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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.
Under the FFEL program, a Stafford loan carries an origination fee of .5% and
a default fee of 1% on loans first disbursed on or after July 1, 2009. Some
guarantee agencies will pay the 1% default fee on behalf of students. Some lenders
provide a .25% interest rate reduction for automatically debiting your payment from
a checking account.
Under the Federal Direct Loan Program, a Stafford loan disbursed on or after July 1,
2009 carries an origination fee of 1.5%. The government provides an up-front rebate
of 1% resulting in a net disbursement of 99.5% of the gross loan amount. The borrower
must make the first 12 payments on time to keep the 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.
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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