The United States Department of Education offers student loans for graduate studies including the MBA. These loans are offered at lower interest rates, with ?exible repayment terms that include repayment starting after graduation and deferred payments. Loans are awarded in conjunction with the Business School, and payment is made directly to the institution, usually in 2 installments per year. All loan funds must be used only for education expenses. Every Year, the entire Federal Student Aid program disburses more than $150 billion in grants, loans, and work-study funds. Students must complete the Federal Financial Aid (FAFSA) form to determine if they are eligible.
Earlier, subsidized loans at less than 4% interest were available, with the government paying the interest until the repayment period. In August 20111, the US Congress signed The Budget Control Act of 2011, which states that graduate studies cannot be subsidized from July 1st 2012 onwards.
Points to note while applying for federal aid:
1. There is no parental income cut-off that prevents a student from qualifying for student aid. Eligibility is determined by a formula that besides income includes factors like age of parents, especially the older parent and family size.
2. By filling FAFSA, students are automatically applying for state funds, as well as aid from the school.
3. Almost all of the federal student aid programs do not consider a student’s grades for eligibility. A basic record of satisfactory academic progress is enough.
4. Age is not a criterion for federal aid.
The basic eligibility for Federal student aid:
• Be a U.S. citizen or Green Cardholder
• Have a valid Social Security number
• Be working toward a degree or certificate
Types of Federal Aid
1) William D Ford Direct Stafford Loans - The Direct Unsubsidized Loan
This loan is available to MBA students who are enrolled at least half-time. Students can borrow a maximum amount of $20,500 per year, at a reasonable, fixed interest rate of 6.8%, and students do not need to demonstrate financial need to be eligible.
The repayment period begins 6 months after graduation, leaving the university, or dropping below the specified half-time enrollment, which varies from program to program. The Department of Education is the lender, and interest starts accruing from the date of release of the loan.
The interest payment can be deferred until the repayment period starts, and the interest amount is capitalized.
Students must note that there is a fee of 1% of the loan amount, which is deducted from the amount paid – only 99% of the loan request is paid to the school. The loan requested for must include this amount.
No collateral, credit check, cosigner, or endorser is required for the Direct Unsubsidized Loan to be sanctioned.
Do note that students cannot cross a total credit of $138,500, which includes undergraduate subsidized / unsubsidized loans.
2) The Federal Direct PLUS Loan
MBA students who are enrolled at least half-time can avail of the Direct Plus loan that has a fixed interest rate of 7.9%. The maximum amount that can be borrowed is calculated by deducting financial aid received from the total cost.
Expenses that can be included under the cost of attendance are tuition, room, board, institutional fees, books, supplies, equipment, dependent child care expenses, transportation commuting expenses rental or purchase of a personal computer, loan fees and other documented, authorized costs.
Repayment must begin 2 months after the final loan installment is disbursed. The borrower must repay the Department of Education, and interest accrues from the date of disbursement of the loan. If it is not paid until the repayment starts, the total interest is added to the capital amount.
A loan fee of 4% of the principal amount is charged, which is proportionally reduced from each loan disbursement.
If the student has an adverse credit history, an endorser without an adverse credit history must be obtained to avail of the loan. No collateral is required.
• Any credit repayment delayed by 90 days or more
• Any of the below in the last five years: default, foreclosure, tax lien, bankruptcy, discharge, repossession, wage garnishment, write-off of a Title IV debt or open collection.
3) The Federal Direct PLUS Loan for Parents
Students have the option of getting their parents to pick up loans on their behalf. For parents who are inclined to do so, the loan conditions are identical to the students’ Direct Plus Loan, except that the parent is responsible for loan repayment. In case the parent has an adverse credit history, an endorser without an adverse credit history must be found.
4) Federal Direct Consolidation Loan
The Direct Consolidation Loan allows students to combine two or more federal student loans. This simplifies the repayment process by allowing one consolidated monthly payment. Such a loan will have a fixed interest rate, calculated based on the weighted average of all the interest rates involved, rounded up to the nearest one-eighth of 1%. It cannot exceed 8.25%.
The repayment period can be extended, in some cases up to 30 years, alternative repayment plans may be opted for and any variable interest rate loans can be moved to a fixed interest rate.
On the other hand, more payments may have to be made and the total interest paid may increase.
Once loans are combined, they cannot be separated. In addition, a PLUS loan made to a parent cannot be transferred to the student by consolidation.
There are various flexible and highly convenient options to repay the loan. If a student can prove that the below repayment plans are unable meet his or her special circumstances, an alternative repayment plan may be possible. The repayment plans can be changed at any time after the loan repayment has begun.
Standard Repayment Plan
• Fixed monthly payments to repay the loan in full within 10 years
Graduated Repayment Plan
• Start with lower payments which gradually increase over time to repay the loan within 10 years
• No one payment can be more than three times any other payment.
Extended Repayment Plan
• The loan is repaid in a period not exceeding 25 years
• One can choose to make fixed or graduated monthly payments
Income Contingent Repayment Plan
• The monthly payment will be based on factors like annual income (including spouse's), family size, and the total of Direct Loans
• Until the information required to calculate the monthly payment amount is available, the payment will equal the interest accrued
• As income changes, the payments may change
• If the loan is not repaid in 25 years, the unpaid portion will be forgiven. Income tax on the outstanding amount may have to paid Income-Based Repayment Plan
• Monthly payment will be based on income during any period when a partial financial hardship occurs.
• Monthly payment amount can be adjusted annually
• The loan must be repaid within 10 years.
• Under certain circumstances over a 25-year period, the outstanding balance on loans may be cancelled
The repayment of the loan may be deferred for:
1. The period of studies
2. A period of up to 6 months after graduation
3. Up to 3 years in case of unemployment / financial difficulty
4. Service in the Government / Armed forces / Peace Corps / Certain other volunteer work
1) Student Aid
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