantly longer than this. Assuming a graduate student completes an honours BA (4 years), an MA (2 years), and a PhD (5 years), one can expect to be in university for at least 11 years. This is significantly longer than the 400 weeks maximum allotted to complete a degree by the National student loan program, and graduate students can easily find themselves in a position where they are required to repay their student loans while enrolled as a full-time student.

Funding is available for part-time students through the CSLP (provincial student loans are not available). Part-time students must make interest payments while in study and begin payments of principal and interest when they cease to be a part-time student. Grants may supplement loans to aid students who face particular barriers to accessing post-secondary education, such as students with permanent disabilities or students from low-income families.

Students must apply for the Canadian and provincial loans through their provincial government. The rules for what determines your province of residence vary, but normally it is defined as where you have most recently lived for at least 12 consecutive months, not including any time you spent as a full-time student at a post-secondary institution. In most cases, the province of residence is the province one lived in before becoming a post-secondary student.

Canada Student Loans (CSL) of up to $210 per week of full-time study or 60% of the student's assessed need (the lesser of these) can be issued per loan year (August 1–July 31). Loans issued through provincial programs will normally provide students with enough funding to cover the balance of their assessed need. Part-time loans of up to $4,000 can be made, but a student cannot be more than $4,000 in debt on part-time loans at any one time. All Canadian students may also be eligible for the Canada Millennium Scholarship Foundation Bursary (CMS Grant), and other grants provided by their province of residence.

For example, students in British Columbia may be eligible for a maximum of $14,300 combined loan and grant funding per year.

History

Prior to 1964, the national student loan program was known as the Dominion-Provincial Student Loan Program. This program was a matching grant partnership system between the federal and provincial governments. It was started in 1939 and ended with the start to the CSLP in 1964.

Some text from the Department of Human Resources and Social Development Canada:

The CSLP was created in 1964. Since its inception, the Program has supplemented the financial resources available to eligible students from other sources to assist in their pursuit of post-secondary education. Between 1964 and 1995 , loans were provided by financial institutions to post-secondary students who were approved to receive financial assistance. The financial institutions also administered the loan repayment process. In return, the Government of Canada guaranteed each Canada Student Loan that was issued, by reimbursing the financial institution the full amount of loans that went into default.

In 1995, several important changes were made to Canada Student Loans. First, the Canada Student Financial Assistance Act was proclaimed, replacing the existing Canada Student Loans Act (which still remains in force to this day) reflecting the changing needs of the parties involved in the loan process, including the conferred responsibility of the collection of defaulted loans to the banks themselves. The Government of Canada developed a formalized "risk-shared" agreement with several financial institutions, whereby the institution would assume responsibility for the possible risk of defaulted loans in return for a fixed payment from the Government which correlated with the amount of loans that were expected to be, or were, in default in each calendar year. During this period, the weekly federal loan amount was increased to a maximum of $165.

On July 31, 2000, the risk-shared arrangement between the Government of Canada and participating financial institutions came to an end. The Government of Canada now directly finances all new loans issued on or after August 1, 2000. The administration of Canada Student Loans has become the responsibility of the National Student Loans Service Centre (NSLSC). There are two divisions of the NSLSC, one to manage loans for students attending public institutions and the other to administer loans for students attending private institutions. Defaulted Canada Student Loans disbursed under this new regime are now collected by the Canada Revenue Agency which, by Order in Council dated August 1, 2005, became responsible for the collection of all debts due under programs administered by Human Resources and Social Development Canada.

Due to the close nature of the Canada Student Loan Program (CSLP) and the provincial student loan programs, the changes in 1995 and 2000 were largely mirrored by the provincial programs. As a result of these changes, students who attended school before and after these transition years may find that they have up to 6 different loans to manage (pre-1995 federal & provincial; 1995-2000 federal & provincial; and post-2000 federal & provincial). The extent to which this is possible depends largely on a student's province of residence.

A review of the Canada Student Loans Program was announced in Budget 2007. Changes resulting from the Review are expected to be announced in Budget 2008.

Students in professional programs

Most charter banks in Canada have specific programs for students in professional programs (e.g., medicine) that can provide more funds than usual in the form of a line of credit, sometimes with lower interest rates as well. Students may also be eligible for government loans that are interest free while in school on top of this line of credit, as private loans do not count against government loans/grants

PLUS Loan

A PLUS Loan is a student loan offered to parents of students enrolled at least half time in eligible programs at participating and eligible post-secondary institutions. As of July 1, 2006 PLUS Loans are also available to graduate and professional students at participating and eligible postsecondary institutions. PLUS loans are similar and different from Perkins and Stafford loans in various respects:

Similarities with Stafford and Perkins loans

• Offered under Title IV of the Higher Education Act of 1965 (with subsequent amendments), and are therefore backed by the full faith of the United States Government
• Available both through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a private lender through the Federal Family Education Loan Program (FFELP)
• Can be consolidated through the College Consolidation Loan program

Differences from Stafford and Perkins loans

• Become due for repayment immediately, and there is only interest rate term
• When taken by a parent, becomes a commitment by the parent, rather than the student
• Are subject to higher interest rates (i.e., 7.9% in Direct and 8.5% in FFELP)
• Can be incurred in amounts that cover up the entire cost of education (including living expenses), less other financial aid
• Offer different repayment plans, though there is no interest rate or accrual relief involved in any of the plans
• Eligibility is based on the parents or graduate students in question not having an adverse credit history

Changes as of July 1, 2006

Like the Stafford loan program, the PLUS program changed to a higher, but fixed rate, structure for loans disbursed after midnight, July 1, 2006. The rate offered through the Direct Loan Program will be 7.9%, while the FFELP will be 8.5% — although price competition may result in lower rates and incentives in the FFELP.

Additionally, the PLUS program is now available for graduate and professional students to borrow to finance their own educations. The program is expanding away from a parent-only program to include graduate school students. The new option is commonly referred to as the Grad PLUS loan.

Amendments were made to the PLUS Master Promissory Note in an addendum to accommodate the changes in eligibility as well as the new fixed rate structure.

PLUS loan lenders

Top PLUS (Parent) lenders ranked by total FY 2006 loan originations

Lender name	# of loans	Amt of loans ($)
Federal Direct Student Loan Program	226,454	$2,223,240,437
Sallie Mae	138,960	$1,495,968,487
Citibank	46,160	$529,859,452
JP Morgan Chase	53,006	$522,901,341
Bank of America	35,412	$388,156,880
Student Loan Xpress	27,443	$316,979,638
Edamerica	29,671	$294,062,105
Wachovia Education Finance	26,811	$286,701,623
Wells Fargo EFS	28,495	$271,927,608
College Loan Corporation	19,649	$230,429,964
PNC Bank	17,762	$192,459,202

^{SOURCE: Stafford (FFEL & Direct) and PLUS (FFEL & Direct) Loans, from the National Student Loan Data System (NSLDS), US Department of Education, Fiscal Year 2006.}

Top Grad PLUS lenders ranked by total FY 2006 loan originations

Lender name	# of loans	Amt of loans ($)
Access Group	14,806	$278,886,679
Sallie Mae	14,002	$276,180,268
U.S. Bank	7,450	$129,588,328
Federal Direct Student Loan Program	9,273	$122,239,565
Citibank	6,606	$116,264,727
Bank of America	3,627	$59,074,481
Student Loan Xpress	3,202	$49,686,199
Wells Fargo EFS	3,188	$47,012,062
Wachovia Education Finance	3,177	$46,155,438
Edamerica	1,814	$28,298,334
JP Morgan Chase	1,146	$16,641,772

Pennsylvania Higher Education Assistance Agency

The Pennsylvania Higher Education Assistance Agency, or "PHEAA", headquartered in Harrisburg, Pennsylvania, with regional offices throughout the state , is the quasi-governmental agency that administers several State higher education student financial aid programs.

It administers the Pennsylvania commonwealth grant program for the Commonwealth of Pennsylvania, and serves as a coordinating body for other grant programs administered by other state agencies. It also serves as one of several student loan guarantors in the United States for the Federal Family Education Loan Program (FFELP), under the Higher Education Act of 1965. It also has a loan servicing operation, for student loans that it owns and for lenders under contract. From a small student loan guarantor with approximately 5,000 student loans in 1964, it now manages more than $33 billion in total assets and serves nearly four million students through its carious programs The agency has consistently been listed by the U.S. Department of Education as having one of the lowest default rates among all major guarantors through its highly successful default prevention initiatives.^{[citation needed]}

In the past ten years, the agency has experienced growth through expansion of its lending operations with relationships with neighboring states, such as West Virginia and Delaware, and with schools throughout the country for loan servicing and guaranty services. As a lender of its own right, the agency created a national presence for itself under the name "American Education Services". As a result, the agency is now frequently referred to as "AES/PHEAA". AES/PHEAA is in the top ten in loan volume of guarantors throughout the nation.

AES/PHEAA is also active in the secondary market for FFELP loans.

As a quasi-governmental agency, AES/PHEAA's board of directors is comprised mostly of members of the Pennsylvania General Assembly, with one appointee typically a college president. The board does not have an appointed representative or ombudsman for student/borrower interests, nor a financial aid professional as a formal member.

Grad PLUS

As of July 1, 2006, federal Graduate PLUS loans were available for graduate and professional students to borrow. 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.

Interest rates on Federal Family Education Loan Program (FFELP) Federal PLUS loans are fixed at 8.5%. Many lenders offer borrower benefits to reduce this interest rate during repayment, however. During any period of deferment or forbearance, interest can accrue and be added to the principal loan balance (capitalized) at the end of the deferment or forbearance period if it is not paid by the borrower as it accrues. There is also a 3.0% origination fee attached to the loan that, due to regulations, cannot be paid by the lender on the borrower's behalf.

Eligibility for PLUS loans require the applicant to (1) be a U.S. citizen/national or eligible non-citizen with a valid Social Security number, (2) pass a credit review and not have adverse credit history as defined by regulation (see credit criteria below), and (3) not be in default on any federal education loan or owe a refund on a federal education grant.

To get a PLUS loan, the applicant cannot have adverse credit based on the review of at least one credit report from a national credit reporting agency. Lack of a credit history or insufficient credit history is not considered adverse credit. Current regulations define adverse credit as when at least one of the following applies to the applicant:

• currently 90 days or more delinquent on repayment of any debt;
• has had debt discharged in bankruptcy during the past five years; or
• evidence of a default, foreclosure, tax lien, repossession, wage garnishment, or write-off of a Title IV debt during the past five years.

If the applicant has adverse credit, he or she can provide an endorser (cosigner) who does not have adverse credit to get a PLUS loan.

Private student loans

These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies. Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months.

Private student loan types

Private loans generally come in two types: school-channel and direct-to-consumer.

School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are 'certified' by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school.

Direct-to-consumer private loans are not certified by the school; schools don't interact with a direct-to-consumer private loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student. While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days. Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question.

Direct-to-consumer private loans are the fastest growing segment of education finance and, as such, a number of providers are introducing products. Loan providers range from large education finance companies to specialty companies that focus exclusively on this niche. Such loans will often be distinguished by the indication that "no FAFSA is required" or "Funds disbursed directly to you."

Private student loan rates and interest

Private student loan rates are lower than non-specialized private loans (e.g., "signature" loans) but slightly higher than government loan rates. That may be changing, as pending legislation would raise government student loan rates to similar rates as private student loans. Consumers should be aware that some private loans require substantial up-front origination fees. These fees raise the real cost to the borrower and reduce the amount of money available for educational purposes.

Most private loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge. Because private loans are based on the credit history of the applicant, the overhead charge will vary. Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit. Money paid toward interest is now tax deductible.

Private student loan fees

Private loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan. They can be taken out of the total loan amount or added on top of the total loan amount, often at the borrower's preference. Some lenders offer low-interest, 0-fee loans, but these are usually available only to those with high credit scores (800 or more). Each percentage point on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan. Some have suggested that this makes the interest rate more critical than the origination fee.

In fact, there is any easy solution to the fee-vs.-rate question: All lenders are legally required to provide you a statement of the "APR (Annual Percentage Rate)" for the loan before you sign a promissory note and commit to it. Unlike the "base" rate, this rate includes any fees charged and can be thought of as the "effective" interest rate including actual interest, fees, etc. When comparing loans, it may be easier to compare APR rather than "rate" to ensure an apples-to-apples comparison. APR is the best yardstick to compare loans that have the same repayment term; however, if the repayment terms are different, APR becomes a less-perfect comparison tool. With different term loans, consumers often look to 'total financing costs' to understand their financing options.

Eligible loan programs generally issue loans based on the credit history of the applicant and any applicable cosigner/co-endorser/coborrower. This is in contrast to federal loan programs that deal primarily with need-based criteria, as defined by the EFC and the FAFSA. For many students, this is a great advantage to private loan programs, as their families may have too much income or too many assets to qualify for federal aid but insufficient assets and income to pay for school without assistance.

Additionally, many international students in the United States can obtain private loans (they are ineligible for federal loans in many cases) with a cosigner who is a United States citizen or permanent resident. However, some graduate programs (notably top MBA programs) have a tie-up with private loan providers and in those cases no co-signor is needed even for international students.

The terms for alternative loans vary from lender to lender. A common suggestion is to shop around on ALL terms, not just respond to "rates as low as..." tactics that are sometimes little more than bait-and-switch. Examples of other borrower terms and benefits that vary by lender are deferments (amount of time after leaving school before payments start) and forebearences (a period when payments are temporarily stopped due to financial or other hardship). These policies are solely based on the contract between lender and borrower and not set by Department of Education policies.

Federally subsidized consolidations are not available for alternative student loans, though several lenders offer private consolidation programs. Borrowers of privately subsidized student loans may face the same restrictions to bankruptcy discharge as for government based loans: New legislation makes clear that these loans are, like federal student loans, not dischargeable under bankruptcy. Even before the legislation was passed, however, private student loans that were guaranteed 'in whole or in part' by a nonprofit entity are non-dischargeable in bankruptcy (and most private loans, regardless of the lender, were indeed guaranteed by a nonprofit).

Federal loans

Federal loans to students

Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.

The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized by the U.S. Government or may be unsubsidized depending on the student's financial need.

Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. The limit effective for loans disbursed on or after July 1, 2007 is as follows: is $3,500 per year for freshman undergraduate students, $4,500 for sophomore undergraduates, and $5,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. Subsidized federal student loans are offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.

Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Those who borrow $10,000 during college will owe $10,000 plus interest upon graduation. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can choose to pay the interest while still in college; however, few students choose to exercise this option.

Federal student loans for graduate students have higher limits: $8,500 for subsidized Stafford and $12,500 (limits may differ for certain courses of study) for unsubsidized Stafford. Many students also take advantage of the Federal Perkins Loan. For graduate students the limit for Perkins is $6,000 per year.

Federal student loans to parents

Usually these are PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Unlike loans made to students, parents can borrow much more — usually enough to cover any gap in the cost of education. However, there is no grace period: Payments start immediately.

Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers. Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time four years have been funded through loans. The combination of immediate repayment and the ability to borrow substantial sums can be expensive.

Under new legislation, graduate students are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.

Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8.5% on July 1, 2006.

Disbursement: How the money gets to student or school

There are two distribution channels for federal student loans: Federal Direct Student Loans and Federal Family Education Loans.

• Federal Direct Student Loans, also known as Direct Loans or FDLP loans, are funded from public capital originating with the U.S. Treasury. FDLP loans are distributed through a channel that begins with the U.S. Treasury Department and from there passes through the U.S. Department of Education, then to the college or university and then to the student.
• Federal Family Education Loan Program loans, also known as FFEL loans or FFELP loans, are funded with private capital provided by banking institutions (i.e., banks, savings and loans, and credit unions). Because the FFELP loans use private capital as their source, students who use FFELP loans are able to take advantage of payment options that are similar to those available to customers who take out a home loan or a consumer loan. For example, some institutions will allow a discount for automatic payments or a series of on-time payments. In 2005, approximately two-thirds of all federally subsidized student loans were FFELP.

According to the U.S. Department of Education, more than 6,000 colleges, universities, and technical schools participate in FFELP, which represents about 80% of all schools. FFELP lending represents 75% of all federal student loan volume.

The maximum amount that any student can borrow is adjusted from time to time as federal policies change. A study published in the winter 1996 edition of the Journal of Student Financial Aid, “How Much Student Loan Debt Is Too Much?” suggested that the monthly student debt payment for the average undergraduate should not exceed 8% of total monthly income after graduation. Some financial aid advisers have referred this as "the 8% rule." Circumstances vary for individuals, so the 8% level is an indicator, not a rule set in stone. A research report about the 8% level is available at Follow links to --> Reports and presentations --> How Much Student Loan Debt Is Too Much?

Student loans in the United States

While included in the term "financial aid" higher education loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:

• Federal student loans made to students directly: No payments while enrolled in at least half time status. If a student drops below half time status, the account will go into its 6 month grace period. If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time again they will no longer have their grace period. Amounts are quite limited as well.
• Federal student loans made to parents: Much higher limit, but payments start immediately
• Private student loans made to students or parents: Higher limits and no payments until after graduation, although interest will start to accrue immediately. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances. Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.

SLM Corporation

SLM Corporation NYSE: SLM, commonly known as Sallie Mae, is the United States' largest college student loan company, managing more than $126.9 billion in debt for more than 10 million borrowers, and employing 12,000 individuals at offices nationwide.

The company primarily provides federally guaranteed student loans originated under the Federal Family Education Loan Program (FFELP) and offers resources to assist students, parents, and guidance professionals with the financial aid process.

Federal Direct Student Loan Program

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

The William D. Ford Federal Direct Loan Program (FDSLP), often referred to as "Direct Loans," is a United States Department of Education program that provides loans to help students pay for education after high school. The Department of Education acts as a lender, providing funds for Stafford loans and PLUS loans in the same amounts as the Stafford and PLUS loans offered through the Federal Family Education Loan Program (FFELP).

The Department of Education allows schools to choose which program, FDSLP or FFELP, best suits the needs of its students. The Department of Education does not currently allow a student to choose a FDSLP loan if the school chooses to participate in FFELP, and vice versa. However, students may be able to choose to consolidate loans under either FDSLP or FFELP.

Political History of the Program

Congress passed a version of the Direct Loan program under President George H.W. Bush, but Bush promised to veto it. Candidate Bill Clinton promised that he would sign such legislation into law if elected, and the Direct Loan program was one of the first laws he signed in 1993. Some of the more fiscally-conservative Republicans have fought to end the program or make its terms less attractive to students once Republicans took over Congress in 1994. Notably, U.S. Rep. John Hostettler of Indiana was a leader amongst these. Over 700 students at Indiana University plus the entire Bloomington City Council signed a petition in 1995 to oppose Hostettler's plan to abolish the program. The Indiana University Student Association passed a resolution in opposition to his plan by a margin of 38-3 in February of 1996.

Funding for the Federal Direct Student Loan Program has decreased from just over $7 billion in 2006 to $509 million budgeted for 2008.

Democrats made more student-favorable Direct Loan terms part of their platform, which contributed to their retaking Congress in 2006.

In comparison, other countries have also experimented with government-sponsored loan programs. New Zealand, for instance, now offers 0% interest loans to students (retroactive for all former students who had government loans), who can pay their loans back as a percentage of income after they graduate. This program was a Labour Party promise in the 2005 general election.

Higher Education Loan Authority of the State of Missouri

The Higher Education Loan Authority of the State of Missouri, aka the Missouri Higher Education Loan Authority, or MOHELA, is one of the largest holders and servicers of student loans nationwide. Headquartered in Chesterfield, MO, MOHELA’s mission is to “eliminate barriers for students so they can access higher education.” To this end, MOHELA provides student and parent borrowers direct access to higher education loans and resources to help plan for higher education. In addition, MOHELA sponsors interest rate reduction for qualified borrowers, several student loan consolidation plans and loan forgiveness programs.

Today, as a secondary market in the Federal Family Education Loan Program (FFELP), MOHELA services and purchases student loans in cooperation with national and local lending institutions. MOHELA owns and services more than $5.4 billion in student loans and services for other lenders a student loan portfolio in excess of $1 billion.

History

The Federal Loan Consolidation Program was created in 1986. In 1998, the United States Congress changed the interest rate to the aforementioned fixed rate weighted mean, effective February 1, 1999. Consolidation loans taken out before that date had a variable interest rate, determined by the individual FDLP loan origination center (e.g., in the case of a university, that university) or FFELP lender (e.g., a third party bank).

In 2005, the Government Accountability Office considered consolidating consolidation loans so that they were exclusively managed through the FDLP. Based on several assumptions about future variations in interest rates, the loan volume, the percentage of defaulters, cost estimates from the United States Department of Education, it concluded that while doing so would incur an additional cost of $46 million, caused by the higher administrative costs of the FDLP compared to the FFELP, this would be offset by a $3,100 million saving comprised in part of avoiding $2,500 million in subsidy costs.

Consolidation loan lenders

Top consolidation lenders ranked by total FY 2006 consolidation loan originations

Lender name	# of loans	Amt of loans ($)
Federal Direct Student Loan Program	1,169,110	$19,197,268,873
Sallie Mae	866,295	$19,841,423,841
Citibank	232,126	$4,843,119,089
Nelnet	198,624	$4,796,065,812
NextStudent	89,284	$3,320,024,025
JP Morgan Chase	115,777	$2,668,451,098
Goal Financial, LLC	111,426	$2,494,856,673
College Loan Corporation	75,360	$2,245,128,826
AES/PHEAA	166,730	$2,037,618,548
Student Loan Xpress	114,790	$1,880,997,383
Wachovia Education Finance	80,174	$1,674,979,763

Stafford Loan

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

A Stafford Loan is a student loan offered to eligible students enrolled in 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 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.

In 1988, Congress renamed the Federal Guaranteed Student Loan program the Robert T. Stafford Student Loan program, in honor of Senator Robert Stafford of Vermont, for his work on higher education.

Because the loans are guaranteed by the full faith of the US Government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict eligibility requirements and borrowing limits on Stafford loans.

Students applying for a Stafford loan or other federal financial aid must first complete a FAFSA. Stafford loans are available to students either directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a private lender through the Federal Family Education Loan Program (FFELP).

No payments are expected on the loan while the student is enrolled as a full or half time student. This is referred to as in-school deferment. Deferment of repayment continues for six months after the student leaves school either by graduating, dropping below half-time enrollment, or withdrawing. This is referred to as the Grace Period.

Stafford loans are available both as subsidized and unsubsidized loans. Subsidized loans are offered to students based on demonstrated financial need. The interest on Subsidized loans is paid by the federal government while the student is in school, during the grace period, and during authorized deferment. Students are responsible for all of the interest that accrues on unsubsidized Stafford loans while enrolled in school. The interest may be deferred throughout enrollment. Unpaid interest that is deferred until after graduation is capitalized (added to the loan principal).

Interest on Stafford loans was previously based on an adjustable formula: Rates were set annually based on the prevailing 91-day Treasury bill. As of July 1, 2006, however, all Stafford loans are issued with a fixed interest rate. For Direct loans and most loan providers, the rate is currently set at 6.80%.

As the new rate goes into effect, some loan providers are foregoing portions of the margin they are entitled to under the Federal program, offering interest rates lower than the standard rate. Many are also offering price incentives related to payment history, direct debit, etc. Collectively, interest rate reductions, principal reductions, and origination fee discounts are known as Borrower Benefits.

In addition, in repealing the Single Holder Rule, Congress also allows loan providers to compete for college consolidation loans that are available to students and former students with multiple loans. Specialized consolidation lenders and student loan providers compete on various incentives to attract customers.

Stafford loan lenders

Top Stafford lenders ranked by total FY 2006 loan originations

Lender name	# of loans	Amt of loans ($)
Federal Direct Student Loan Program	2,619,598	$10,900,128,053
Sallie Mae	1,602,733	$6,140,928,699
JP Morgan Chase	994,588	$3,689,467,923
Citibank	887,102	$3,662,792,417
Bank of America	696,613	$2,730,933,359
Wells Fargo EFS	613,808	$2,563,877,315
Wachovia Education	616,175	$2,468,840,370
College Loan Corporation	338,932	$1,365,537,574
U.S. Bank	316,005	$1,110,444,590
Access Group	111,130	$996,504,454
Edamerica	223,173	$837,074,415

Federal Family Education Loan Program

The Federal Family Education Loan Program (FFELP) is a United States Department of Education program that provides for private organizations to market, originate, and service federally guaranteed loans, such as Stafford and PLUS loans to students and their parents. FFELP is a complement to the Federal Direct Student Loan Program, colloquially known as "Direct" or DL.

The private institutions that participate in FFELP include non-profit as well as commercial organizations. These can realize profits on these loans by collecting origination fees and with an interest margin.

While FFELP providers traditionally have set their interest rates to what has been offered by the Direct channels, there have been recent indications that they may be competing on price.^{[citation needed]}

Funding for FFELP has decreased from just over $28 billion in 2006 to just under $4 billion budgeted for 2008.