Education Loans

You may be wondering - what is the difference between a loan and other types of financial aid? The first difference is that loans, while helping you pay for college, must be repaid…with interest. Now do not get discouraged. Most loans do not have to be repaid until after you graduate. You can find a loan that fits your needs.

Federal Education Loans
Federal education loans represent the largest type of financial aid (approximately $70 billion a year). Federal loans typically have lower interest rates and longer repayment terms than other types of loans - and numerous provisions to assist borrowers with repaying their debt.

Even with favorable government-provided terms, education loans can represent a significant financial obligation. And loans - unlike grants and scholarships - must be repaid.

Federal Perkins Loans
Federal Perkins Loans are low-interest loans for both undergraduate and graduate students with exceptional financial need. The loans are made through the school's financial aid office with funds provided by the government. Loan funds will either be paid directly to the borrower or applied to outstanding school costs. Students can borrow up to $4,000 for each year of undergraduate study with a $20,000 total limit for undergraduate study. These loans must be repaid.

Not all post-secondary institutions participate in Perkins and amounts available for Perkins loans may vary. Perkins loan funds are usually awarded to the first students who apply.

Perkins loan borrowers are usually not required to make payments as long as they are enrolled at least half time. A nine-month “Grace Period” is offered after borrowers graduate, leave school, or drop below half-time enrollment status.

Federal Family Education Loan Program (FFELP)
The Federal Family Education Loan Program (FFELP) is by far the largest federal education loan program. Nearly 80% of post-secondary institutions that offer federal loans participate in FFELP due to its long record of reliable service for students and schools. ISM is a participant in FFELP.

Types of FFELP loans include:

Subsidized and Unsubsidized Stafford Loans
PLUS loans for Parents
PLUS loans for Graduate and Professional Students
Consolidation Loans

FFELP Loans are made by private financial institutions and state-based not-for-profit organizations like ISM. Lenders share part of the risk of non-repayment with the federal government. In addition, FFELP guarantor agencies actively assist lenders in encouraging borrowers to repay, offering numerous provisions to assist borrowers who are having difficulty meeting their financial obligations.

Amounts that can be borrowed are based on the how far the borrower has progressed toward completing his/her education.

Federal Stafford Loans
Federal Stafford Loans are available to both undergraduate and graduate students. The current interest rate is fixed at 6.8% and repayment is delayed until six months after the borrower is no longer enrolled on an at least half time basis.

There are two types of Federal Stafford Loans:

Subsidized Stafford Loans

The federal government pays interest on Subsidized Stafford loans when the borrower is enrolled as an at least half time student at an eligible institution, during the borrower's 6-month grace period following enrollment, and during periods when payments are deferred. Eligibility for Subsidized Stafford loans is based on financial need as determined from completion of the FAFSA.

Unsubsidized Stafford Loans

Unsubsidized Stafford loans are offered on the same terms as Subsidized Stafford loans - except the borrower is responsible for paying the accrued interest rather than the government from the moment the loan is disbursed until the loan is paid in full.

A Note on Interest

Many borrowers decide to let interest accrue on their loans while they are in school and have the accrued interest amount added to their balance when repayment begins. While postponing interest payments may save some cash while in school, the borrower's loan balance could be hundreds of dollars more when repayment begins than it would have been if the borrower had been making interest payments each quarter. And, interest during repayment will be charged on the full amount of the loan(including any capitalized interest), which results in even more total interest being paid.

PLUS Loans for Parents
PLUS loans are offered to parents of dependent undergraduate students. Parents can borrow up to the total cost of their dependent student's education less other aid the student has received. PLUS loan repayment begins within 60 days after the loan is fully disbursed, although many FFELP lenders, including ISM, give parents the option to delay payments until the student completes school, usually with a four year maximum.

Even though parents may be able to delay making payments, interest will continue to accrue on the loan. At the current interest rate of 8.5%, significant amounts of interest could build up over a four-year school period. And if interest is added to the loan balance at the time payments begin, the borrower will pay more total interest over the life of the loan.

In addition to the usual eligibility requirements for all federal loans, parent borrowers are required to prove they are credit-worthy through a credit check. Acceptable credit standards are determined by the government. Like student borrowers, parent borrowers have several options in repaying their loans.

As with all federal loans, PLUS loans must be repaid.

Federal PLUS Loans for Graduate and Professional Students
Graduate and Professional students are now eligible to borrow up to the full cost of attendance less other financial aid. Terms for Graduate PLUS loans are similar to Parent PLUS loans including the requirement that the student is creditworthy.

Even though Graduate and Professional students may be able to delay making payments, interest will continue to accrue on the loan from the moment the loan is fully disbursed until it is paid in full. At the current interest rate of 8.5%, significant amounts of interest can build up over a four-year school period. And if interest is added to the loan balance at the time payments begin, the borrower will pay more total interest over the life of the loan. Like parent borrowers, graduate and professional borrowers have several options in repaying their loans. As with all federal loans, Graduate PLUS loans must be repaid.

ISM Borrower Benefits
Borrower Benefits are offerings from lenders to lower the cost of a student's loan(s). As Indiana's designated not-for-profit student loan provider, ISM has the opportunity to give back to the community. It is our mission to make college attendance more affordable for students.
ISM is committed to providing programs and benefits that help make education more affordable. ISM and its Lending Partners reserve the right to modify programs and benefits and their availability from time to time. Please check with ISM customer service at 1-888-476-2002 if you have questions about your eligibility for specific borrower benefits.

Stafford and PLUS Loan Benefits
Interest rate reductions are offered when the borrower elects to have their monthly payment automatically withdrawn from their checking or savings account.