Education loans are to be used for tuition, fees and living expenses while in school, and must be repaid, with interest. They generally have relatively low interest rates and deferment and repayment provisions that allow students flexibility when it comes time to repay the loans. Students can use these education loans to meet their tuition and living expenses by borrowing up to the cost of attendance, minus any financial aid (merit awards, grants and scholarships) they receive during an academic year. At Fordham Law School, students can apply for federal loans and private loans.
Federal education loans are guaranteed by the government, have fixed interest rates, flexible repayment options, deferment/forbearance, loan forgiveness and cancellation benefits. There are origination fees associated with all Federal loans.
All Federal loans are now borrowed directly from the Federal government through the U.S. Department of Education. To borrow a Federal education loan, you must be enrolled at least half-time in an eligible degree program, be a U.S. citizen, permanent resident or eligible non-citizen, be registered with Selective Service, if required, and not be in default on a federal student loan. Eligibility for Federal aid is determined by the information you provide in the Free Application for Federal Student Aid (FAFSA). A Federal or state drug conviction may disqualify a student for Federal aid. Students who fail to attain satisfactory academic progress by the end of each academic year will lose federal financial aid eligibility. Federal loans are disbursed directly to the student's tuition account in two installments, at the beginning of the fall and spring semesters.
Private education loans are variable interest rate loans with no Federal guarantees and more stringent credit requirements than the Federal loans. They may be more expensive than the Federal loans; however, a student with an excellent credit history may be able to secure a private loan with more favorable terms than a Federal loan. Before choosing a private loan, you should carefully review the interest rates, fees, repayment options and forbearance options of the various private lenders. Like federal loans, private loans generally are disbursed directly to the student's tuition account, usually in two installments prior to the beginning of each semester. To borrow a private loan, you must apply directly with a lender of your choice.
Federal Direct Unsubsidized Loan | Federal Direct Graduate PLUS Loan
There are two types of Federal Loans Fordham Law students may borrow: the Federal Direct Unsubsidized Loan and the Federal Direct Graduate PLUS Loan. Students should borrow the Direct Unsubsidized Loan first and, if there is additional unmet need, then borrow the Direct Graduate PLUS Loan.
(As of July 1, 2012, graduate students were no longer eligible to borrow the Federal Direct Subsidized Loan.)
The Federal Direct Unsubsidized Loan is not need based. There is no credit check performed for Direct Loan borrowers. The maximum a student can borrow in a Federal Direct Loan is $20,500 per academic year. As of July 1, 2014, Direct Loans will have a fixed interest rate of 6.21% for the life of the loan. In the future, the interest rate may fluctuate depending on the academic year but will remain fixed on the particular loan. Thus, loans borrowed at Fordham Law School may have interest rates that differ from each other. Interest will be charged from the date the loan is disbursed to the student's tuition account. Students may pay the interest that accrues on the Federal Direct Loan while in school or defer repayment of the interest. Paying the interest while in school would result in considerable savings over the life of the loan. If unpaid, the interest will be capitalized, i.e., added to principal, at repayment, and future interest will accrue on this higher principal balance.
The U.S. Department of Education charges a 1.072% origination fee for all of its Direct Loans, and the fees are deducted prior to disbursement. Direct Loans are disbursed in two equal installments: one-half at the beginning of the fall semester, and the remaining half at the beginning of the spring semester.
There is a six-month grace period on the Direct Loan which begins the day after you graduate, leave school, or drop below half-time enrollment. Repayment begins at the end of the grace period. Generally, you will have 10-25 years to repay your Direct Loans, depending on the repayment plan you choose.
The Federal Direct Graduate PLUS Loan, usually referred to as the Grad PLUS Loan, has the same eligibility requirements as the Direct Loan; however, this loan is a credit-based loan available to law students who have an absence of adverse credit. As of July 1, 2014, Grad PLUS loans will have a fixed interest rate of 7.21% for the life of the loan. In the future, the interest rate may fluctuate depending on the academic year but will remain fixed on the particular loan. Grad PLUS Loans accrue interest from the date the loan is disbursed to the student's tuition account and carry an origination fee of 4.292% which is deducted at disbursement. Accrued interest can be paid while you are in school or it will be capitalized, i.e., added to principal at repayment. Loan repayments can be deferred while in school at least half time. These loans do not have a grace period. Repayment will begin within 30-60 days after graduation, and you will have 10-25 years to repay these loans, depending on the repayment plan you choose. Repayment of your Direct Grad PLUS Loan may be aligned with repayment of your Federal Direct Loan by requesting a forbearance on repayment. Interest accrued during periods of forbearance will be capitalized.
Credit approval is based on federally mandated criteria. Please note that the Department of Education recently changed its credit criteria. The recent changes are listed in bold below. In order to qualify, you must not have any of the following items on your credit report:
- Bankruptcy (Chapters 7, 11 or 12 within the past 5 years);
- Voluntary surrender within the last 5 years;
- Repossession within the last 5 years;
- Foreclosure proceedings started;
- Foreclosure within the last 5 years;
- Deed in lieu of foreclosure;
- Accounts currently 90 days or more delinquent;
(a) Unpaid collection accounts;
(b) Charge offs/write offs;Wage garnishment within the last 5 years;
- Defaulted loan that has been claim paid;
- Lease or contract terminated by default; or
- County/State/Federal tax lien within the past 5 years.
Credit approval is valid for 90 days. Your credit is evaluated each time you request a new loan unless you have had a credit decision within the preceding 90 days. If you think you may have adverse credit, you may want to obtain your credit report in advance of applying for a Direct Grad PLUS Loan.
If you are denied credit, your options are to:
- Apply for the loan with an endorser, who is a credit worthy loan co-signer
- Reapply after you correct any invalid information on your credit report
- Appeal, based on extenuating circumstances, with Applicant Services at: 1-800-557-7394 (or 1-8770461-7010 TDD) Monday - Friday 8:00 a.m. to 8:00 p.m. The appeal process requires an applicant to document, to the satisfaction of the Department of Education, that either (1) the information causing the adverse credit decision is incorrect or has been corrected OR (2) there are extenuating circumstances relating to the adverse credit history.
Correspondence will be sent to Direct Grad PLUS Loan applicants who receive an adverse credit determination. Instructions regarding the denial of your application and securing an endorser for the loan will be included. Please note that while we are glad to guide you through the process, our office has no control over credit decisions determined by the Department of Education.
Private education loans may be available to students who have very good credit. We do not recommend or endorse the use of private loans but recognize this is an option for you. Private loans differ from federal loans in several significant ways:
- Private loans are not federally guaranteed and not regulated or monitored by the U.S. Department of Education.
- Interest rates are variable, usually with no cap (the rate can go up or down any time after you borrow).
- Processing fees may be higher than federal loans.
- Private loans are issued only to students who have good credit
- Credit worthy co-signers may be required if the student has bad credit.
- Since there is no guarantee or subsidization, private loans are usually more expensive.
- Repayment periods may be longer, resulting in higher interest costs.
- Private loans have no deferment option, but lenders may offer forbearance.
- Private loans are not forgiven in the event of death or disability.
- They may not be consolidated with Federal loans.
- Private loans are not eligible for Federal Public Service Loan Forgiveness.
We recommend you maximize your eligibility for Federal Direct Unsubsidized and FederalGrad PLUS Loans before considering a private loan.
Which Private Loan is Best?
A common question we are asked is, "which private loan is best?" Unfortunately there is no easy answer. As with many things financial, the honest answer is, "it depends". On what does it depend?
One factor is interest rate. This one appears obvious, but it is not. Lenders obtain their funding in a number of different ways. Some borrow it, some take the loans to the financial markets, and some take it from other assets of their corporation. Not surprisingly, these funds may have different costs to the lender. Lenders then often set interest rates to reflect the "index" at which they borrow. Private educational loans may be indexed to the Prime Rate, (Prime), the London Interbank Offering Rate (LIBOR) or the US short term note, the 91-day Treasury Bill (T-bill).
Visit bankrate.com/brm/ratehm.asp for the current rates on these major indices. Lenders may use other indices (10 year T-Bill, various mortgage bond indices, and others) but most are using Prime, LIBOR or the short-term 91-day T-bill. A "spread" is the additional interest that is added to the index rate. It is the combination of the spread and the interest rate that should be considered as you estimate the actual interest rate. When estimating and comparing the interest rates, be sure to add the spread to the index.
Another factor is the fees that the lenders charge. Lenders build default insurance costs into to the interest rates. There are lenders who may assess the fees based on the risk of default, as estimated by the borrower's credit score. The less risky the loan, the lower the fees.
Because of the current uncertainty in the credit markets, many lenders have decided to tighten the underwriting of their private student loans and adjust the pricing of these loans. Borrowers will be required to meet higher credit standards and pay a higher price for these loans. If you still wish to borrow through the private sector, it is always a good idea to apply for a private loan with a creditworthy co-signer who has excellent credit in order to get the best deal.
Grace periods on private loans range from 6 to 9 months, although you may begin repayment earlier, if you wish. Many of the lenders have overall borrowing limits including undergraduate borrowing. These limits are set based on the lender's assessment of the ability of the average law graduate to repay the loans. Generous repayment incentives seem to have gone by the wayside, but all seem to have kept the .25% interest rate reduction for automatic bill payment. Most private loans do not carry penalties for prepayment, but that is worth checking before signing on the dotted line.
Congress has mandated that private loan lenders require borrowers to complete a Private Education Loan Applicant Self-Certification Form when requesting a private education loan. Borrowers must complete the form and send it to the lender with the private loan application. Your cost of attendance and estimated financial aid for the academic year are needed to complete Section 2 of the Self-Certification. This information is available in the Financial Aid section at my.fordham.edu. To access your account, log into my.fordham.edu using your AccessIT ID and password and click on the Financial Aid login. Click on the "Awards" tab. Listed there will be your total budget for the academic year and your estimated financial aid for the year. You will be required to fill in the difference between these two figures on line C of the Self-Certification form.