The first step to managing your student loan debt is understanding what types of loans you have. Many repayment options and other programs are available for only certain types of loans, so you need to know which type you have. This article covers the most common types of federal loans.
(If you are struggling with student loan debt, after you figure out what types of loans you have, see our Student Loan Debt area. You can get information on loan cancellation, deferment, and more.)
In the past, most student loans were provided by private lenders and guaranteed by a guarantee agency and then by the federal government—these are called Federal Family Education Loans (FFELs). The “guarantee” means that the government will reimburse your lender if you default, and can then go after you to collect on the loan.
In 1993, the federal government began providing loans directly to students—called Direct loans. As of July 2010, FFELs are no longer available to students. However, if you (like many Americans), took out a student loan prior to July 2010, you very well may have a FFEL. Through these and other programs, the federal government provides about 70% of all student aid.
Guaranty agency. A guaranty agency is a state or private nonprofit company that insured your loans and pays the holder if you default.
Loan holder. The holder owns your loan or was hired by the owner to service it (that is, collect and process payments). Your loan holder may be your lender or a company that has purchased your loan from the lender. If you’re in default, the holder will be a guaranty agency, the Department of Education, or a collection agency working for the Department.
Sometimes finding out who holds your student loan is tricky. To learn how to do this, see Who Is My Student Loan Holder?
Lender. The lender is the institution from which you obtained your loan. This may be a bank, a savings and loan, a credit union, your school, or the federal government.
Here are the details of FFELs, Direct loans, and other common federal loans.
FFELs may be one of the following:
Stafford loans are the most common; they help pay for college or graduate school education. These loans have been around in one form or another since the 1960s. If a student qualifies for a “subsidized” Stafford, the student does not have to pay any interest on the loan for the time the student is in school or after leaving school, in the grace period.
As of July 2010, FFEL loans are no longer available. So, if you got your loans after June 30, 2010, they are not FFEL loans.
Direct loans were first made available in about 1993. These loans are made directly by the federal government, rather than by a bank or other lender. Direct loans may be a:
Direct loans have had a more favorable repayment option then FFELs for students who do not have sufficient income to pay the standard payments. But as of July 2009, both types of loans will have similar flexible repayment plans available.
Most existing federal loans are either FFELs or Direct loans. (As mentioned above, loans made after June 30, 2010 cannot be FFELs.)
A Perkins loan is a low-interest loan for under-graduate or graduate students with very low incomes. These loans were previously known as National Direct Student Loans, and before that, National Defense Student Loans. The federal government guarantees repayment of Perkins loans but, unlike other loans, Perkins loans are made by the school with a combination of federal and school funds. This means that the school, not a bank or the government, is the lender.
These loans are available to creditworthy parents and graduate and professional students. These loans are either federally guaranteed or direct federal loans.
There are many other types of federal loans, including loans for independent students, professionals, and nursing students. To find out more, contact your lender or the Federal Student Aid Information Center at http://studentaid.ed.gov.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.