Federal Direct Loan Program FAQs

• What factors led to St. John Fisher College's decision to enter the Federal Direct Loan Program?
• What are the primary differences between Federal Direct Loans (DL) and the Federal Family Education Loan Program (FFELP?)
• What is the interest rate and fees charged in DL compared to FFELP?
• How do I apply for a Federal Direct Loan?
• What are the benefits in the Federal Direct Loan Program?
• What if I find a lender that offers a better loan than the Federal Direct Loan?
• Why can't I have a choice in which lender to use for my student loans?
• What happens if some of my federal student loans are from a lender and now part of my loans will be through the Department of Education?
• How does the consolidation process work?
• I have heard that private lenders such as banks can do a better job than the Federal Government is processing and servicing my loans. Is this true?
• Will other student aid programs such as federal and state grants be affected by what is happening with student loans?

Q. What factors led to St. John Fisher College's decision to enter the Federal Direct Loan Program?

A. In response to the decreasing number of lending institutions participating in the student loan market, over the course of last year, St. John Fisher College researched and compared two student loan programs, to determine which was the most beneficial for our students and their families. The two programs that were evaluated were the Federal Family Educational Loan Program (FFELP) and the Federal Direct Loan Program. The College has been a FFELP participant since 1965. After the evaluation, it became evident that the Federal Direct Loan Program was the better loan program for our students.

Q. What are the primary differences between Federal Direct Loans (DL) and the Federal Family Education Loan Program (FFELP?)

A. The primary difference is the source of the loan funding. Federal Direct Loans come straight from the U. S. Department of Education using funds obtained from the U.S. Treasury. This program offers students one single source of contact since the loans are made, guaranteed, and serviced by the U.S. Department of Education. In the FFEL Program the lender, guarantor, and servicer can involve any combination of banks and agencies across the country. It is often the case that the student's lender will sell their loan to another lender or loan servicer. This can add complexity for students, especially in the event an error or problem in the processing of their loans should occur. The student and the school must first find out who is processing and servicing the loan to even begin to solve a problem. Under DL, there is a single point of contact for students and their school to turn to with any problems that might arise.

Q. What is the interest rate and fees charged in DL compared to FFELP?

A. 2009-10 Interest Rate Comparison table (for loans disbursed on or after July 1, 2009):

¹Direct Student Loans have an origination fee of 1.5% and a 1% fee rebate is offered to all borrowers in anticipation of on time payment. Direct Parent PLUS and Graduate PLUS Loans are charged 4% origination fee and a 1.5% fee rebate is offered to all borrowers in anticipation of on time payment.

Q. How do I apply for the Federal Direct Loan?

A. The process is similar to what you have used in the past. Students complete the federal application (FAFSA). St. John Fisher College will then review your application and notify you of your eligibility for the loan and the maximum amount you can receive. You will "accept" the loan on your Fish 'R' Net account. You will then need to complete entrance counseling and sign a master promissory note with the U.S. Department of Education. You only need to sign once; as you request loans for subsequent years, the loans will be added to your Master Promissory Note. After your note is signed, St. John Fisher College will request the Department of Education to send your funds for the semester and we will put the loan funds into your student account.

Q. What are the benefits in the Federal Direct Loan Program?

A. There are several benefits in the DL Program:

1. A guaranteed source of funding for student loans.
2. The option of an income- contingent repayment plan or an income-based repayment plan when you enter repayment. This means you will have the option of ensuring that your loan repayment amount will always be affordable based on what your income will allow.
3. Students in the Direct Loan program who enter into public service jobs can have any remaining balance on their loans forgiven after ten years of public service work. (While this option does not exist in the FFEL program, students who borrowed in that program can consolidate their loans into the DL program in order to take advantage of this forgiveness program.)
4. The PLUS loan for parents and for graduate/professional students through DL uses a more liberal credit assessment. More parents and graduate students may qualify for these programs in the Direct Loan Program than in the FFEL Program.
5. The interest rate for the parent loan and for the graduate student loan is 7.9% in the DL program compared to 8.5% in the FFEL Program.
6. Most lenders offer benefits during repayment after a student make payments from 2 to 4 years. Very few students end up receiving those benefits. In DL, students earn benefits after only 1 year.

Should a student make payments late under DL, the late fees charged are less than the late fees charged in the FFEL Program.

Q. What if I find a lender that offers a better loan than the Direct Loan?

A. The interest rates and fees in DL are comparable to, or better than, those in the FFELP. St. John Fisher College believes that the simplicity and stability in the Direct Loan Program outweigh the uncertainty and possibility of a slightly lower fee in the FFEL Program.

Q. Why can't I have a choice in which lender to use for my student loans?

A. Most students tell us that they just want to know that their student loans will be there for them and are not too concerned with who the lender is. Since fewer banks will continue to offer any discounts or benefits while you are in school, the best time for students to exercise a choice is when they enter repayment. A student can always choose to consolidate their loans with any lender they wish during repayment. That is the time for students to shop around for the best deal.

Q. What happens if some of my federal student loans are from a lender and now part of my loans will be through the Department of Education?

A. The source of the loan application and funding is semester and year specific. The combination of FFELP and DL loans is not unusual. In the case of the Direct Loan program, since the choice to participate in either FFELP or DL is a decision that each school must make, it already happens that a student could have loans in both programs. This is the case for students who begin their education at a school that uses the DL program and then transfers to a school using the FFEL Program; that student would have loans with each program. Many of our transfer and graduate students already have this combination. In order to make repayment to one source once repayment starts, many students take out a consolidation loan which combines both types of loans into a single loan.

Q. How does the consolidation process work?

A. Once a student graduates or chooses to no longer attend school on a half time basis, the student can contact the Direct Loan program for an application for a Direct Consolidation Loan, which will combine the FFELP and DL loans into one type of loan. When it comes time to begin repaying your loans, you will be provided with several options concerning consolidation and you will be able to choose which one has the greatest advantage for you. Students can move all their loans to DL or they can move all their loans to FFELP. The choice will be yours.

Q. I have heard that private lenders such as banks can do a better job than the Federal Government is processing and servicing my loans. Is this true?

A. We do not believe this to be the case at all. In fact, the U.S. Department of Education uses private contractors to help administer and service student loans. Some of those contractors could be the same ones that a bank might use in servicing their student loans.

Q. Will other student aid programs such as federal and state grants be affected by what is happening with student loans?

A. No, those programs are not affected.

For additional information on the Federal Direct Loan Program or for questions about financial aid, contact the St. John Fisher College Financial Aid Office at 585-385-8042 or finaid@sjfc.edu.