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Beginning with the 2009-2010 academic year, Washington University will
participate in the William D. Ford Federal Direct Loan Program. This means that
students will now receive Stafford and PLUS student loan funds directly from
the U.S. Department of Education, rather than through lenders participating in
the Federal Family Education Loan Program (FFELP).
Why is Washington University entering the Federal Direct Loan Program?
At all times, the University does its best to keep student borrowers updated as
to what is happening in the student loan market and inform borrowers of the
steps necessary to take advantage of the best educational funding options.
Over the last year we have seen significant changes in the student loan
industry. The shift in credit markets and changes in federal law has reduced
the number of private lenders offering Federal Stafford and PLUS loans through
FFELP. Private lenders can no longer afford to offer the discounts and
incentives that previously made it preferable to borrow from a private lender
rather than directly from the Department of Education.
The University has been monitoring these changes and the impact on student
borrowing. We have carefully researched and evaluated both programs in order to
ensure that we were providing our students with the best possible educational
loan program available.
Ultimately, Federal Direct Loans are less expensive for our students. In
addition, the program provides our students with a single point of contact for
managing the repayment of their loans, in addition to more flexible repayment
options.
What is the difference between the Federal Direct Loan Program and FFELP?
Under both programs the University certifies that the student is eligible for
the Stafford and/or PLUS loan and applies the proceeds to the student’s
account.
In the Federal Direct Loan Program, the entire loan process –
from borrowing to completing repayment – is more centralized. The U.S.
Department of Education is the lender and servicer (the borrower’s point of
contact for loan management and repayment). With FFELP, the borrower must
choose the bank or other private lender from whom their loan will be borrowed.
Each private lender may offer very different terms and incentives. Some lenders
provide servicing for the loan, while others contract the servicing to another
agency or sell the loans to a servicing agency.
Is the Federal Direct Loan Program a
less expensive education loan than FFELP?
In the past, students commonly found the least expensive
education borrowing options through FFELP lenders. However, changes in
legislation and in the credit market have caused many FFELP lenders to reduce
their borrowing incentives and repayment benefits, ultimately resulting in
higher costs for the borrower.
The FFELP PLUS Loan has a fixed interest rate of 8.5% and carries a 3%
origination fee and 1% default fee. Some guarantee agencies will pay the 1%
default fee on behalf of students. Please check with your lender for the most
up-to-date information.
The Direct PLUS Loan has a fixed interest rate of 7.9% and carries a 4%
origination fee. There is an up-front rebate of 1.5%, so the net disbursement
is 97.5% of the gross loan amount. The borrower must make the first 12
payments on time to keep this rebate. In addition, there is a .25% interest
rate reduction for automatically debiting your payment from your checking account.
What is Portfolio Management?
Over the past year, some lenders decided to sell their
education loan portfolio to other lenders/servicers, or change their processing
methods for their educational loan portfolio. This “portfolio management” by
lenders meant that a student borrower was required to complete another Master
Promissory Note (MPN) in order to continue borrowing with that lender.
Unfortunately, some students may have as many as 4 different lenders over their
3 years of enrollment at Washington University.
We realize that if you have more than one lender, it will be
more difficult to manage your student loans when you request forbearance,
deferment, or begin repayment. Each lender must be contacted separately to
complete the request or set up repayment options. Under the Federal Direct Loan
Program, a student’s loans are never sold to another entity, and they are
serviced by one agency until the loan is completely repaid. This means that
when you begin repayment, you will have one point of contact.
If I have previously borrowed under
the FFELP Program, do I have to complete another Master Promissory Note (MPN)?
Yes – Once you have accepted your 2009-2010 financial
assistance award, you will need to complete a Federal Direct Loan Program MPN.
This MPN is then valid for ten years as long as at least one loan is disbursed
to you within the first 12 months after signing.
You will need your FAFSA Pin number to complete the MPN. To
complete your MPN, visit the
Federal Direct Loan Program Web site.
I previously completed Entrance
Counseling with Mapping Your Future (MYF) under the FFEL program. Do I have to
complete Federal Direct Loan Program Entrance Counseling?
No, you will not be asked to complete Entrance Counseling if
you have already completed Entrance Counseling with MYF. However, if you are a
first-time Stafford and/or PLUS borrower at Washington University, you are
required to complete Entrance Counseling and may do so through the
Mapping Your Future website. This site provides combined entrance
counseling and fulfills the requirement for both loans.
What will happen to the existing loans that I have borrowed from FFELP lenders?
Will they go into repayment immediately?
No, your existing loans will not go into repayment as long as you remain
enrolled at least half-time. However, when you are preparing to begin
repayment, we would encourage you to consider your options. Depending on the
terms of your individual loans, it may be beneficial to make separate payments
to your previous lender(s) and the Department of Education (Direct Loans). Or,
you may want to consolidate your loans into one payment.
You can learn more about the Department of Education Loan Consolidation Program here. Although many private lenders have discontinued
their consolidation programs, you should contact your FFELP servicer(s) to
inquire about any loan consolidation options that may be available.
How do I contact the Federal Direct Loan Program?
Visit online at
http://www.ed.gov/offices/OSFAP/DirectLoan/index.html or call toll-free
(800) 848-0979.
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