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Loan FAQs|Student Financial Aid

Frequently Asked Questions about Federal Direct Loans

With the Federal Direct Loan program who will I make repayment to?

What steps do I need to take in order to get a Direct Loan?

What are the main benefits in making this switch from the Federal Stafford Loan program (FFELP) to the Federal Direct Loan (FDL) program?

Why do I have to start over if I already have Federal (FFELP) loans from prior years?

I have prior loans from a bank, what options do I have in repayment now that I will have FFELP Loans and Federal Direct Loans?

Is my eligibility for loans and the amounts I can receive in federal loans the same in Federal Direct Lending as it was in FFELP?

Can I still use my prior bank for Stafford Loans, Parent PLUS, or Grad PLUS Loans if I choose to do that?

How will my receipt of prior loans from banks/lenders affect my Federal Direct Loan eligibility?

 

With the Federal Direct Loan program who will I make repayment to?


Payments are made to the U.S. Department of Education. Students do not have to start repayment until six months after they graduate or they fall below half-time status. However, you can make payments at any time towards your loan.


The U.S. Department of Education pays (subsidizes) the interest while the borrower is in school and during grace and deferment periods on subsidized Federal Direct Loans. The borrower is responsible for paying the interest that accrues on unsubsidized Federal Direct Loans.


Subsidized Federal Direct Loans disbursed to undergraduate students after July 1, 2010 carry a fixed interest rate of 4.5 percent. Unsubsidized Direct Loans disbursed to undergraduate students during the same time period have a 6.8 percent interest rate. Graduate students have a 6.8 percent fixed interest rate for subsidized and unsubsidized loans.


You have a grace period of 6 months after you graduate, leave school or drop below half-time status before you must begin repayment on a loan. During the grace period on a subsidized loan you don't have to pay any principal and you won't be charged interest. On an unsubsidized loan you don't have to pay any principal, but you will be charged interest. You can either pay the interest as you go along or it will be capitalized (i.e., added to the principal loan balance) later.

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What steps do I need to take in order to get a Direct Loan?


The steps you are required to take depend on the type of borrower you are and which Federal Direct Loan you would like to accept. The following definitions will help you make that determination.


    *  Federal Family Educational Loan Program (FFELP) includes the Federal Stafford Loan, Federal Parent PLUS Loan, and Federal Grad PLUS Loan. [Please note that Perkins Loans are NOT part of FFELP and the change to Federal Direct Loans does NOT affect Perkins Loans.]

    * A “student borrower” is a student wishing to accept a Subsidized Federal Direct Loan, Unsubsidized Federal Direct Loan, or Grad PLUS Federal Direct Loan.

    * A “parent borrower” is a parent wishing to accept a Parent PLUS Federal Direct Loan.

    * A “new borrower” is a student or parent who has never had a FFELP loan at UW.

    * A “returning borrower” is a student or parent who had a FFELP loan at UW in prior years.


Common Rules:

There are also some rules that apply to all student borrowers. They include:


    * All students must complete the FAFSA (this must also be completed for Parent PLUS Federal Direct Loans)

    * All students must meet the general eligibility requirements for federal financial aid

    * All students will go to WyoWeb to accept their Federal Direct Loan(s) (Exceptions for Grad PLUS Federal Direct Loans and Parent PLUS Federal Direct Loans are noted below)

    * Instructions regarding the completion of Entrance Loan Counseling and the Federal Direct Loan Master Promissory Note will be e-mailed to UW students and parents in April. Please do NOT complete any of these documents until you are requested to do so.


New Borrower Rules:

New student borrowers wishing to apply for a Subsidized Federal Direct Loan and/or Unsubsidized Federal Direct Loan need to complete the following:


   1. Accept loan(s) on WyoWeb

   2. Federal Direct Loan Master Promissory Note (this only needs to be done when you apply for your first Federal Direct Loan at UW)after accepting the loan, WyoWeb will show a new financial requirement for the MPN, this will have a link to complete your MPN on the Federal Direct Loans MPN website. It may be a couple business days before you see the requirement.

   3. Entrance Loan Counseling (this only needs to be completed if you are a first time loan borrower)


New student borrowers wishing to apply for a Graduate PLUS Federal Direct Loan need to complete the following documents:


   1. Grad PLUS Federal Direct Loan Request Form

   2. Federal Direct Loan Master Promissory Note (this only needs to be done when you apply for your first Grad PLUS Direct Loan at UW)After Clicking submit on the Grad PLUS Federal Direct Loan Request Form you will be automatically linked to the Federal Direct Loans MPN website to complete the MPN.

   3. Graduate Entrance Loan Counseling (this only needs to be completed if you are a first time Grad PLUS Federal Direct loan borrower)


New parent borrowers wishing to apply for a Parent PLUS Federal Direct Loan need to complete the following:


   1. Parent PLUS Federal Direct Loan Request Form

   2. Federal Direct Loan Master Promissory Note (this only needs to be completed if you are a first time loan borrower) After Clicking submit on the Parent PLUS Federal Direct Loan Request Form you will be automatically linked to the Federal Direct Loans MPN website to complete the MPN.


Returning Borrower Rules:

Note: With the change from FFELP to Direct lending all UW borrowers wanting a loan for Summer 2010 and/or the 2010-11 academic year will have to follow the new borrower rules regardless of previous UW loans.

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What are the main benefits in making this switch from the Federal Stafford Loan program (FFELP) to the Federal Direct Loan (FDL) program?

    *      Due to pending legislation before the U.S. Congress, schools will likely be required to switch to the Federal Direct Loan program by July 1, 2010. Even if the legislation is not passed, many private lenders have left the program due to the lack of the availability of the cash necessary to lend.

    *      Unlike the FFELP bank loan program, with a few thousand participating lenders, the Federal Government is the single source of funds for Direct Loans which reduces the confusion and complications for students as they no longer must select a lender.

    *      Federal Direct Loans are never sold by the federal government, so student borrowers always know who holds their loans and the terms of their loans. FFELP (i.e., Federal Stafford) loans are frequently sold, with promised benefits not honored by the new loan holder(s).

    *      Students who borrow under the Federal Direct Loan program are not subjected to marketing campaigns by lenders.

    *      Borrowers are free to consolidate their loans.

    *      Loans are able to be processed more quickly because there is only one lender involved.

    *      The Federal Direct Loans offer an income contingent loan repayment option with loan forgiveness after 25 years of repayment. Borrowers with a desire to work in relatively low-paying, community service jobs can do so while minimizing the fear of defaulting on the repayment of their student loans.

    *      Federal Direct Lending has the new Public Service Loan Forgiveness program that will forgive remaining debt after 10 years of eligible employment and qualifying loan payments for people working in key public service professions such as teaching, government, social work, law enforcement, and non-profit 501(c)(3) organizations.

    *      While interest rates of the two programs are the same for students, under the Federal Direct Loan Program the Parent PLUS Interest Rate is 7.9%. Under FFELP the Parent PLUS Interest Rate is 8.5%.

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Why do I have to start over if I already have Federal (FFELP) loans from prior years?


The U.S. Department of Education is your new lender; therefore, you must complete the required forms with them in order to receive your loan funds.

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I have prior loans from a bank, what options do I have in repayment now that I will have FFELP Loans and Federal Direct Loans?


Federal Student Direct loans can be consolidated along with outstanding student loan debt from FFELP (i.e., Federal Stafford Loans). However, if you do not want to consolidate your FFELP and Federal Direct Loans, you will have to make separate payments to the different loan servicers.

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Is my eligibility for loans and the amounts I can receive in federal loans the same in Federal Direct Lending as it was in FFELP?


Yes, the eligibility requirements and loan amounts are the same. The U.S. Department of Education serves as the lender, providing funds for Federal Direct Loans and Parent or Grad PLUS Federal Direct Loans in the same amounts as the Federal Stafford and Federal Parent or Federal Grad PLUS loans offered through the Federal Family Education Loan Program. (In FFELP banks and other private lenders provide these loans.)

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Can I still use my prior bank for Stafford Loans, Parent PLUS, or Grad PLUS Loans if I choose to do that?


No, you will not be able to choose a lender for receiving a new loan, as the U.S. Department of Education is the only lender in Federal Direct Lending.

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How will my receipt of prior loans from banks/lenders affect my Federal Direct Loan eligibility?


Changing from FFELP to Federal Direct Lending will not affect your loan eligibility because Federal Direct Loans are subject to many of the same regulations as FFELP loans. For instance, students must continue to meet Satisfactory Academic Progress (SAP) requirements and be within their aggregate loan limits to receive any kind of federal loans.

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Please go to http://www.uwyo.edu/sfa/loans/dlcchart.asp to view a chart designed to help you understand the differences between the Federal Direct Loan and FFEL Program.

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