FFELP: Federal Family Education Loan Program

FFELP or the Federal Family Education Loan Program provides low cost educational loans to assist students and their parents in funding the cost of higher education. The program, highly popular amongst American students, was initiated by the Higher Education Act of 1965. The program, funded through private/public partnerships, makes higher education accessible to millions of students every year and is administered at both the state and the local level. President Barrack Obama has, however, called for an end to this program in the near future, terming it a wasteful program. President Obama aims to replace FFELP with a Direct Loan Program.[br]

 

FFELP: Federal Family Education Loan Program vs Direct Lending Program

Under FFELP, private lenders offer federally guaranteed education loans to students and their parents, while under the Direct Lending Program, the US federal government lends directly to the students.

 

The private-public partnership involves private lenders making loans to students and receiving subsidies from the federal government. The US government also guarantees a significant portion of the loan sanctioned, thus insuring private lenders against default.

 

FFELP: Federal Family Education Loan Program: Types of Loans Offered

Federal loans are the most popular option amongst students because of their low interest rates and attractive repayment terms. FFELP offers the following types of loans:

Ø      Stafford Loans: These loans can be subsidized or unsubsidized, and are sanctioned on the basis of the information submitted by a student in the Free Application for Federal Student Aid (FAFSA).

Ø      PLUS Loans: These loans are available to graduate and professional students and their parents for funding higher education expenses.

Ø      Consolidation Loans: Borrowers can consolidate their federal education loans into one loan with a single monthly payment and, depending on their outstanding loan balance, extend their repayment period.[br]

 

Federal loans can be subsidized or unsubsidized, depending on the applicant’s financial background. The interest on the subsidized loans is paid by the government during the time a student is in school, six months after leaving school and for the duration for which the loan is deferred. In the case of unsubsidized loans, a student has to pay the interest himself but can get the interest deferred to until after graduation. In such cases, the interest is accumulated and capitalized. The federal loans are repayable six months after a student finishes school or drops to below half time.