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What do I need to do to apply for a Federal Parent PLUS Loan?
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Parents need to file a 2009-2010 Free Application for
Federal Student Aid (FAFSA). The FAFSA can be completed
on the web at www.fafsa.ed.gov
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Complete a Direct Loan Master Promissory Note at https://dlenote.ed.gov/empn/index.jsp. (Note: You will need
your FAFSA Pin Number to electronically sign your MPN)
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Complete a Federal Direct PLUS Loan Request form.
Beginning with the 2009-2010 academic year, Washington University
will participate in the William D. Ford Federal Direct Loan Program.
This means that students and parents will now receive Stafford and
PLUS loan funds directly from the U.S. Department of Education,
rather than through lenders participating in the Federal Family
Education Loan Program (FFELP).
Through the federal government’s PLUS program, parents can borrow up
to their student’s cost of education less other financial aid awarded
to the student. A credit check will be run to ensure that certain
criteria are met. Parents will need to file a 2009-2010 Free Application
for Federal Student Aid (FAFSA). The FAFSA can be completed on the web
at www.fafsa.ed.gov
Why is Washington University entering the Federal Direct Loan Program?
At all times, the University does its best to keep student and parent
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 and
their parents. In addition, the program provides our students and parents
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 Direct Loan Program and FFELP?
Under both programs the University certifies that the parent is
eligible for the 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 Direct Loan PLUS Program a less expensive education loan than FFELP?
In the past, parents 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 Parent PLUS Loan carries a 3% origination fee and 1% default
fee. The interest rate is fixed at 8.5%.
The Direct Parent PLUS Loan 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.
The interest rate on a Direct Parent PLUS loan is fixed at 7.9%.
All Parent PLUS loans go into repayment 6 weeks after the final disbursement
of the loan. New regulations provide alternative repayment plans that
allow parents to defer repayment of their PLUS loans while the student is in school.
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 borrower was required to complete another Master Promissory Note (MPN)
in order to continue borrowing with that lender.
We realize that if you have more than one lender, it will be more difficult to
manage your PLUS 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 parent’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 – You will need to complete a Federal Direct PLUS Loan 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.
What will happen to the existing loans that I have borrowed from FFELP
lenders? Will they go into repayment immediately?
New regulations allow parents to defer payments on PLUS loans while
their student is attending school at least half-time.
How do I contact the Federal Direct PLUS Loan Program?
You can learn more about the Federal Direct Parent PLUS Loan
by visiting online at
http://www.ed.gov/offices/OSFAP/DirectLoan/index.html or
by calling toll-free (800) 577-7394.
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