Welcome to the “Educational Loans” section of our Website, and join us for an overview of one topic that most college students have to consider while financing their education.  An educational loan is one of the most valuable resources for students and parents, and it has been since it was first introduced into federal legislation to the Congress of the United States in the late 1950’s, in response to the launch of  “Sputnick.”

Educational loans were developed specifically for college students and parents and are repayable at competitively low interest rates.  They are simple to apply for (via the FAFSA), are readily available, and generally offer a variety of repayment options.  The majority of loans that are based on financial need, the subsidized ones, require no repayment of principle or payment of interest while the student is in school, as long as he/she is attending at least half-time (generally six credits per term).  Unsubsidized loans require quarterly interest payments (not principle) while the student is in attendance.  The principle on both a type of loans become repayable after a grace period, generally after the student graduates or enrolls for less than six credits per term. 

For college students and parents, the two largest educational loan programs are the William D. Ford Federal Direct Student Loan Program, and the Federal Family Educational Loan Program (FFELP).  Long Island University offers loans through the Federal Direct Student Loan Program, and also offers loans through the Federal Perkins Student Loan and for pharmacy majors, the Health Professions Student Loan Programs.  The federal government guarantees all of these loans, and most are based on demonstrated financial need.

To help our students and parents become informed borrowers, we offer the following information on the educational programs.  We have provided information that we hope will explain loan borrowing from the application process through the repayment process, and hope that we can help families make the best loan choices for their student. This and additional information is also available in our publication “Financial Aid Guide” which is sent to all students with their award notices each year.

Interest Rates, Loan Fees, and Capitalization:

All of the educational loan programs have interest rates that are calculated on the principle amount borrowed.  Interest rates differ from one loan program to another.  Also, there are fees attached to borrowing loans, much like the fees charged when applying for a mortgage, etc.  The following is provided to give general information regarding interest rates, loan fees and capitalization.
The interest rates for the Federal Direct Subsidized and Federal Direct Unsubsidized Student Loans are variable.  This means that the interest rate changes from one year to another.  The interest rate on the Direct Subsidized and Unsubsidized Loans is variable and is adjusted once a year, on July 1, based on the 91-day U.S Treasury bill plus an add on percentage. The rate will never exceed 8.25 percent.
The Federal Direct PLUS Loan interest rate is also variable, but cannot exceed 9%.  The interest rate is also adjusted July 1st of every year.

Federal Perkins Loans and Health Professions Students Loans are both repayable at a 5% fixed interest rate.

Information on current interest rates and how they are determined for the Federal Direct Student Loan Programs is available at http://www.dlssonline.com/helpcenter/calcint/help_currentintrates.asp
The actual interest rate and loan fee will be included in a disclosure statement provided after the first disbursement has been made on the loan.

• The interest on a Direct Subsidized Loan is paid by the federal government while you are enrolled in school at least half time, and during grace and deferment periods.

• If you borrow a Direct Unsubsidized Loan, you are responsible for paying all of the interest that accumulates on the loan even during grace and deferment periods. You don't have to pay the interest right away. But if you postpone paying the interest, it may cost you a significant amount of money over the life of your loan. Why? Because the interest is capitalized. In other words, it is added to your principal balance and you end up paying interest on interest.

Loan fees:

The loan fee charged for Direct Subsidized and Unsubsidized Loans is 3 percent of the amount you borrow. The loan fee is subtracted proportionately from each loan disbursement.
The following is an example of the fees that are deductible on Federal Direct Student Loans:

Capitalization:

Once repayment begins, interest is charged on this new principle balance (which includes the interest not paid) – hence, the borrower is paying interest on interest.

Interest costs on a Federal Direct Unsubsidized loan begin accumulating the date the loan proceeds are disbursed, and continue to accumulate until the principle and interest are paid in full.