Understanding the Grad Plus Loans and FFELP. And what is an origination fee?

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In addition to the Stafford Loans, the grad plus loans have become increasingly popular for medical students. Based on Wikipedia and other sources… As of July 1st of 2006, federal grad PLUS loans were made available for graduate and professional students to borrow. Some important points about the grad PLUS

• It is an unsubsidized federally guaranteed education loan with no annual or aggregate limit.
• It has no grace period and goes into repayment as soon as funds are disbursed to the borrower
• it has same deferment and forbearance options as the federal Stafford loan programs.
• loans are fixed at 8.5% and many lenders offer benefits to reduce this interest rate during repayment
• during deferrment or forbearance, interest can accrue and will be capitalized at end of deferment or forbearance period.
• There is a 3% origination fee attached to the loan that due to regulations, cannot be paid by the lender on the borrower’s behalf.

What is the FFELP? It stands for Federal Family Education Loan Program. It is a DOE program that provides for private organizations (your lenders) to market, originate, and service federally guaranteed loans like Stafford and PLUS loans to students. It complements the “Direct” program or the Federal Direct Student Loan Program.

So what is the Federal Direct Student Loan Program or “direct”? It is another DOE program that pays for students after high school. If you are under “Direct” you are not under FFELP. In all sense and purpose, you don’t need to worry about this too much. Both programs facilitate Stafford and PLUS. The big difference between the two and you may be asked…do you want Direct or do you want PLUS? The question is do you want the Department of Education to be your lender directly or do you want a private or public or nonprofit company to be your lender ala sallie mae, northstar, citibank, etc?

for more information- check out

FSA - direct loans

Origination Fee = is a fee to establish a new loan that is paid to the bank or loan broker. The fees are usually measured in terms of points. For mortgages, the points range from 0.5 to 2 points meaning 0.5 to 2 percent of the total loan to borrow. For stafford loans, most places you can get 0% origination.

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