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Federal Family Education Loans - #84.032


If the lender agrees to make the loan, the application is forwarded to the guarantor for insurance. The lender disburses the proceeds of a Stafford, Unsubsidized Stafford, or PLUS loan to the school or, if the student is attending a foreign school, directly to the borrower. Consolidation Loan proceeds are disbursed directly to the holders of the loans selected for consolidation. In most cases, a loan must be disbursed in more than one installment over the length of the period of enrollment for which the loan was intended, based on a disbursement schedule provided to the lender by the school on behalf of the borrower. This multiple disbursement requirement does not apply to Consolidation Loans. The borrower is required to pay an insurance premium of one percent of the principal amount of a subsidized Stafford Loan, Unsubsidized Stafford Loan, or PLUS Loan. The charging of the insurance premium and the amount is determined by the guarantor. In addition, for a Stafford, Unsubsidized Stafford, or PLUS loan, the borrower is required to pay a three percent 'origination fee' (on loans disbursed on or after July 1, 1994) which is used to help defray program costs. These origination fees are normally deducted proportionately from each disbursement of the loan proceeds. Under the Higher Education Reconciliation Act (HERA) of 2005, these fees were reduced to 2 percent on July 1, 2006; 1.5 percent on July 1, 2007; 1 percent on July 1, 2008; and 0.5 percent on July 1, 2009; or Stafford and insubsidized Stafford. The fees would be eliminated as of July 1, 2010. Plus loans retain a 3 percent origination fee.

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