We are moving from the Federal Family Educational Loan program (federal loans through private lenders) to the Federal Direct Loan Program for 2010 – 2011. You may have questions or concerns about the changes and what this will mean for you as a borrower, so we have compiled a list of questions and answers that hopefully you will find helpful.
- Why is the law school changing to the Direct Loan Program?
- What is the difference between the Direct Loan Program and the Federal Family Education Loan (FFEL) Program?
- Will I still be able to continue borrowing through the same lender as last year?
- What will happen to the existing loans that I have borrowed from other lenders?
- Do I have to complete another Master Promissory Note?
- How and when do I complete a Direct Loan Master Promissory Note?
- What is the interest rate and fees charged in Direct Loans compared to FFEL?
- I have previously completed entrance counseling under FFEL, do I have to complete Direct Loan entrance counseling?
- Will the Stafford Loans I borrowed through my bank or lender in prior years still be deferred now that USD Law is participating in the Direct Loan Program?
- How do the Direct Loan repayment options differ from FFEL?
- How do I contact the Direct Loan Program?
- Federal Direct Lending provides a stable source of student loan funding because the funds are provided by the U.S. Treasury.
- The Direct Lending Program is not impacted by changes in the economy.
- Direct Lending provides a single point of contact for managing student loans.
- Loans are never sold in the Direct Loan Program. Loans through FFEL can be sold multiple times which can be confusing for the borrower upon repayment.
- Direct Lending offers a more lenient credit assessment for the Grad PLUS loan program.
What is the difference between the Direct Loan Program and the Federal Family Education Loan (FFEL) Program?
The most important difference between Direct Lending and FFEL is the source of loan funding. Direct loans are funded through the U.S. Department of Education using funds obtained from the U.S. Treasury. This program offers students one point of contact because the loans are made, backed, and serviced by the U.S. Department of Education. In FFEL, funds come from banks and lenders creating multiple points of contact for students. There are also some differences in interest rates, fees and repayment options which make the Direct Loan Program more beneficial for borrowers.
No, if you borrow a Federal Stafford or Federal Grad PLUS loan for the 2010-2011 academic year, you will be required to borrow through the Direct Loan program. While this change will require you to complete new Master Promissory Notes (MPN) for the Federal Stafford and Federal Grad PLUS loans, we feel confident that the new streamlined process will benefit all of the USD law student borrowers.
Any previous loans you borrowed from another lender will be serviced by the lender/servicer you selected when you signed your original MPN. Many loans were sold to the Department of Education so pay close attention to any letters and mailings.
After graduation, you have a choice to make individual payments to your previous lender(s) and to the Department of Education for your Direct Loans, or you can consolidate your loans into one payment with the Department of Education. Please visit the Department of Education's Loan Consolidation website.
Yes, you must sign a new Direct Loan Master Promissory Note (MPN) because you will be borrowing from a new lender, the Department of Education.
Once you accept any loans that were offered, you must go to the Direct Loan MPN website, follow the instructions and use your FAFSA Federal PIN number to electronically sign your MPN.
To apply for a Graduate PLUS loan, you must grant the Dept. of Education permission to check your credit. This permission is granted at the time you complete the Graduate PLUS MPN.
|Direct Loan Program||Interest||Fees*|
|Subsidized Federal Direct Loan||6.8%||0.5%|
|Unsubsidized Federal Direct Loan||6.8%||0.5%|
|Federal Direct PLUS or Graduate PLUS Loan||7.9%||2.5%|
|FFEL Loan Program||Interest||Fees|
|Subsidized Stafford Loan||6.8%||0.5 - 1.5%|
|Unsubsidized Stafford Loan||6.8%||0.5 - 1.5%|
|Parent or Graduate PLUS Loan||8.5%||3.0 - 4.0%|
*Direct Loan Fee Rebate: The Subsidized and Unsubsidized Federal Direct Loans have a 1.0% origination fee and also offer a .5% rebate on the origination fee – resulting in a net fee of .5%, which will be deducted from the gross amount of the loan borrowed. Once you enter repayment, if you make your first 12 monthly payments on time, the rebate becomes permanent. If you fail to make 12 on-time monthly payments, a charge for the initial rebate will be added to the outstanding balance of the loan.
The Federal Direct PLUS Loan has a 4% origination fee and also offers a 1.5% rebate on the origination fee – resulting in a net fee of 2.5%, which will be deducted from the gross amount of the loan borrowed. The 12 on-time payment rule also applies to the PLUS loan in order to keep the rebate.
I have previously completed entrance counseling under FFEL, do I have to complete Direct Loan entrance counseling?
No, you will not be required to complete entrance counseling if you have previously completed it for a similar Federal loan under FFEL. Only new borrowers will be required to complete Entrance Counseling. However, it is strongly recommended that you complete one to familiarize yourself with the program.
Will the Stafford Loans I borrowed through my bank or lender in prior years still be deferred now that USD Law is participating in the Direct Loan Program?
As long as you are enrolled in school on at least a half–time basis, your prior year federal loans will continue to be deferred. Enrollment information is reported to lenders by the school on a regular basis.
With the exception of one, all repayment options offered to FFEL borrowers are also available for Direct Loan Borrowers. There are five repayment options available for Direct Loans:
- Income Contingent Repayment
- Income–based Repayment
The U. S. Department of Education Direct Loan Program Customer Service phone number is (800) 848-0979. For general information, you can visit the Department of Education's Direct Loan Page for Students.