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The Federal Family Education Loan Program (FFELP)

The FFELP (Federal Family Education Loan Program) is a Federal Government-private lender partnership and umbrella program that includes Stafford, PLUS and Perkins loans. Established by an Act of Congress in 1965, it began in 1966. Since then, over half a trillion dollars have been disbursed, over $50 billion in 2006 alone.

Funds for Stafford, PLUS and other FFELP loans are provided through a large network of independent banks, credit unions and other financial institutions. Lenders can feel confident loaning money to what otherwise might be high credit risks because the funds are ultimately guaranteed (at least in theory) by the Federal Government.

Private guarantors may get involved, however, in the approximately 5% of cases where the loan goes into default. Guarantors then apply to the Federal Government for (at least partial) reimbursement of any lost funds.

Over 90% of the funds are directed through the two types of Stafford loan, unsubsidized and subsidized. In the latter case, the Federal government pays for interest on the loan accrued while the student is in school and for six months afterward. Unsubsidized loans make the borrower responsible for any interest. If the interest is deferred (as it frequently is) until after the grace period, it's added to the principal.

The other major program, the PLUS (Parent Loans for Undergraduate Students) loan program, supplies over $8 billion per year in funds to parents. As of July 1, 2006 professional and graduate students are also eligible. Providing money to parents to help cover expenses they would frequently pay for anyway, the PLUS program forms a common part of the total financial aid package today.

In general, all the programs require a FAFSA (Free Application for Student Aid) application to be filled out. The data provided forms the core that allows loan officers to make a funding decision. Typically those decision makers are employed by the individual college at which the student is accepted. Forms are available at: http://www.fafsa.ed.gov/

The financial aid department will make a recommendation for a total package based in part on the EFC (Expected Financial Contribution) of the student and his or her parent(s). Examining income, they aim to supplement any unmet need with a combination of subsidized and unsubsidized Stafford loans and other sources.

Once the student and/or parent accepts the package the funds are disbursed, usually twice per year once each semester, more often in quarter systems. Often the largest share of the money will go directly from the private lender to the school to pay for tuition and more. The remainder is then provided to the student or parent, minus any fees.

Those fees can range up to 4% or more. Many programs will charge a 3% 'origination fee' and a 1% insurance fee, which they assign to requirements of the Federal government. Fees as high as 8% are not unknown, though, so shop around.