Financial Aid

Direct Lending FAQ

What are Direct Loans?

Direct Loans are low-interest loans for students to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education rather than a bank or other financial institution.

With Direct Loans, you

• Borrow directly from the federal government and have a single contact, the Direct Loan Servicing Center, for everything related to the repayment of your loans.
• Have online access to your Direct Loan account information 24 hours a day, 7 days a week at Direct Loans on the Web at: www.dl.ed.gov.
• Can choose from several repayment plans that are designed to meet the needs of almost any borrower, and you can switch repayment plans if your needs change.

What is the difference between the Direct Loan and the FFEL program?

The primary difference between the two programs is the source of funding. Direct Loan funds come directly from the U.S. Department of Education, which receives funds from the U.S. Treasury. FFEL loans were administered and disbursed by private banks and other financial institutions.

How do the two programs compare?

• ACCESS TO FUNDS: The Federal Direct Loan program is funded directly by the Federal Government, eliminating the concern for access of funds from banks and other lending institutions who may be exiting the FFEL Program.
• REPAYMENT OPTIONS: Both Direct Loans and FFELP offer standard repayment, extended repayment and graduated repayment. Income-contingent repayment is available only in the Direct Loan program and income-sensitive repayment is available only in the FFEL program. A new repayment plan, income-based repayment, is available in both the FFEL and Direct Loan programs starting July 1, 2009. Income-based repayment usually yields a lower monthly payment than either the income-contingent or income-sensitive repayment plans. FFEL program lenders are required to allow borrowers to change repayment plans at least once a year. Some permit more frequent changes. The Direct Loan program allows borrowers to change repayment plans at any time.
• ONE LENDER: Students will be able to track their Federal Direct loans with one lender and in one location.
• LOANS NEVER SOLD: Loans can and have been sold in the FFEL Program. Loans are never sold in the Federal Direct Loan program. Many FFEL loans have already been placed with the Department of Education due to lenders facilitating continuation in the FFEL program during the last two years as the economy took a decline.

How does this change affect me?

• If you have borrowed through the FFEL program (up to and including Summer 2010) this change will have no affect on your outstanding loans.
• If you have borrowed through the FFEL program and wish to borrow again through the Direct Loan program, you will be required to complete a new electronic Master Promissory Note with the Department of Education.
• If you have previously completed entrance counseling for the FFEL program, you will not be required to complete it again for the Direct Loan program.
• New student loan borrowers for summer 2010 and beyond will likely not notice the change in programs.

Will I be allowed to borrow Stafford loans from the same lender as I did in a previous year?

No. All subsidized and unsubsidized student loans for Fall 2010 and beyond will be through the Direct Loan program.

Will my FFEL Stafford loans automatically be moved from my previous lender to the Department of Education?

No. Please refer to your lender for the administration of previous FFEL Stafford loans.

Are the interest rates the same for both FFEL and Direct Loans?

Congress sets the maximum interest rates in both the FFEL and Direct Loan programs. The interest rate is identical in both programs. (Currently, the rate is 6.8%)

Will private (alternative) student loans be through the Direct Loan program?

No. Private student loans (also known as alternative student loans) remain unchanged.