Frequently Asked Questions - Federal Direct Loan Program
How will this affect my prior year federal Stafford, PLUS, and Grad PLUS loans? This change will NOT affect any prior year federal loans.
Does this change impact me? If you are a new or continuing student borrower who plans to borrow federal loans in the 2010-2011 aid year, this change will impact you. As the 2010 fall semester, all Federal Stafford , PLUS and Grad PLUS loans will be processed through the Federal Direct Loan program.
What are the benefits of the Federal Direct Loan Program? The Direct Loan Program offers:
- a guaranteed source of funding for students loans;
- A lower interest rate on PLUS and Graduate Plus loans
- A single point of service for students during repayment;
- Additional repayment options for students and interest rate reductions for on time payment
- The Public Service Loan Forgiveness Program
Why did Loyola choose to move to the Direct loan program? On March 25, 2010, the U.S. House of Representatives and the U.S. Senate passed the The Health Care and Education Affordability Reconciliation Act of 2010 ("HCEARA"-H.R. 4872) . This bill makes major changes in several federal student aid programs AND mandates that, effective July 1, 2010, all federal student loans (Stafford, PLUS, and Grad PLUS) will be originated through the Federal Direct Loan Program. The Family Federal Education Loan Program, which permitted private lenders to originate these loans, is eliminated effective June 30, 2010.
President Obama signed the bill into law on March 30, 2010.
Will I still be able to continue borrowing through the same lender as last year? No. All federal loans will be processed through the Federal Direct Loan Program
Are there any differences between the two programs? The interest rate for Direct Subsidized and Unsubsidized loans is the same as that of the FFEL program. However, the PLUS amd Grad PLUS loan interest rate is 7.9% compared to the FFEL program interest rate of 8.5%.
What happens to the Stafford loans I borrowed in previous years? Will they still be deferred now that Loyola is changing its loan process? Your Stafford loans from previous years shoululd remain in deferment as long as you are enrolled above half time for your program. You are responsible for notifying your lender if your enrollment status changes.
How will repayment work if I have FFEL and Direct loans? Many FFEL lenders have been selling their loan portfolios to the Department for Education for servicing during the past two years. You will have the option of making separate payments to each agency/ loan servicing company OR you can also opt to consolidate all loans into one Federal Direct Consolidation Loan.
Will there be any additional requirements for me to receive my aid from the Direct Loan Program? The application process for Direct Loans is the same as for FFEL Loans. US Citizens or permanent residents can apply for Direct Loans by completing the Free Application for Federal Student Aid ("FAFSA ") The financial aid office will process your application and send you notification when your financial aid is ready to review and accept.
Once you have accepted your awards and completed a new Direct Loan MPN your loans should be set to arrive in a timely manner. However you are encouraged to check your financial aid information through PowerFAIDS' NetPartner Portal as well as read any and all letters you receive from the financial aid office.
Where can I find information about who services my other federal loans? You can find information about the servicers of your other federal loans at www.nslds.ed.gov. You will need your pin number from the FAFSA to access this site.
Will I still be able to borrow private loans through an outside lender? Yes, if you meet the qualifications you will still be able to borrow private loans through an outside lender.
What is the Public Service Loan Forgiveness Program? There is a new loan forgiveness program for public service employees. Under this program, the amount forgiven is the remaining outstanding balance of principal and accrued interest on an eligible Direct Loan for a borrower who is not in default and who makes 120 monthly payments on the loan after October 1, 2007. The borrower must be employed full-time in a public service job during the same period in which the qualifying payments are made and at the time that the cancellation is granted.
What are the four standard repayment options?
- Standard Repayment-With the standard plan, you'll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you'll have up to 10 years to repay your loans.
- Extended Repayment- To be eligible for the extended plan, you must have more than $30,000 in Direct Loan debt, but you have 25 years to repay it. Under the extended plan you have two options: for fixed or graduated payments. Fixed payments are the same amount each month you are in repayment, as with the standard plan, while graduated payments start low and increase every two years,as with the graduated plan below
- Graduated Repayment- With this plan your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.
- Income Contingent Repayment- This plan gives you the flexibility to meet your Direct Loan payment obligation without causing undue financial hardship. Each year,your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:
- 1. the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
- 2. 20% of your monthly discretionary income.
If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However,capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If you haven't fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however,have to pay taxes on the amount that is discharged.
What About the new Income-based Loan Repayment Program? (effective July 1, 2009) - Under this plan the required monthly payment will be based on your income during any period when you have a partial financial hardship. Your monthly payment may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you meet certain requirements over a specified period of time, you may qualify for cancellation of any outstanding balance of your loans.
Updated April 3, 2010