Transition to the Direct Loan Program

Summary

In Summer Quarter 2010, the Stanford Financial Aid Office will begin participating in the William D. Ford Federal Direct Loan program. We are making this change to comply with the Health Care and Education Reconciliation Act of 2010, which was passed by Congress and signed into law by President Obama in March, ending the Federal Family Education Loan Program (FFEL).

FREQUENTLY ASKED QUESTIONS

We are providing a list of answers to Frequently Asked Questions. If you have additional questions, please feel free to contact the Financial Aid Office.

1. What are the differences between the Direct Loan program and the Federal Family Education Loan (FFEL) program?
2. What are the interest rates and fees for Direct Loans?
3. If I borrowed a federal Direct or PLUS loan last year, will I be able to continue to borrow from the same lender for 2010-2011?
4. Will I have to complete a new loan entrance counseling session?
5. Will I have to complete a new Master Promissory Note?
6. How and when do I complete my Direct Loan entrance counseling and Master Promissory Note (MPN)?
7. Does the Direct Loan program offer the same deferment options as the FFEL program?
8. Will my FFEL loans (Direct and/or PLUS) continue to be deferred while I am in school, even though Stanford is switching to the Direct Loan program?
9. Does the Direct Loan program offer the same repayment options as the FFEL program?
10. Will I have to make separate monthly loan payments to different servicers for my FFEL and Direct Loans?
11. Where can I find out to whom I will be repaying my various federal loans?
12. Will I pass the credit check required for the Direct PLUS Loan?
13. What if I do not pass the credit check for Direct PLUS?

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1. What are the differences between the Direct Loan program and the Federal Family Education Loan (FFEL) program?
The most important difference between Direct Loans and the FFEL program is the source of loan funds. While FFEL loans are funded by private lenders, the federal government provides the funds for Direct Loans. Other than the source of funds, the two programs are very similar, with a few minor differences in interest rates, fees and repayment options.

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2. What are the interest rates and fees for Direct Loans?

Academic Year 2010-2011

Loan Type		Interest Rate	Net Loan Fees*
Subsidized Loan	Undergrad	4.5%	0.5%
Subsidized Loan	Grad	6.8%	0.5%
Unsubsidized Loan	Undergrad / Grad	6.8%	0.5%
PLUS Loan	Grad / Parent of Undergrad	7.9%	2.5%

* As of July 1, 2010, Subsidized and Unsubsidized Direct Loans will have an origination fee of 1.0% and an up-front rebate of 0.5%, for net loan fees of 0.5%.  Direct PLUS loans will have an origination fee of 4.0% and an up-front rebate of 1.5%, for net loan fees of 2.5%. For borrowers who make their first 12 loan payments on-time, the rebate is permanent; otherwise, the rebate will be reversed, adding to the outstanding loan balance. 

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3. If I borrowed a federal Direct or PLUS loan last year, will I be able to continue to borrow from the same lender for 2010-2011?
No. Direct and PLUS loans from 2009-2010 or earlier were made under the FFEL program. For 2010-2011 you will be required to use the Direct Loan program instead. 

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4. Will I have to complete a new loan entrance counseling session?
Yes. Since the Direct Loan program does differ from FFEL in certain ways, we are requiring all Direct Loan student borrowers to complete Direct Loan entrance counseling. The online entrance counseling session takes about 30 minutes to complete. Parent PLUS Loan borrowers do not need to complete entrance counseling.

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5. Will I have to complete a new Master Promissory Note?
Yes.  In order to borrow again for 2010-2011, you will need to complete and sign a new Direct Loan Master Promissory Note (MPN) because you will be borrowing from a new lender, the U.S. Department of Education. You will need to have your Federal PIN number that was used to complete your FAFSA in order to electronically sign the MPN.

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6. How and when do I complete my Direct Loan entrance counseling and Master Promissory Note (MPN)?
If your financial aid award for 2010-2011 includes a Direct Subsidized, Direct Unsubsidized or Direct Grad PLUS loan, we will be sending you an email message on or around August 1, 2010, with instructions for completing your Direct Loan entrance counseling and MPN.  (Those borrowing for Summer 2010 will receive instructions on or around June 1, 2010 and can expect their first disbursements on or after July 1, 2010.)

Parents of undergraduate students who want to borrow a Direct PLUS loan should visit our PLUS application instructions page on or after August 1, 2010 for instructions on requesting a PLUS loan. Parent borrowers are not required to complete entrance counseling.

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7. Does the Direct Loan program offer the same deferment options as the FFEL program?
Yes. Deferment options that are available for Direct Loan borrowers and FFEL borrowers include:

• In-School Deferment (Enrolled at least half-time)
• Economic Hardship Deferment
• Unemployment Deferment
• Military Service Deferment

Detailed information about all deferment options can be found on the website of Federal Student Aid: Loan Deferment Summary Chart.

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8. Will my FFEL loans (Direct and/or PLUS) continue to be deferred while I am in school, even though Stanford is switching to the Direct Loan program?
Yes.  As long as you are enrolled in school on at least a half-time basis, your prior year federal education loans will continue to be deferred.  Enrollment information is reported to lenders by the school on a regular basis. You may wish to contact the servicing agency for your FFEL loans to confirm your in-school deferment status.

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9. Does the Direct Loan program offer the same repayment options as the FFEL program?
Yes, with one minor difference.  FFEL loans include an Income-Sensitive repayment plan, while Direct Loans have an Income-Contingent plan. The five repayment plans for Direct Loans are:

• Standard Repayment Plan
• Extended Repayment Plan
• Graduated Repayment Plan
• Income-Contingent Repayment (ICR) Plan
• Income-Based Repayment (IBR) Plan

Detailed information about each of these plans is available on the website of Federal Student Aid: Repayment Plans and Calculators.

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10. Will I have to make separate monthly loan payments to different servicers for my FFEL and Direct Loans?
It depends.  Monthly payments for Direct Loans will be collected by one of the five loan servicing agencies that have contracted with the federal government. If your FFEL loans are being serviced by one of these five agencies, the Direct Loan program will make every effort to place your Direct Loans with the same servicer, so that you can make your monthly payments to a single servicer. Otherwise, you may need to make separate monthly payments to two different servicers.

Another option for simplifying repayment is to consolidate your FFEL and Direct Loans into a single Direct Consolidation Loan.  There are pros and cons to consolidating, so you should make this decision carefully.  For more information regarding Loan Consolidation please visit the U.S. Department of Education's website for Direct Loan Consolidation.

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11. Where can I find out to whom I will be repaying my various federal loans?
Information about all of your outstanding federal education loans is available online from the National Student Loan Data System (NSLDS).  You will be able to see the balances due as well as the name and contact information for the servicer of each federal loan, including both FFEL and Direct Loans, Direct and PLUS loans, and Perkins loans. Note that any private (alternative) loans you have borrowed will not appear in NSLDS.

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12. Will I pass the credit check required for the Direct PLUS Loan?
The Direct PLUS credit check is less stringent than the equivalent process for FFEL PLUS. The Direct PLUS credit check process does not look at your credit score, debt-to-income ratio or employment status. Direct PLUS applications are generally approved unless one or more of the following conditions are found:

• Bankruptcy (Chapters 7, 11 or 12) within the past 5 years
• Voluntary surrender within the last 5 years
• Repossession within the last 5 years
• Foreclosure proceedings started
• Foreclosure within the last 5 years
• Deed in lieu of foreclosure
• Accounts currently 90 days or more delinquent (unless the last reported delinquency for the account was more than five years ago)
• Wage garnishment within the last 5 years
• Defaulted loan that has been claim paid
• Lease or contract on secured real estate
• County/State/Federal tax lien, within the past 5 years

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13. What if I do not pass the credit check for Direct PLUS?
You can add a credit-worthy endorser (co-signer) to the loan. Or, you can file an appeal for reconsideration based on updated information and documentation.  You will receive a response to your appeal within seven to ten business days of your providing all required documentation. 

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