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The Guaranteed Student Loan

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It’s a rare college student who does not have to assume student loans. If student loan debt is in your future, now is the time to educate yourself on your rights and responsibilities.


New changes to the student loan program make it necessary for student loan borrowers to educate themselves on their rights and responsibilities. New student loan borrowers are required by the Department of Education to complete a rights and responsibilities tutorial aptly named Entrance Counseling. This counseling used to be done en masse on campuses to incoming students but is now easily accessed via the internet and can be accomplished at the borrower’s convenience from and computer with internet capability. Since this tutorial is required of all borrowers we’ll concentrate our attention in this post to the latest changes that affect your eligibility.

What remains constant since congress last acted on the student loan program is the mode of application, repayment options and cancellation, forgiveness and discharge policies. However, the HERA or Higher Education Reconciliation act of 2006 ushered in substantial changes to the student loan program. Those changes include the interest rate on the student and parent loan programs, the maximum annual loan amount a student can borrow, and the addition of a Graduate PLUS loan program.

Interest rates on Direct and FFEL student loans are now set at a fixed 6.8% rate whereas before the rate was variable up to 8.25% and based on the 91 day T-Bill. This fixed rate does protect students from the possibility of the rate increasing to 8.25% but also eliminates the possibility of borrowing or consolidating at a lower interest rate as had been done by countless student loan borrowers in the past few years. While the days of rock bottom interest rates are passed until Congress sees fit to act again on this issue, the bottom line is the interest rate currently is lower than most commercial loans and the loans themselves carry many protections and rights to the borrower. All in all, most counselors still sleep well at night recommending these loans over commercial market rate loans to students.

Some students can now borrow more subsidized loan funds than they previously could. Dependent freshman can now borrow a maximum of $3,500 in an academic year. Dependent sophomores can borrow $4,500. Remaining unchanged, dependent juniors and seniors can borrow $5,500. Some Independent students unsubsidized annual limits have increased as well. Independent freshman and sophomores can borrow and additional $4,000 in unsubsidized loan. Juniors and seniors limits remain unchanged at $5,000 in additional unsubsidized loan. Post baccalaureate students can now borrow up to 12,500 in an academic year if they are independent per the FAFSA application. Graduate students, all of whom are considered independent, can now access a total of 20,500 in a combination of subsidized and/or unsubsidized loans depending on their calculated need.

The newest student loan program is the Graduate PLUS Loan. This loan is perhaps the most confusing loan program to explain. For those of us in the “industry” we know the term PLUS to mean Parent Loan for Undergraduate Student, hence the acronym PLUS. When the Department of Education named their new program the graduate PLUS, many inside out outside the field believed initially that this loan was to be taken out by a parent of a graduate student for their child’s graduate education. This is not the case. The Graduate PLUS, in actuality, is a loan taken out by the student that bears the same terms and conditions as the undergraduate PLUS taken out by a parent. So, the terms are the same between the two PLUS programs but the borrower is different. To be clear, graduate students can now borrow beyond their guaranteed amount of 20,500 in a Graduate PLUS loan. However, the Graduate PLUS is not guaranteed. The student borrower must pass a credit check in order to be eligible.

This post is a brief outline of the changes to the major student loan programs. Please visit http://www.studentaid.ed.gov for detailed information straight from the source.

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