| AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: 3 SectionTitle: Unsubsidized Federal Stafford Loans PageNumbers: 37-42 It has always been possible for a borrower unable to qualify for a need-based Federal Stafford Loan to apply for an unsubsidized Stafford Loan-one that does not qualify for a federal interest subsidy. However, the Higher Education Amendments of 1992 added specific provisions for an unsubsidized Stafford Loan Program for borrowers who do not qualify for a subsidized Stafford Loan or who, based on need analysis, qualify for only a part of their subsidized Stafford Loan limit. A borrower must have his or her eligibility for a subsidized Stafford Loan determined before he or she may borrow an unsubsidized Stafford Loan. A borrower meeting the student eligibility requirements for an FFEL may borrow an unsubsidized Stafford Loan under the Higher Education Amendments of 1992 provisions for a period of enrollment beginning on or after October 1, 1992. A single application form and a single repayment schedule may be used for both unsubsidized and subsidized Stafford Loans. (See Section Seven for more information on the loan application process.) Changes to the Stafford Loan Program that affect both subsidized and unsubsidized Stafford Loans are discussed in Section Two. [[OBRA '93]] [[Unsubsidized Stafford Loans made before 7/14/94 may differ from unsub loans made after 7/1/94]] As mentioned in the introduction to this chapter, the Omnibus Budget Reconciliation Act of 1993 eliminated the Federal SLS program as a separate program. Effective for periods of enrollment beginning on or after July 1, 1994, the SLS program has been merged into the unsubsidized Stafford Loan program. Therefore, unsubsidized Stafford Loans made for periods of enrollment BEFORE July 1, 1994 may have benefits and conditions different from unsubsidized Stafford Loans made AFTER that date; those pre-July 1, 1994 loans will retain those different conditions and benefits. Changes to unsubsidized Stafford Loans as the result of new legislation will be explained in this section, with a margin note indicating the appropriate legislation. [[HETA '93]] If, due to circumstances such as an adverse credit history, a dependent undergraduate student's parents are unable to borrow a PLUS, under the Technical Amendments of 1993 the student will be allowed the loan limits applicable to independent students under the unsubsidized Stafford Loan program. LOAN LIMITS [[Loan limits for dependent undergrad students are unchanged]] Loan limits for unsubsidized Stafford Loans MADE TO A DEPENDENT UNDERGRADUATE STUDENT are the same as those for subsidized Stafford Loans; however, the combination of subsidized and unsubsidized Stafford Loans for a dependent undergraduate student may not exceed the annual and aggregate limits for loans under the Stafford Loan program. The unsubsidized Stafford Loan amount, subject to the loan limits described above, is the difference between the borrower's cost of attendance for the loan period in question and the borrower's estimated financial assistance (including a subsidized Stafford Loan, if the borrower qualifies for one). Here is an example of how the amount of an unsubsidized Stafford Loan for a dependent undergraduate student might be determined. Michael, a first-year student at State U., and a dependent student, applies for a Stafford Loan for a school term beginning in September 1994. His cost of attendance is $8,000, and he qualifies for a subsidized Stafford Loan of $1,000. He may apply for an unsubsidized Stafford Loan for $1,625, the difference between the maximum Stafford Loan allowed him ($2,625) and the amount of his subsidized Stafford. (His parents may borrow a PLUS to cover the remainder of his cost of attendance.) [[Loan limits for independent undergrads]] THE FOLLOWING UNSUBSIDIZED STAFFORD LOAN LIMITS MAY BE ADDED TO THE BORROWERÂ’S SUBSIDIZED STAFFORD LOAN LIMITS. Following are loan limits for unsubsidized Stafford Loans first disbursed on or after July 1, 1994 and made to INDEPENDENT UNDERGRADUATE STUDENTS (or to dependent students whose parents are unable to borrow a PLUS). - For a student who has not completed the first two years of undergraduate study, loan limits are - - up to $4,000 for a program of study at least an academic year in length; - up to $2,500 for a program at least two-thirds of an academic year, but less than a full year; - up to $1,500 for a program at least one-third but less than two-thirds of an academic year. - For a student who has completed the first and second years but has not completed the remainder of the program, the loan limit is - - up to $5,000 for a program of study of at least an academic year in length; - for programs less than an academic year in length, or for programs of more than an academic year when the remaining portion of the program in excess of an academic year is less than an academic year in length, the loan must be prorated, as explained on page 10-19. Here is an example of how the amount of an unsubsidized Stafford Loan for an independent undergraduate student might be determined. Mary, a first-year independent undergraduate student at Community U., has a cost of attendance of $7,000 per academic year. She qualifies for a subsidized Stafford Loan of $1,500. Mary may apply for an unsubsidized Stafford Loan of $5,125 ($1,125 remaining under her subsidized Stafford Loan limit, plus a $4,000 maximum unsubsidized Stafford Loan). Her total loan limit for both her subsidized Stafford Loan and her unsubsidized Stafford Loan is $6,625. [[Loan limits for grad students]] GRADUATE OR PROFESSIONAL STUDENTS with unsubsidized Stafford Loans first disbursed on or after July 1, 1994 may borrow up to $10,000 per academic year, in addition to the amounts borrowed under the subsidized Stafford Loan program. [[Aggregate loan limits]] The aggregate limit for subsidized and unsubsidized Stafford Loans is $23,000 for a dependent undergraduate student, $46,000 for an independent student and $138,500 ($65,500 subsidized and $73,000 unsubsidized) for a graduate or professional student (including loans for undergraduate study). For periods of enrollment beginning on or after October 1, 1992, an unsubsidized Stafford Loan can be used to offset the borrower's Expected Family Contribution (EFC). (See Section Seven for more detail on the EFC.) INTEREST RATES AND GRACE PERIODS Generally, interest rates and grace periods for unsubsidized Stafford Loans are the same as those for subsidized Stafford Loans. However, only loan principal is deferred for these loans; payment of interest for an unsubsidized Stafford Loan must be made during the grace period and during other periods of deferment. Or, interest may be allowed to accrue and be capitalized (no more frequently than quarterly) and added to loan principal when repayment begins. As with subsidized Stafford Loans, unsubsidized Stafford Loans disbursed on or after July 1, 1994 have a variable interest rate, as explained under "Interest rates and grace periods" in Section Two. ADDITIONAL COSTS OF BORROWING [[OBRA '93]] [[New combined origination fee of 3%]] For loans first disbursed before July 1, 1994, there is a combined origination fee and insurance premium of 6.5 percent of the principal amount of an unsubsidized Stafford Loan. For loans first disbursed on or after July 1, 1994 for periods of enrollment beginning on or after that date, the combined fee has been renamed the "origination fee" and the amount has been reduced to 3 percent of the loan principal. The cost will be deducted proportionately from each disbursement of the loan. [[New insurance premium of 1%]] Also effective for loans first disbursed on or after July 1, 1994 for periods of enrollment beginning on or after that date, the guaranty agency may charge the lender an insurance premium not to exceed 1 percent of the loan principal. If the lender passes this charge on to the borrower, the fee must be deducted proportionately from each disbursement of the loan. REPAYMENT Repayment of an unsubsidized Stafford Loan begins the day after the expiration of the six-month grace period. For loans first disbursed on or after July 1, 1994, the repayment PERIOD begins on the date the first payment of principal is due from the borrower. (Previously, the repayment period began on the day after the grace period ended.) As noted above, deferment of repayment of these loans is for principal only; the borrower must pay all interest that accrues on the loan while he or she is in school, during the grace period, and during periods of deferment, according to the terms of the repayment schedule. DEFERMENT Borrowers receiving unsubsidized Stafford Loans will qualify for the same deferments as subsidized Stafford Loan borrowers. Those deferments are listed on pages 10-30 to 10-36 of Section Two. As with other FFEL programs, for the purpose of an in-school deferment, an eligible school is any school that has ever participated in an SFA program, even if the school has lost its eligibility to participate in FFEL programs. If a school has never participated in SFA programs, it must be determined by the U.S. Department of Education to meet the definition of an eligible institution before certifying an in-school deferment. A chart covering deferment provisions for all FFEL programs is at the end of Section Six. |