Federal Direct Loan FAQs

Frequently Asked Questions and Answers for the Federal Direct Loan Program

1. Why did Keystone College enter the William D. Ford Federal Direct (Direct Loan) Program?
2. When does the Federal Direct Loan Program begin for Keystone College?
3. Does this change impact me?
4. Does this change affect my current year federal loans? Also, what happens if I want to attend summer school?
5. What do I need to do to receive a federal loan for 2010 – 2011?
6. What are the primary differences between Direct Lending (DL) and FFELP?
7. Can I borrow a federal loan through both DL and FFELP?
8. What is the interest rate and fees charged in FFELP compared to DL?
9. Are there any differences in interest rates and fees between the two programs?
10. What types of Direct Loans are available?
11. What are the eligibility requirements?
12. How do I apply for the DL Program?
13. Will a new Stafford Master Promissory Note (MPN) need to be completed?
14. Will a new PLUS Master Promissory Note (MPN) need to be completed?
15. Who should I contact about application questions?
16. What happens if some of my federal student loans are serviced by a lender/guarantor and another part of my loans will be serviced through the Department of Education?
17. What if my loans are not consolidated?
18. How does the Federal Direct Consolidation process work?
19. What type of repayment plans are offered through DL?
20. Who will service the Direct Loans?
21. Who do I call about loan repayment questions?
22. How can I keep track of my Federal Student Loans borrowed?

Answers to the Frequently Asked Questions about Direct Loans

Q. Why did Keystone College enter the William D. Ford Federal Direct Loan (Direct Loan) Program?

A. The United States Congress passed the Student Aid and Fiscal Responsibility Act (SAFRA). SAFRA eliminates the Federal Family Education Loan Program (FFELP) and mandates that all schools process through the Federal Direct Loan Program (FDLP) by July 1, 2010.

Q. When does the Federal Direct Loan Program begin for Keystone College?

A. Beginning on May 1st Keystone will no longer participate in the Federal Family Education Loan Program (FFELP) where students and parents borrow federal loans through a private lender. Instead, Stafford and PLUS loans will be available from the William D. Ford Federal Direct Loan (Direct Loan) Program where the federal government is the lender. Any new loan applied for on or after May 1st will be processed through Direct Lending.

Q. Does this change impact me?

A. If you are a new or continuing student or parent borrower who plans to borrow a federal loan for the summer after May 1, 2010 and/or 2010-2011 academic year, this change will affect you. After May 1st 2010 Keystone College will no longer process any loans through the Federal Family Education Loan Program.

Q. Does this change affect my current year federal loans? Also, what happens if I want to attend summer school?

A. All current year and 2010 summer session loans certified before May 1st will be processed through the current Federal Family Education Loan – Stafford Loan process.

Q. What do I need to do to receive a federal loan for 2010 – 2011?

A. Students will continue to complete the Free Application for Federal Student Aid (FAFSA) on the web, as they have done in the past. Just indicate “student loans” when asked “in addition to grants, are you interested in being considered for work-study or student loans” on the FAFSA. Parents who wish to use the PLUS will need to complete a Plus Request form and then complete a new Master Promissory Note. We will have more information about this process in the weeks to come.

Q. What are the primary differences between Direct Lending (DL) and FFELP?

A. 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 you one single source of contact since the loans are 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 FFEL 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 the school to turn to with any problems that might arise.

Q. Can I borrow a federal loan through both DL and FFELP?

A. No, because the FFELP will cease to exist by July 1, 2010.

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

A. See chart below for the 2009-2010 interest and fees.

FFELP		DL
	Interest	Fees	Interest	Fees
Federal Subsidized Stafford Undergraduates	5.6%	1-2%	5.6%	0.5%
Federal Unsubsidized Stafford Undergraduates	6.8%	1-2%	6.8%	0.5%
Federal Subsidized / Unsubsidized Stafford Graduates	6.8%	1-2%	6.8%	.05%
Federal parent PLUS	8.5%	4%	7.9%	2.5%
Federal Graduate PLUS	8.5%	4%	7.9%	2.5%

The Direct Lending Stafford Loan Program will have a 0.5% fee deducted from the loan amount. (Example: If you borrow $4500, you will actually receive $4477.50 or $22.50 less). Another 1.5% fee will be deferred until you go into repayment. You must make the first 12 on-time monthly loan payments to maintain this benefit. Otherwise, the 1.5% will be added to your loan balance.

Q. Are there any differences in interest rates and fees between the two programs?

A. 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 Unsubsidized and Subsidized Loans are the same in both programs. See the following chart for a comparison of fees between the two programs:

Loan Type	Gross Fee	Minus Rebate	Equals Net Fee Charged for 2010-2011
Direct Student Loan - Federal	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.

Q. What types of Direct Loans are available?

A. Subsidized Stafford Loans are for students with financial need as determined by federal regulations. No interest is charged while you are in school at least half-time, during your grace period, and during deferment periods.

Unsubsidized Stafford Loans are for students and are not based on financial need. Interest is accruing immediately during in-school, grace period and deferment. Interest accruing during these periods may be paid or capitalized.

PLUS Loans are available to credit-worthy parents of dependent undergraduate students. Parents may borrow the difference between the student’s total cost of education and all other aid the student is receiving.

Consolidation Loans allows students or parents to combine one or more of your federal education loans into a new loan that offers several advantages such as one monthly payment, flexible repayment options, or reduced monthly payments. Before making a decision to consolidate your federal student loans, consider factors such as the affordability of your monthly payments, the number of payments you need to make to multiple lenders, the interest rates on each of your loans, and how much you are willing to pay over the long term. Parent PLUS Loans cannot be consolidated with the student’s Stafford Loans.

Q. What are the eligibility requirements?

A. You must be enrolled at least half-time at a school and you must meet general eligibility requirements for the Federal Student Aid (FSA) programs.

Q. How do I apply for the DL Program?

A. The process is similar to what you have used in the past. You must complete the Free Application for Federal Student Aid (FAFSA) and check on the application that you wish to be considered for a loan. Keystone College will then review the application and notify you of the eligibility for the loan and the maximum amount.

Q. Will a new Stafford Master Promissory Note (MPN) need to be completed?

A. All current FFELP borrowers and any new borrower will have to sign a new electronic Federal Direct Stafford Loan Application/Master Promissory Note (MPN). The Direct Stafford Loan process will be completed online. You can complete the MPN electronically at www.Studentloans.gov under Loans & Financing Options. The MPN will be signed with the U.S. Department of Education as the lender. The MPN will only need to be signed once; as loans are requested for subsequent years, the loans will be added to your Master Promissory Note. The MPN explains the terms and conditions of your loan and is your legally binding agreement to repay your loan to the Department. Students will need the Department of Education issued PIN to complete the process.

Q. Will a new PLUS Master Promissory Note (MPN) need to be completed?

A. Parents of dependent Undergraduate students who have previously borrowed under FFELP and any new borrower will be required to complete a new electronic Federal Direct PLUS Loan Application/Master Promissory Note (PLUS MPN).

The Direct PLUS Loan should be applied for the academic year. The process should begin in June. The loan cannot be applied for more than 90 days before the start of the academic year. The Federal Direct PLUS Loan application process involves two steps:

1. Complete the Keystone College Federal Direct PLUS Loan Request Form.
Federal Direct PLUS Loan Request Form. You may complete this form by going to our website at www.keystone.edu/tuition_aid/financialaid and selecting Documents and Forms on the left side of the website. Then mail or fax the form to the Financial Assistance and Planning Office starting in May. Using the information provided on this form, the Financial Assistance and Planning Office will originate the loan and initiate a credit check through the Federal Servicer.

If your loan application is not approved, you will be contacted by the Federal Servicer (in writing) and given the option of appealing the credit decision or resubmitting the application with a credit-worthy endorser. Questions concerning your credit decision should be directed to the Federal Servicer’s Applicant Service at 1-800-557-7394. Each subsequent year, the parent of dependent Undergraduate students will need to go through a credit check and request the annual loan amount.

2. Complete the Federal Direct PLUS Loan Master Promissory Note (MPN).
Federal Direct PLUS Loan Master Promissory Note. The PLUS Loan MPN allows parents of dependent Undergraduate students to borrow for multiple years (up to 10 years) under one note provided you do not require an endorser. You may complete the MPN online in May. At that time, more information will be available at www.Studentloans.gov. You must have a Department of Education issued Personal Identification Number (PIN) before completing and signing the electronic MPN. If you do not have a Federal PIN, or have lost your PIN, you may obtain one at the Federal PIN Website, www.pin.ed.gov.

Q. Who Should I contact about application questions?

A. Application questions should be addressed to the Financial Assistance and Planning Office. You may email financialaid@keystone.edu or call 1-800-824-2764 option 2.

Q. What happens if some of my federal student loans are serviced by a lender/guarantor and another part of my loans will be serviced through the Department of Education?

A. The source of the loan application and funding is semester and year specific. The combination of FFEL Program and DL loans is not unusual. In the case of the DL Program, since the choice to participate in either FFEL Program or DL is a decision that each school must make, it already happens that you could have loans in both programs. This is the case if you begin your education at a school that uses the DL Program and then transfer to a school using the FFEL Program; you would have loans with each program. In order to make repayment to one source once repayment starts, you may take out a federal consolidation loan which combines both types of loans into a single loan.

Q. What if my loans are not consolidated?

A. Your lender will send information about repayment and notify you of the date repayment will begin. Under FFEL Program, you will repay to a private lender or their designated loan servicer that made the loan. Under DL, payments are made to the Direct Loan Servicing Center. You will make separate monthly payments to each servicer. It is recommended that you visit the National Student Loan Data System (NSLDS) Student Access website at

Q. How does the Federal Direct Consolidation process work?

A. Once you graduate or choose to no longer attend school on a half-time basis, you can contact the DL Program for an application for a Direct Consolidation Loan, which will combine the FFEL Program and DL loans into one type of loan. When it comes time to begin repaying the loans, you will be provided with several options concerning consolidation to be able to choose which one has the greatest advantage. You may call the U.S. Department of Education Consolidation Department at 1-800-557-7392 or visit www.loanconsolidation.ed.gov.

Q. What type of repayment plans are offered through DL?

A. The repayment periods for Stafford Loans vary from 10 to 25 years. When it comes time to repay, you can pick a repayment plan that best suits your financial situation. The Direct Loan Program offers four repayment plans with various term selections:

• Standard Repayment Plan: Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 years. This plan results in the lowest total interest paid of any repayment plan. If you have not selected a repayment plan by the time repayment begins, your loan(s) will be placed on the Standard Repayment Plan.
• Graduated Repayment Plan: Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 years. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase.
• Extended Repayment Plan: Extended repayment terms are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans. There are two options.

1. Fixed Monthly Payment Option: Under this plan, you will pay a fixed amount of at least $50 each month for up to 25 years. To be eligible for this plan, your Direct Loan balance must be greater than $30,000. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms.

2. Graduated Monthly Payment Option: Under this plan, you will pay a minimum amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. To be eligible for this plan, your Direct Loan balance must be greater than $30,000. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase.

• Income Contingent Repayment (ICR) Plan: A repayment plan that bases your monthly payment on your yearly income, family size, and loan amount. As your income increases or decreases, so do your payments. After 25 years, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven.
  
  The ICR Plan is NOT available if you have a Direct PLUS Consolidation Loan(s) made before July 1, 2006 and/or a Direct PLUS Loan(s). However, you are eligible to repay any Direct Consolidation Loan(s) made on/after July 1, 2006 under the ICR Plan even if it includes a PLUS Loan(s).
  
  Each year your monthly payment will be based on your family size, annual Adjusted Gross Income (AGI) as reported on your federal tax return, and the total amount of your Direct Loan(s). To participate in the ICR Plan you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education (ED) of the amount of your income. This information will be used to calculate your repayment amount, which will be adjusted annually to reflect changes in your AGI. If you select the ICR Plan, you will be billed for only the interest amount that accrues on your loan(s) each month, until the required documentation is received by the Direct Loan Servicing Center.

For more information, visit www.dl.ed.gov/borrower, click on Question Center. Review the repayment chart below.

	Non-Consolidation Loans	Consolidation Loans
Standard Repayment Plan	* Repayment up to 10 years * Lowest total interest paid * Automatic payment plan if payment plan is not chosen	* Repayment up to 10 to 30 years based on total education indebtedness
Graduated Repayment Plan	* Repayment up to 10 years * Payments start out low, then increase every two years * Beneficial if income is low now, but may steadily increase	* Repayment up to 10 to 30 years based on total education indebtedness * Payments start out low, then increase every two years * Beneficial if income is low now, but may steadily increase
Extended Repayment Plan	* Repayment up to 25 years * Must have more than $30,000 in Direct Loans * Monthly payment will be lower than Standard Repayment * Will pay more on loan because of the interest that accumulated during the longer repayment period.
Income Contingent Repayment	* Repayment up to 25 years * Monthly payments based on annual income, family size, and total amount of Direct Loans * Unpaid portion of loan is forgiven, but you may have to pay income tax on the amount that is forgiven

Q. Who will service the Direct Loan?

A. All Direct Stafford and PLUS Loans will be serviced by the Direct Loan Servicing Center.

Q. Who do I call about loan repayment questions?

A. Direct Loan Servicing Center Customer Service Representatives are available to answer borrower phone calls at 1-800-848-0979 from Monday through Friday 8:00 am E.S.T. to 8:30 pm E.S.T. or visit www.dl.ed.gov.

Q. How can I keep track of my Federal Student Loans borrowed?

A. Knowing who is servicing your federal student loans is critical in shaping your financial future. It is recommended that you visit the National Student Loan Data System (NSLDS) Student Access website at www.nslds.ed.gov. NSLDS provides a central database for student aid and allows students access to view information from schools, guaranty agencies, the Direct Loan program, as well as other programs; which is a valuable tool in managing your federal student loan information.

You will need your Federal Student Aid PIN to access the website; you have used the PIN when electronically signing your loans or when completing your FAFSA. You can request a duplicate PIN be sent to you at www.pin.ed.gov.

Managing your debt is your responsibility, and the NSLDS website is a critical tool in assisting you. Keeping track of your financial obligations allows you to create a better financial future.