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Direct Loan FAQ

Important Change to Loan Processing for 2010-2011

The University of Houston Downtown is changing its process of obtaining Federal Stafford and Federal PLUS loans for the 2010-2011 academic year. The University currently participates in the FFEL (Federal Family Education Loan) program, in which students and parents borrow from private banks and lenders. Beginning in the fall 2010 semester, the University will participate exclusively in the William D. Ford Federal Direct Loan program, in which borrowers obtain loan funds directly from the U.S. Department of Education. We believe that the Direct Loan program will offer our students and parents a more stable, streamlined, and predictable borrowing experience.

Does this change impact me? If you or your parent plans to borrow a federal loan in 2010-2011, this change will affect you. For the 2010-2011 academic year, ALL Federal Stafford, Federal PLUS, and Federal Grad PLUS loans will be processed through the Direct Loan program.

 

What are the benefits in the Direct Loan Program? There are several benefits in the Direct Loan Program, including:

  • A guaranteed source of funding for student loans.
  • The option of an income-contingent repayment plan or an income-based repayment plan when a student enters repayment. This means a student has the option of ensuring that the loan repayment amount will always be affordable based on what the borrower’s income will allow.
  • Students in the Direct Loan Program who enter into public service jobs can have any remaining balance on the loans forgiven after 10 years of repayment while in 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 Direct Loan Program in order to take advantage of this forgiveness). Additional information on Public Service Loan Forgiveness is available at http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp
  • The interest rate for the parent PLUS loan and for the graduate student PLUS loan is 7.9 percent in the Direct Loan Program compared to 8.5 percent in the FFEL Program.
  • Should a student make payments late under the Direct Loan Program, the late fees charged are less than the late fees charged by lenders in the FFEL Program.

 

Why did the University choose to move into the Direct Loan program? Volatility in the credit markets and reductions in lender subsidies have caused many lenders to stop offering borrower benefits and other services. The Direct Loan program is not impacted by changes in the economy and provides a more stable loan process.

 

Will I still be able to continue borrowing through the same lender as last year? No. If you borrow a federal loan in 2010-2011, you will be required to borrow through the Direct Loan program. While this change will require you to complete a new Master Promissory Note (MPN), we are confident that the streamlined process will benefit all UHD borrowers.

 

I'm a parent. I plan to borrow a PLUS Loan for my student in 2010-2011. I usually get pre-approved through my lender. What should I do this year? To avoid multiple hits on your credit, do not get pre-approved or apply through any lender other than the Department of Education. Completing the PLUS Loan Information Form will initiate the PLUS Loan process. Once we receive that form, we will submit your information to the Department of Education for a credit check.

 

What do I have to do to get my loan funds for 2010-2011? As in prior years, you will have to complete a FAFSA for Stafford and/or Grad PLUS eligibility. You will now accept or decline your federal student loans via the Student Financial Aid System online once financial aid awards have been issued. Parents who wish to apply for a PLUS Loan will still complete the PLUS Loan Information Form to initiate the process. The 2010-2011version of this form will be available online by the end of March.

 

Can I complete my new Master Promissory Note now? Yes! If you know you will borrow from the Federal Direct Stafford Loan Program in 2010-2011, you can complete your new MPN now. This can be completed on the Federal Student Aid web site. You will need your federal PIN to electronically sign the MPN. This is the same PIN you use to sign the FAFSA. More information on your PIN is available online.

 

Are there any differences in interest rates and fees between the two programs? There are some differences. The interest rate for Federal PLUS loans is 7.9% in the Direct Loan program (compared to 8.5% in the FFEL program). Interest rates for Federal Stafford Loans are the same in both programs. See the following chart for differences in fees between the two programs:

Loan Type
Gross Fee
Minus Rebate* Equals Net Fee Charged for 2010-2011
Direct Loan - Federal Stafford 1.5% 1%* .5%
FFEL - Federal Stafford .5% to 1.5% (varies by lender) N/A .5% to 1.5% (varies by lender)
Direct Loan - PLUS 4% 1.5%* 2.5%
FFEL - PLUS 3% to 4% (varies by lender) N/A 3% to 4% (varies by lender)

*The upfront rebate reduces the fee you pay at origination. If you don’t make your first 12 monthly payments on-time, the rebate amount will be added to your principal balance.

 

If I borrowed through a private bank last year, will I have to repay two different lenders now? Your Direct Loan will be serviced by the Department of Education, so you will receive correspondence and payment information from both the Department of Education and your prior lender or servicer. You have the option of consolidating all of your federal loans with the Direct Loan program (or any other lender that offers federal consolidation loans) after you graduate to combine the loans. If you consolidate, your previous federal loans would be paid in full and all of your payments would be made to the Direct Loan program.

 

What happens to the Stafford loans I borrowed via my bank or lender in prior years? Will they still be deferred now that UHD is changing its loan processing? As long as you are enrolled in school on at least a half time basis, your prior year federal loans will continue to be deferred. Enrollment information is reported to lenders by the school on a scheduled basis.

 

Does this affect my private (alternative) loans? No, this change only affects federal student and parent loans (Stafford, PLUS, and Grad PLUS).

 

Does this change affect my current year federal loans? Also, what if I attend school in the summer? All current year and summer session 2010 loans will be processed through the current FFEL process. Your first Direct Loans will be for the fall 2010 semester.

 

What are the primary differences between Direct Loans and the Federal Family Education Loan Program (FFELP)? The primary difference is the source of the loan funding. 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 these federal 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. Under Direct Loans, there is a single point of contact for students and their school to turn to with any problems that might arise.

 

What if I find a lender that offers a better loan than the Direct Loan? The interest rates and fees in Direct Loan are comparable to, or better than, those in the FFEL program. The University believes that the simplicity and stability in the Direct Loan Program outweigh any benefits remaining in the FFEL program.

 

How do I apply for the Direct Loan? The process is similar to what students have used in the past. Students complete the federal application (FAFSA). The Office of Student Financial Aid Services will review the application and notify students of eligibility for the loan and the maximum amount they can receive. You will accept or decline your loan eligibility via the Financial Aid System. This time, the U.S. Department of Education will be the lender. Students only need to sign once; as a student requests loans for subsequent years, the loans will be added to their Master Promissory Note. After the note is signed, we will request the Department of Education to send the student’s funds for the semester and those loan funds will be placed in the student’s account.

 

Where can I find information about who services my other federal loans? Information on your federal loan debt can be accessed via the National Student Loan Data System (NSLDS) at www.nslds.ed.gov. Note that any private (alternative) loans you have borrowed will not appear in the NSLDS.

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Last updated or reviewed on 11/19/13

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