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					Narrator:

Begin Section 12: Obtaining Additional Loans for Students, Direct and FFEL Stafford Loans. This section covers loans that are made through your school -- Direct Loans -- or through a private lender -- FFEL Loans. It explains the difference between a subsidized loan and an unsubsidized loan, how to locate lenders and apply for a loan, how much you can borrow, and the interest rates on your loan. This section is xx minutes in length.

FSAIC:

Direct Loans come directly from the Department of Education, which sends the funds to your school. FFEL Stafford Loans come from a private lender such as a bank, a credit union, or other participating lender. FFEL loans are insured by a state guaranty agency and reinsured by the federal government.

Student:

How do I get more information on these loans?

FSAIC:

For Direct Loans, talk to the financial aid administrator at a participating school. You can also contact the Direct Loan Servicing Center at 1-800848-0979 or visit their Web site at www.dl.ed.gov.

For FFEL Loan information, you should check with a participating lender or with the state guaranty agency. For the address and telephone number of the agency in your state, you may check with your school or call us here at the Federal Student Aid Information Center at 1-800-433-3243.

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You also can find a list of guaranty agencies at www.ed.gov/Programs/bastmp/SGA.htm [see explanation] You’ll hear a Stafford Loan described as being either subsidized or unsubsidized. These terms simply refer to whether the federal government covers, or ―subsidizes,‖ a portion of the loan costs on your behalf.

Student:

How do subsidized and unsubsidized Stafford Loans differ?

FSAIC:

To receive a subsidized Stafford Loan, you must demonstrate financial need. You don’t have to start repaying the loan until 6 months after you graduate, leave school, or drop below half-time enrollment. During this 6month grace period, the federal government pays the interest on a subsidized loan. The federal government also pays the interest on the loan while you’re in school and during authorized deferment periods.

Unsubsidized loans are not need based, so you don’t have to show financial need to obtain one. You still have the 6-month grace period, but the federal government doesn’t pay any of the interest on an unsubsidized loan. Rather, you are responsible for all the interest that accrues. While in school, in the grace period, or in authorized deferment periods, you can choose not to pay the accruing interest, but the interest will be capitalized—that is, added to the principal balance of the loan and you will end up paying more later. I will explain about deferment and repayment in more detail in the next section.

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Student:

Can I receive both a subsidized loan and an unsubsidized loan for the same enrollment period?

FSAIC:

Yes, as long as they are from the same program, either both Direct Loans or both FFEL Loans.

Student:

How much can I borrow?

FSAIC:

That depends on your financial need, your dependency status, your year in school, and whether you’re enrolled for a full academic year.

Student:

If I’m enrolled less than a full year, can I still get a Stafford Loan?

FSAIC:

Yes, as long as you’re enrolled for at least one-third of an academic year. But the loan limits I’m about to list apply only if you’re enrolled for a full academic year. If you’re enrolling for less, talk to your financial aid administrator.

Now, a first-year dependent student can borrow up to $2,625. A student who has completed the first year of study can borrow up to $3,500. A student who has completed 2 years of study can borrow up to $5,500 a year. Finally, the maximum outstanding Stafford Loan debt a dependent undergraduate can have is $23,000.

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Student:

Can an independent undergraduate borrow more?

FSAIC:

Yes, but the additional amounts must be in unsubsidized loan funds. A first-year independent undergraduate student can borrow $2,625 in subsidized funds and an additional $4,000 in unsubsidized funds, for a total of $6,625. A student who has completed the first year of study can borrow $3,500 in subsidized funds and an additional $4,000 in unsubsidized funds for a total of $7,500. A student who has completed two years of study can borrow $5,500 in subsidized funds and an additional $5,000 in unsubsidized funds for a total of $10,500. The total outstanding loan debt an independent undergraduate can have is $46,000 – $23,000 in subsidized funds and $23,000 in unsubsidized funds.

Student:

Can a graduate student borrow more?

FSAIC:

Up to $8,500 a year in subsidized loans plus an additional $10,000 in unsubsidized loans for a total of $18,500. The total loan debt a graduate or professional level student can have is $138,500, including amounts received during undergraduate study. That’s $65,500 in subsidized loans and $73,000 in unsubsidized loans.

And one last point about Stafford loan limits: Your school can refuse to certify a loan application or can certify the loan for less than the full amount if the school documents the reason for its action and explains that reason to you in writing. The school’s decision is final and cannot be appealed to the Department of Education.

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Student:

How do I apply for one of these loans?

FSAIC:

For both Direct and FFEL Stafford Loans, the first step is to complete the 2006-2007 FAFSA or the Renewal FAFSA we discussed earlier. Next, you should complete a promissory note provided either by the Direct Loan Servicing Center or a private lender, depending on whether you’re taking out a Direct or FFEL Stafford Loan. For either loan program, the promissory note contains the conditions under which you are borrowing and the terms under which you agree to pay back the loan. This note is a binding legal document.

Student:

What happens next?

FSAIC:

After your FAFSA is processed, your school will review the results and inform you of your loan eligibility. If you are eligible for a Direct Loan, your school will take you through the remaining steps to disbursement.

For a FFEL Stafford, your school must complete a portion of your promissory note and send it to your lender. If you are eligible, the lender and school will take you through the remaining steps.

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Student:

So once I’ve done all that, how will I receive the loan funds?

FSAIC:

You’ll receive your loan funds through your school. In most cases, the loan will be disbursed in a least two installments. No installment can be greater than half the amount of your loan. A fee of up to 4 percent will be deducted proportionately from each installment. For a FFEL Stafford, a portion of this charge goes to the federal government to help reduce the cost of the loan. For a Direct Stafford, all of this money goes to the federal government to help reduce the cost of the loan.

Your loan money must first be used to pay your tuition and fees and your room and board. You will receive any remaining funds by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.

Now if you are a first-year undergraduate student and a first-time borrower, your first payment cannot be disbursed until 30 days after the first day of your enrollment period. So if you don’t begin classes, or if you officially withdraw during the first 30 days of classes, your loan will be canceled and you won’t have to repay it. If you have any questions about disbursement, you should ask your financial aid administrator.

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Student:

What’s the interest rate on a Stafford Loan?

FSAIC:

For a Stafford Loan; interest rates are variable and subject to change on July 1 of each year. However, the maximum rate will not exceed 8.25 percent. For July 1, 2005 through June 30, 2006, the interest rate for loans in repayment was 5.3 percent. If you had a loan first disbursed before July 1, 1998, your rate might be different. For information on the latest interest rates for Stafford Loans, check with your school if you are inquiring about a Direct Stafford or with a lender if you are inquiring about a FFEL Stafford. Your loan holder will notify you of interest rate changes throughout the life of your loan.

In the next section, I will explain how you repay these loans.

Narrator:

End Section 12: Obtaining Additional Loans for Students, Direct and FFEL Stafford Loans

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