Loan Options

Section 5

There are five types of loan programs: Federal Perkins, Federal Subsidized Stafford, Federal Unsubsidized Stafford, Federal Graduate PLUS, and private educational loan programs. The maximum amount you may borrow from each loan program is indicated on your Official Aid Notice. Please note this is the maximum amount a student may borrow, not necessarily the amount a student actually needs. Many students live well beneath the maximum amount the school allows. As debt levels increase, we encourage students to think hard about the choices they make with regard to housing, food consumption, and other personal expenses. We encourage you to consider whether you can develop a personal budget that is less than the University’s published student budget. Ultimately, however, it is up to you whether you wish to borrow the full amount of your eligibility.

Applying for Student Loans

Once you’ve submitted your Official Aid Notice, you should visit the Applying for a Student Loan website (https://www.ecmc.org/link/00292000/). There, you’ll be able to apply for one or more of the following loans:

Stafford loans
Graduate PLUS (Grad PLUS) loans
Private (Alternative) educational loans

Each application should conclude with you signing (often e-signing) a Master Promissory Note (MPN). We cannot process your loans without a valid MPN for each loan type. This MPN will be valid throughout your Duke Law enrollment, unless you decide to change lenders.

Entrance and Exit Loan Counseling

The Applying for Student Loans website will also walk you through entrance loan counseling. Federal regulations require that students who borrow Federal Loans complete entrance and exit loan counseling. This counseling informs students of their rights and responsibilities with regard to borrowing under various loan programs. Even if you have received federal loans prior to matriculating at Duke Law School, you must still complete the entrance loan counseling session again. Please note that your federal loan applications will not be processed until you have completed entrance counseling.

Graduating Duke Law students must complete the exit loan counseling session online. Upon request, the Office of Financial Aid provides individual counseling on topics including loan repayment, debt management, and deferments or forbearances.

Loan Programs Comparison Chart

Duke University provides an online loan comparison chart at:

http://finaid.duke.edu/Recommended_Lender_List.html

Students are not required to select a lender from this loan comparison chart; students are free to select any eligible lender for their loans. If you select a lender that is not listed on our loan comparison chart you will need to contact the Office of Financial Aid for instructions on completing your application directly with the lender.

There is a fairly clear hierarchy that students should follow when considering the loan programs outlined below. If students need to finance their education, they should first turn to the federal Stafford loan program. (Some students may be eligible for a limited amount of Perkins loan funding, but these students will turn to the Federal Stafford loan program as their next best option.) Once the student has borrowed the maximum amount allowed through these loan programs, the student has a choice to borrow up to their full cost of attendance using either a Graduate PLUS or private educational loan. This is an important choice for a number of reasons, and thus will be addressed in detail later in this handbook.

Below is a chart that students may find helpful in gaining a general understanding of these loans.

	Perkins Loan	Subsidized Stafford Loan	Unsubsidized Stafford Loan	Grad PLUS Loan	Private Educational Loan
Interest Rates	5% fixed rate	6.8% fixed rate	6.8% fixed rate	8.5% fixed rate	Credit based
Eligibility	Based on financial need	Based on financial need	No income restrictions	No income restrictions	No income restrictions
Annual Loan Limits	Based on availability, up to $6,000 a year (maximum of $40,000, including undergraduate loans) Paid by federal government Interest paid by federal government during nine-month grace period	Up to $8,500 based on financial need demonstrated on the FAFSA	Up to $20,500 minus any Subsidized Stafford Loan eligibility	Cost of attendance less any financial aid awarded	Cost of attendance less any financial aid awarded
In-School Interest	Paid by federal government	Paid by federal government	Borrower Responsibility*	Borrower Responsibility*	Borrower Responsibility*
Grace Period	Interest paid by federal government during nine-month grace period	Interest paid by federal government during six-month grace period	Six-month grace period, during which interest will accrue	No grace period - Graduate/professional student may defer payments while enrolled	Varies by lender and program
Repayment Terms	Repayment begins after grace period $30 minimum monthly repayment Repay your school or its agent Up to 10 years to repay, depending on amount owed	Repayment begins after grace period $50 minimum monthly repayment 10-25 year maximum repayment term (based on total loan balance)	Repayment begins after grace period $50 minimum monthly repayment Repay your school or its agent Up to 10 years to repay, depending on amount owed	1st payment due within 60 days after loan is fully disbursed $50 minimum monthly repayment 10-25 year maximum repayment term (based on total loan balance)	Varies by Lender
*Borrower has option of making interest payments while in school or waiting until repayment begins. Interest not paid during school enrollment will be capitalized one time at the end of grace period.

Federal Perkins Loan

Federal Perkins Loans are long-term loans that are funded through a combination of University and Federal Funds. Funds are limited and are awarded annually by the Law School Office of Financial Aid as part of a financial aid package. Students must file a FAFSA by Duke’s March 15th priority deadline to be eligible for a Perkin’s Loan.

The Perkins loan program is a federal program that offers a fixed interest rate of 5% and deferred interest while students are in law school. The amount of Perkins Loan funding available varies from year to year (the maximum amount a law student may be awarded each year is $6,000, but may vary.) Due to the limited funding of the Perkins loan program, money is awarded to the neediest students based on timely submission of the FAFSA. Financial need is determined by the FAFSA and your Expected Family Contribution (EFC) noted on your Student Aid Report (SAR). A student’s EFC must be below $5,000 to be eligible for the Perkins loan. The March 15th priority deadline for filing the FAFSA must also be met for you to be eligible for this loan. The aggregate Perkins loan limit is $40,000, including funds taken for undergraduate expenses. Perkins loan interest does not begin to accrue until repayment, which begins nine months after the borrower graduates or is no longer enrolled at least half-time. This loan has an automatic 10-year repayment term that can be lengthened up to a maximum of 30 years if consolidated with other federal loans.

Federal Subsidized Stafford Loan

Federal Subsidized Stafford Loans are long-term educational loans that are made on the basis of a government guarantee, and are subsidized by the federal government. No collateral or co-borrower is required. Banks, savings and loans, and other lenders make these loans.

Eligibility: Federal Subsidized Stafford Loans are available to U.S. citizens and permanent residents who are determined to have need according to FAFSA.
Amount: The maximum any graduate/professional student may borrow in a given academic year is $8,500.00.
Cost: For current borrowers, the interest rate is fixed at 6.8%. While students are in school, the federal government pays all interest charges. Depending on the guarantee agency, an additional origination fee of up to 3% and a guarantee fee of up to 1% may be charged to the borrower.
Repayment: Standard repayment terms include a grace period of six months following graduation and an automatic repayment term of 10 years. Students may, at the conclusion of their education, consolidate their subsidized Stafford loans and lengthen the repayment period up to a maximum of 30 years. The federal government pays the principal and interest while the student is in school and during the grace period.
How to Apply: All students will automatically be sent information on how to apply for Subsidized Stafford Loans with their Duke Law School Official Financial Aid Notice.

Federal Unsubsidized Stafford Loan

While the Federal Unsubsidized Stafford Loan is federally guaranteed, payment of accruing interest (while the student is enrolled, and during the grace period) is not subsidized. The program was created to provide loans to middle-income students who did not qualify for any or all of a Federal Subsidized Stafford Loan. Students must file a FAFSA or FAFSA Renewal Application to be considered for this loan.

Eligibility: Federal Unsubsidized Stafford Loans are available to U.S. citizens and permanent residents who have filed a FAFSA. Students should borrow from the Federal Subsidized Stafford Loan program first since it has better terms.
Amount: Students can borrow up to $20,500.00 per academic year, less any amount borrowed through the Federal Subsidized Stafford Loan program.
Cost: The cost of a Federal Unsubsidized Stafford Loan is the same as the cost of a Federal Subsidized Stafford Loan except that the borrower is responsible for accrued interest during the in-school deferment and the six-month grace period. Payments need not be made while the student is in school; and capitalization of interest is available.
Repayment: The standard repayment term is 10 years, unless consolidated with other Federal loans. The repayment term can then extend to 30 years.
How to apply: To apply for a Federal Unsubsidized Stafford Loan follow the same procedures as for the Federal Subsidized Stafford Loan.

Federal Graduate PLUS Loans

Graduate and professional degree students are now eligible to borrow under the PLUS Loan Program up to their cost of attendance minus other estimated financial assistance. The Graduate PLUS loan requires a credit check to ascertain that the applicant does not have an adverse credit history and carries a fixed interest rate of 8.5%. Applicants for this loan are required to complete the Free Application for Federal Student Aid (FAFSA). They also must have applied for their annual loan maximum eligibility under the Federal Subsidized and Unsubsidized Stafford Loan Program before applying for a Graduate/Professional PLUS loan.

Amount: Students can borrow up to the cost of attendance per academic year, less any amount borrowed through the other Federal Loan programs and any scholarships awarded.
Cost: For current borrowers, the interest rate is fixed at 8.5%. There is also 3% origination fee, and a guarantee fee of up to 1%. The borrower is also responsible for accrued interest during the in-school deferment period. Payments need not be made while the student is in school; capitalization of interest is available, though it may be wise to make interest-only payments if possible.
Repayment: Graduate PLUS loans go immediately into repayment upon graduation. The standard repayment term is 10 years, unless consolidated with other Federal loans. The repayment term can then extend up to 30 years.
How to apply: All students will automatically be sent information on how to apply for Graduate PLUS Loans with their Duke Law School Official Financial Aid Notice.

Private Educational Loans

As a general rule, students should only consider obtaining a private educational loan if they have maxed out the Federal Stafford Loans. The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. (The lenders that do not charge fees often roll the difference into the interest rate.) A good rule of thumb is that 3% to 4% in fees is about the same as a 1% higher interest rate.

Be wary of comparing loans with different repayment terms according to Annual Percentage Rate (APR), as a longer loan term reduces the APR despite increasing the total amount of interest paid. It is not uncommon for lenders to advertise a lower rate for the in-school and grace period, with a higher rate in effect when the loan enters repayment.

Private educational loans are credit-based loans so it is important to maintain your credit rating up to and throughout your Law School career. If you are late in paying any of your bills (e.g., credit cards, rent, phone bill, or medical bill) you may be disqualified from receiving private educational loans. The Law School does not have the resources to lend money to students with poor credit histories who are unable to borrow private educational loans. The Office of Financial Aid strongly recommends that you review your credit status. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. They provide free annual credit reports only through annualcreditreport.com. For a fee, you may also request a credit report from each individual agency (websites below.)

Credit reporting agencies to contact:
www.equifax.com
www.experian.com
www.transunion.com

General information website about credit, and credit scores: www.myfico.com

Private Educational Loan vs. Graduate PLUS Loan

Stafford loans are offered at very attractive interest rates and terms which private educational loans often cannot match. But because of their relatively low loan limits, most students need more assistance. Here, students have two primary choices for remaining funding: a private educational loan or a Federal Graduate PLUS Loan.

Both the Graduate PLUS Loan and a private educational loan have their relative benefits and drawbacks. The decision on which loan program to utilize may come down to your individual preference and comfort level with the interest rate environment. This is the same question home owners need to consider when they are looking at a fixed versus variable rate mortgage. It may help to look at historical information that can give you an idea of what interest rates have done in the past. Most lenders offer private loan interest rates based on either the most current 3 month LIBOR rate plus an index or the Prime Lending Rate. However, past performance is not a guarantee for how future interest rates will move in the future.

If you would rather sleep well at night knowing you have a fixed interest rate loan that will not go up, then a fixed rate Federal Graduate PLUS loan may be what you choose. If you feel that a variable rate will run consistent with a lower rate trend, then a variable rate private educational loan may be best for you. The interest rate is one component to consider. You should also consider other attributes of the loans.

	Federal Graduate PLUS	Private Educational
Borrower	Loan is made to you (the graduate/professional student), an endorser may be required.	Loan is made to you; however, a creditworthy co-borrower may be required.
Credit Requirements	Credit approval based on federal standards, not credit score. Endorser option if you do not meet credit requirements	Credit approval based on credit score and history
Loan Limits	Cost of education minus aid	Cost of education minus aid
Origination Fee	3%, required by the Department of Education	Varies
Guarantee Fee	0 to 1% default fee, depending upon guarantor	0%
Interest Rate	Federal Grad PLUS interest rate is fixed at 8.5%	Variable interest rate based on LIBOR, up to a maximum of 18% (the rate may change quarterly). May be based on your credit and/or co-borrower
Federal Consolidation	Eligible for Federal Consolidation programs	Not Eligible Federal Consolidation programs
Deferment/Forbearance Options	Federal deferment and forbearance options exist	Forbearance may be available; is generally less flexible than Federal loan deferments
Repayment Options	Up to 25 years, standard principal and interest, interest only, graduated and extended repayment options	Up to 20 years, options for interest only during early years of repayment
Death/Disability	Grad PLUS loans can be discharged upon death of borrower. Loan can also be discharged if a borrower becomes totally and permanently disabled	Most private educational loans are NOT insured against death or disability
Loan Forgiveness	Grad PLUS loans are eligible for forgiveness under the provisions set forth in The College Cost Reduction And Access Act (H.R. 2669)	Private educational loans cannot be forgiven under the College Cost Reduction and Access Act

You may prefer the Federal Graduate PLUS Loan:

You like the certainty that a fixed-rate loan provides.
Your credit is good, fair, or poor, your cost may be lower with Federal Graduate PLUS.
You like the protection of greater deferment and forbearance options.
You may work in the public interest sector and will qualify for Federal Loan forgiveness through the College Cost Reduction and Access Act (CCRAA)

You may prefer a private educational loan:

You are comfortable with the possibility of interest rates increasing beyond the interest rate cap of the Federal Graduate PLUS loan.
You have top-tier credit. Borrowers with great credit scores may be charged less interest now, but if interest rates continue to climb, it could cost you more.
You believe that there is very little possibility that you may use the deferment or forbearance options.
You plan to borrow the loan only for a short time.
You do not plan to work in public interest sector.

Federal Loan Forgiveness

The College Cost Reduction and Access Act of 2007 provides a loan forgiveness program for public service employees. The federal loan forgiveness provisions require borrowers to have borrowed Direct Loans or to have consolidated their federal loans through the Federal Direct Consolidation Program. Please note that only federal loans are eligible for the forgiveness program. As such, we advise that borrowers carefully consider the available educational loan programs (private educational versus federal Graduate PLUS) to ensure that their individual loan borrowing fits into their long-term financial planning. While borrowing through private educational loan programs may provide better loan terms, it will prevent you from taking full advantage of the Federal Loan Forgiveness for Public Service Employees program. While we encourage loan borrowers to refer to the detail of the actual legislation in determining all relevant issues, the Office of Financial Aid is available to address individual concerns. For more information on this program, visit http://www.law.duke.edu/students/pdf/CCRAA.pdf.

Federal Loan Consolidation

After completing their studies, students who borrow Federal Perkins, Staffords, and Graduate PLUS loans, may be eligible to consolidate these federal loans. Consolidation involves having one lender purchase any outstanding federal loans from all other lenders and make a single new loan. The consolidated loan carries a fixed interest rate for a loan period ranging from ten to thirty years, and assuming credit worthiness, can be obtained at any time in which the borrower is in the grace period or in current repayment on federal loans.

No extra fee is charged for consolidation. The interest rate of the consolidated loan is fixed at the weighted average of the component loans. Most lenders who offer federal loans also offer consolidation loans. Consolidation loans are designed to help individuals who have a high monthly student loan payment. Please note that you can consolidate all or some of your outstanding education loans even if you have more than one lender. The Federal Consolidation Loan creates a single, new loan with one monthly payment. The relative benefits or disadvantages of consolidation change with larger market trends, thus students who are unsure about the consolidation process are encouraged to contact the Office of Financial Aid for assistance.

Information on Student Loan History

You can locate your prior and current federal loan history by visiting the National Student Loan Data Systems (NSLDS) at: www.nslds.ed.gov. To access your records at this site, you will need to provide the last two letters of your last name, your social security number, your date of birth, and your FAFSA PIN number.

Loan Repayment

Students preparing for graduation should also prepare to begin repayment on their loans. The first step is to review the student copies of the loan applications and promissory notes to ascertain the beginning payment dates and amounts. Some loans do not have any grace periods, and repayment begins immediately after graduation. Most loans, however, have grace periods during which payments are not needed.

The student is responsible for notifying lenders of their current address. Failure to do so may result in a great deal of confusion for both the student and the lender. This could lead to default and legal action. The burden is on the borrower to notify the lender of a change in address.

The summer following graduation is often spent studying for the bar exam and not working. If repayment is due, students should notify their lenders and request forbearance until they begin receiving salaries. Lenders will often allow up to six months of forbearance or interest-only payments. Most lenders are interested in receiving their money and are willing to work out different payment schedules with borrowers, but can only do so if they know the borrower’s circumstances. As always, the Office of Financial Aid is available to provide guidance to its students and alumni.