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Where Does Federal Student Loan Money Come From

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Questions About Your Financial Aid

Do you have federal student loans? The government is offering payment relief until Dec. 31 for t…

If you are a bit confused about your financial aid package, and when you can expect disbursements, its best to schedule an appointment with your financial aid office. They can explain each type of aid you have received, and let you know more about the disbursement schedules for each.

This is definitely one of the more confusing parts of financial aid. This is your education and your future. Questions are not uncommon, so dont be afraid to ask.

The Federal Government As Creditor

Outstanding consumer debt in the U.S. reached $4.4 trillion in November 2021. That figure represents an increase of nearly $1.9 trillion since 2010. The main culprit is student loans, which the federal government effectively monopolized in a little-known provision of the Affordable Care Act, signed into law in 2010.

Prior to the Affordable Care Act, a majority of student loans originated with a private lender but were guaranteed by the government, meaning taxpayers foot the bill if student borrowers default. In 2010, the Congressional Budget Office estimated only 55% of loans fell into this category, compared to about 93% today.

Prior to the administration of Bill Clinton, the federal government owned zero student loans, although it had been in the business of guaranteeing loans since at least 1965. Between the first year of the Clinton presidency and the last year of George W. Bush’s administration, the government slowly accumulated about $670 billion in student debt.

Those figures have exploded since 2009. The U.S. Department of the Treasury revealed in its 2020 annual report that student loans accounted for nearly 20% of all U.S. government assets.

Age Differences In Student Loan Debt

According to an analysis by CNBC, when broken down by age, the highest student debt loads are carried by adults between the ages of 25 and 49, with the lowest debt loads carried by adults aged 62 and older.

As of 2021 approximately 7.8 million Americans below the age of 25 carry student loan debt, with an average balance of almost $15,000. Within the group with the largest amount of student debt, adults between the ages of 35 and 49, the average individual balance owed exceeds $42,000, with the average debt load for adults between the ages of 50 to 61 being only slightly lower. These balances are composed of the balance of the debt that adults owe for their own education, and additional amounts they borrow in order to finance their children’s college educations.

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Read And Follow The Steps In This Guide

Failure to complete each step in a timely fashion and in the order given will cause your loan to be delayed or denied.

Before August 23, 2022: Submit your 2022-2023 FAFSA online with Sciences Pos federal school code indicated . Then send scans of your passport, Sciences Po acceptance letter, and French bank account RIB via .

Before August 27, 2022: Complete the required Entrance Counseling and Master Promissory Note at studentaid.gov. You must select Sciences Po as the school you plan to attend. Entrance counseling must be completed every year for each type of loan and an MPN must be completed for each individual loan application.

To successfully complete your MPN, be sure to have available your Social Security Number and the name, address, and telephone number of two references not living at the same address with whom you will keep in contact for the next five years.

Before September 9, 2022: Print, complete, sign and scan the 2022-2023 Federal Direct Loan Program Award Letter which you will receive in early September. The Award Letter must be returned via

Who You Need To Repay

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You may have loans or lines of credit that you need to repay to the government and/or your financial institution.

In some provinces and territories, Canada Student Loans are issued separately by the federal and provincial or territorial governments. This means that you could have more than one loan to pay back.

Verify your contracts to determine where your debt comes from and where you need to repay it.

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Q Are Student Loan Burdens Economically Handicapping An Entire Generation

A. More adults between 18 and 35 are living at home, and fewer of them own homes than was the case for their counterparts a decade or two ago. But these trends are mostly due to these folks entering the work force during the Great Recession rather than due to their student loans. Federal Reserve researchers estimate that 20% of the decline in homeownership can be attributed to their increased student loan debt the bulk of the decline reflects other factors.

Which Programs Are Eligible

Students enrolled full-time in any two-year masters programs taught on site at Sciences Po are eligible to apply for federal loans.

Federal loans are not available to help fund Sciences Po one year Masters programs, executive education programs, summer programs or summer internships.

Students may not borrow federal loans to fund a gap year .

Warning for second year students: In compliance with Dept of Ed regulations, students enrolled at Sciences Po must choose a study program which does NOT include a semester of study abroad or internship in the US.

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Q Who Is Doing All This Borrowing For College

A. About 75% of student loan borrowers took loans to go to two- or four-year colleges they account for about half of all student loan debt outstanding. The remaining 25% of borrowers went to graduate school they account for the other half of the debt outstanding.

Most undergrads finish college with little or modest debt: About 30% of undergrads graduate with no debt and about 25% with less than $20,000. Despite horror stories about college grads with six-figure debt loads,only 6% of borrowers owe more than $100,000and they owe about one-third of all the student debt. The government limits federal borrowing by undergrads to $31,000 and $57,500 . Those who owe more than that almost always have borrowed for graduate school.

Where onegoes to school makes a big difference. Among public four-year schools, 12% ofbachelors degree graduates owe more than $40,000. Among private non-profitfour-year schools, its 20%. But among those who went to for-profit schools,nearly half have loans exceeding $40,000.

Among two-year schools, about two-thirds of community college students graduate without any debt. Among for-profit schools, only 17% graduate without debt .

Students In Professional Programs

40,000 federal student loan borrowers will receive loan forgiveness

Most charter banks in Canada have specific programs for students in professional programs that can provide more funds than usual in the form of a line of credit, sometimes with lower interest rates as well. Students may also be eligible for government loans that are interest free while in school on top of this line of credit, as private loans do not count against government loans/grants.

The March 2011 federal budget announced a Canada Student Loan forgiveness programme for medical and nursing students to complement other health human resources strategies to expand the provision of primary health services. The programme is meant to encourage and support new family physicians, nurse practitioners and nurses to practise in underserved rural or remote communities of the country, including communities that provide health services to First Nations and Inuit populations.

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If Youre Having Trouble Repaying

If you need help with repaying your Canada Student Loan, you may qualify for the Repayment Assistance Plan .

If youre having trouble repaying a provincial student loan, contact your student aid office. For repayment assistance with a loan or line of credit provided by your financial institution, contact your branch to determine what your options are.

Understand that by making your payments smaller, it will take you longer to pay back your loan. Youll end up paying more interest on your loan.

If you consider refinancing or consolidating your student loan, note that there are important disadvantages.

If you transfer your federal or provincial student loan to a private lender, you will lose any tax deductions on your student loan interest. You wont qualify for the interest free period while you’re in school and will end up paying more interest over time.

How Does Financial Aid Disbursement Work

Your school is heavily involved in this process. Not only did they help you determine how much aid you are eligible for, they also manage the disbursements. In the case of financial aid, the payment of money comes from your aid source , and in most cases, will be paid directly to your school.

Thats right, your school. Federal and private student loans are sent directly to the school on your behalf. The aid goes to pay your direct costs owed to your school like tuition and fees. Depending on the type of aid you were awarded, you may receive multiple disbursements which will add up to the full amount you were awarded for the year.

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So Are Federal Or Private Student Loans Disbursed Directly To The Student Or To The School

Well, it depends. Most financial aidincluding scholarships, grants, work-study paychecks, and loanswill go directly to the school, where its applied to your tuition payments, college fees, on-campus housing payments, and more. Once all outstanding college expenses are paid for, those funds can be transferred to you for everyday living expenses.

That being said, some scholarship or loan options will let the funds go directly to you, the student. Many find this ideal since they can determine what they do with the funds. Others find that sort of control a bit too tempting to spend the money on more superfluous thingswhich is exactly why so many financial aid sponsors opt to send directly to the school in the first place.

So, in short, both options are out there, but more than likely the money will be sent directly to your school instead of your own bank account.

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There Are Reasonable Ways To Pay Your Debts Already

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First, income-based repayment programs already provide substantial benefits, and are clearly fairer to everyone. Income-based repayment plans generally provide for loan repayments of 10 percent of discretionary income , with amounts unpaid after 20 years paid by taxpayers.

These loans include subsidized and unsubsidized undergraduate loans, as well as PLUS loans when theyre taken out by graduate students to cover costs that exceed the maximums of the direct student loan programs. Parents who have taken out PLUS loans can also get in on this, but they have to pay 20 percent.

Whats more, Biden has proposed making this program even more generous, by reducing the repayment rate from 10 percent to 5 percent of discretionary income, increasing the income threshold to a minimum of $25,000, and removing tax obligations on the post-20-year taxpayer payoff. One suspects a GOP Congress might find a 5 percent repayment level excessively generous but agree to a compromise such as bend points similar to marginal tax rates, such as 5 percent of income above 150 percent of poverty, 10 percent of income above 300 percent of poverty.

Other reasonable proposals exist, such as increasing the accessibility of debt discharge-ability in bankruptcy, for cases in which the borrower clearly cannot benefit from the education for which the debt was incurred, especially for those who were unable even to graduate, to target any benefits to those who most need them.

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Federal Direct Plus Loan

Grad PLUS and Parent PLUS loans are available to graduate students and parents of dependent undergraduate students. PLUS loans arent subsidized, so interest will start accruing as soon as the loan is fully disbursed. Repayment can be deferred while the student is enrolled in college and for six months after graduation.

How Student Debt Affects Your Credit Score

Student loans and lines of credit form part of your credit history. If you miss or are late with your payments, it can affect your credit score.

Your credit score shows future lenders how risky it can be for them to lend you money. A poor credit score can also affect your ability to get a job, rent an apartment or get credit.

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How Does Interest On A Student Loan Work

Because youre not just paying back the amount you borrow, youre paying back interest as well, its important to understand how much that will add to the total amount you pay.

How much you pay in interest depends on a number of factors: whether your loan is subsidized or unsubsidized, the interest rate on your loan, the amount you borrow, and the loan term.

For example, you graduate with a $10,000 loan with a 5% interest rate and plan to pay it off over 10 years. You will pay $2,728 in interest over the 10 years that you repay the loan. Your monthly loan payment will include both payments to reduce the principal balance and interest payments. The total amount repaid will be $12,728 including both principal and interest.

Interest generally continues to accrue during forbearances and other periods of non-payment. So, if you take a break on repaying your loans or skip a loan payment, the total cost of the loan will increase, and not just because of late fees.

Loan payments are applied to the loan balance in a particular order. First, the payment is applied to late fees and collection charges. Second, the payment is applied to the interest that has accrued since the last payment. Finally, any remaining money is applied to the principal balance. So, if you pay more each month, you will make quicker progress in paying down the debt.

You can use a loan calculator to help you calculate exactly how much youll pay in interest.

If You Dont Have One Get A Bank Account

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If you can get a bank account, it will be easier to get your financial aid refunds from your school . And having a bank account will keep your money safe. You can pick any bank you want. You dont need to pick your schools bank or credit union. Its worth noting that many banks offer student accounts with no fees or minimum balance requirements.

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Private Undergraduate Student Loans

Private student loans for undergraduate students function similarly to other types of private loans in that a credit and income review will be required to determine your ability to repay the loan. This review can also affect the interest rate on your loan. Since most undergraduate students have not yet established a credit history or have a steady income, it is often necessary to apply with a cosigner.

Learn more about .

Refinancing Federal Loans To Private

In some cases, borrowers might choose to refinance federal loans to private. This option is usually exercised to obtain a lower interest rate or to release a cosigner from their obligation to the loan. However, when you switch from a federal repayment program to a private one, your loan might be subject to the fluctuations of variable interest rates and you will no longer be eligible for the protections and benefits, like income-based-repayment and loan forgiveness.

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How Much Do Student Loans Cost

Congress sets federal student loan interest rates, which are different depending on the type of federal student loan you borrow. For instance, if you have a direct unsubsidized loan and a direct PLUS loan, youll pay different interest rates for both.

Here are the interest rates on loans for the 2020-2021 school year:

  • 2.75% for direct subsidized and unsubsidized loans for undergraduates
  • 4.3% for direct unsubsidized loans for graduate and professional students
  • 5.3% for direct PLUS loans for parents of dependent students, graduate students and professional students

Your federal student loans consist of the principal, or the amount you borrowed, plus interest.

Once youve taken out your loan, the interest rate will not change. If you eventually combine your federal loans using a direct consolidation loan, the interest rate will be the average of your original loans rates rounded up. The only other time your interest rate changes is if you refinance your student loans.

Private student lenders determine your interest rate based on creditworthiness, or that of your co-signer, if you have one. Many private student loans also charge fees, like origination or late fees. While federal student loans have fixed interest rates that dont change over the life of the loan, private student loans generally offer variable interest rates. This means your interest rate can fluctuate based on market conditions. Theyre typically tied to an index, like the Prime rate or LIBOR.

Stafford Loan Aggregate Limits

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Students who borrow money for education through Stafford loans cannot exceed certain aggregate limits for subsidized and unsubsidized loans. For undergraduate dependent students, the maximum aggregate limit of subsidized and unsubsidized loans combined is $57,500, with subsidized loans limited to a maximum of $23,000 of the total loans. Students who have borrowed the maximum amount in subsidized loans may take out a loan of less than or equal to the amount they would have been eligible for in subsidized loans. Once both the subsidized and unsubsidized aggregate limits have been met for both subsidized and unsubsidized loans, the student is unable to borrow additional Stafford loans until they pay back a portion of the borrowed funds. A student who has paid back some of these amounts regains eligibility up to the aggregate limits as before.

Graduate students have a lifetime aggregate loan limit of $138,500.

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