Student Loans

The federal government provides various types of student loans to help promote access to higher education. The common goal among the different loans is that they allow students to obtain financing for higher education at better terms than those available in the private market. In this regard, the federal government subsidizes the cost of loans for the borrower. Students usually have little or no credit or employment history and no collateral with which to secure a loan to finance a higher education. In response, the federal student loan programs entitle virtually all students to loans with below-market interest rates and flexible repayment options. Furthermore, loans are available to borrowers without respect to income, choice of institution, field of study, or academic performance (except in limited cases). Loans are available for two- and four-year undergraduate study, and graduate study. Loans are issued directly by the U.S. Department of Education to the institutions of higher education that borrowers attend.

The loans are administered (i.e. serviced) by the Department of Education and private companies with whom the Department has contracted to process loan disbursements and handle loan repayments and collections. The interest rates on federal loans are tied to the rates on the 10-year Treasury note, plus a markup, but still provide better terms than much of what’s available to students on the private market. Rates on each loan type are capped and remain fixed for the life of each loan, but reset for the new year in July.

Student Loan History

The federal government began guaranteeing student loans provided by banks and non-profit lenders in 1965, creating the program that is now called the Federal Family Education Loan (FFEL) program.

Student Loan Costs

The Congressional Budget Office (CBO) estimates and reports annually the cost of new federal student loans that are expected to be made in the current and future years.

Kinds of Student Loans

Federal subsidized and unsubsidized loans to undergraduates, loans to parents, and loans to graduate students have their own specific terms.

Student Loan Repayment

Borrowers may repay their federal student loans under a variety of repayment plans. However, all borrowers are automatically enrolled in the Standard repayment plan when they leave school.

Debt, Default, and Collections

By law, the U.S. Department of Education considers a borrower to be in default when he fails to make on-time repayment of his loans for nine consecutive months.