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Federal Direct Lending Questions and Answers

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Roosevelt University (RU) recently researched and compared the two federally subsidized student loan programs, the Federal Family Educational Loan Program (FFELP) and the Federal Direct Student Loan program.  RU is currently participating in the FFELP program for the Stafford and PLUS loan programs but we wanted to be sure that the best possible program is in place for our students.  We have also heard from many of you expressing concerns about the number of lending institutions that have ceased participation in FFELP leaving students stranded.

 

During our research it became evident that the Federal Direct Loan program was the better loan program for our students for a number of reasons.

 

FFELP funds are disbursed through private lenders (such as National City, Citibank, Chase, Fifth Third, etc.).  Lenders are inundating our students with direct marketing that tends to be very confusing and overwhelming.  On the other hand, the Direct Loan program is funded directly by the Federal Government, eliminating the middle person and the confusion.

There are more repayment plans through the Direct Loan program, specifically, the income contingent plan.   If a student is not able to fully repay his/her loan in 25 years, the government forgives the balance of the loan.  In addition, the interest never exceeds 10% of the loan principal.

For Direct Loan borrowers, there is a forgiveness clause on loan payments for Public Service employees who:

1. After October 1, 2007 have made 120 payments (10 years).
2. Are employed in public service during entire repayment period.

The Direct Loan program is fully integrated with the federal financial aid process, simplifying the administration and oversight of the government funds.  RU already has the software and business process in place to administer this program.

The benefits advertised with the FFEL program are not part of the FFEL promissory note and therefore not guaranteed.  The benefits advertised in the Direct Loan program are part of the Master Promissory note and are guaranteed. Borrower benefits are more flexible in the Direct Loan program.  Students who begin repayment and then decide to re-enter school do not lose their borrower benefits in Direct Lending as they would in the FFEL program.

 We will begin the Federal Direct Loan program at RU in the fall of 2008.  New and returning students will be required to complete Entrance Counseling and sign a new Master Promissory Note.  Individualized instructions on this process will be forthcoming.

 

Borrower Benefits:

 

The government pays 1.5% of your origination fee at disbursement.  You are eligible to keep this benefit as long as you make the first 12 monthly payments of your student loan on time. Origination fees are paid at disbursement, reducing the net amount of the loan that is posted to your account. 

Academic Year	Origination Fee	Fee after 1.5% reduction	Guarantee Fee
2008/09	2.00%	0.50%	0%
2009/10	1.50%	0.00%	0%

There is a .25% interest rate reduction for automatically debiting the payment from your checking account.

 

ALTERNATIVE OR PRIVATE LOANS

A significant number of students and families seek loan funds that exceed the amount they are eligible to borrow from the federal student loan programs.  Alternative, or private, loans are student loans that assist families in meeting the cost of their education that traditional financial aid and their own resources can not cover. These loans are generally more expensive than the federal student loans and therefore should not be considered until AFTER you have exhausted all federal loan options. Most of these loans must be certified (processed) by the Financial Aid Office. All of these loans must be considered part of your financial aid package.

Alternative, or private, loans are credit-based loans, often require co-signers, and can not be consolidated with your federal student loans. Students that borrow from both federal and private loans will typically have multiple payments which could make your monthly payment higher than it would be if you had orrowed the same total dollars from a single source.

Research and shopping around for the best loan is absolutely vital when it comes to these alternative, or private, loans. Start looking at your current financial relationships to see what they may have to offer. Use the internet, the library, and on-line search tools. Remember - the choice is yours and borrow wisely!

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