Direct Loans



Why is Friends University switching from the Federal Stafford Loan program to the Federal Direct Loan Program?

Based on the instability of the Federal Family Education Loan Program (FFELP), Friends University came to the conclusion that it is in the best interest of our students to switch to the William D. Ford Federal Direct Loan Program. This instability came about due to the credit crunch and ongoing recession, as lenders faced a lack of capital to make student loans. Also, recent federal legislation reduced the subsidies the federal government paid to lenders to make federal student loans, which forced many lenders to discontinue their participation in the FFELP. Several major lenders have withdrawn from this program in the last few months.

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What happens if I borrowed a Stafford Loan previously, but now must borrow a Direct Loan?

Everyone borrowing the Federal Direct Loan for the first time will have to sign a new promissory note on the U.S. Department of Education’s Web site ( If you have received student loans in the past year from Friends University, you DO NOT have to complete a new Entrance Interview Form. However, ALL NEW students must complete the Direct Loan Entrance Counseling ( You will have to complete these steps only once.

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What are the differences between the Direct Loan Program and the Federal Family Education Loan Program (FFELP)?

1) The most important difference between Direct Lending and the FFEL program is the source of loan funding. Direct loans are funded through the U.S. Department of Education using funds obtained from the U.S. Treasury.

2) The six month grace period, deferments, repayment periods, and alternate repayment plans are the same as your FFELP loans. While the interest rate on the Stafford Loan and Direct Loan are identical, the interest rate on the Federal Direct PLUS (Parent) loan is 7.9 percent compared to the 8.5 percent fixed rate on the FFELP PLUS (Parent) loan. The interest rate in effect for 2010-2011 for Federal Direct subsidized loans for undergraduate students is fixed at 4.5 percent.

Refer to the chart below for applicable interest rates for the Federal Direct subsidized loan. These interest rates are only available to undergraduate students.

First disbursement of loan made on or after: 
First disbursement of loan made before: Interest rate on the unpaid balance:
July 1, 2008
July 1, 2009 6.0 percent
July 1, 2009 July 1, 2010 5.6 percent
July 1, 2010 July 1, 2011
4.5 percent
July 1, 2011 July 1, 2012 3.4 percent

The Federal Direct subsidized loan interest rate for graduate students is fixed at 6.8 percent. The interest rate for Federal Direct unsubsidized loans is fixed at 6.8 percent for both undergraduate and graduate students. Subsidized loans do not accrue interest until loan repayment begins, whereas unsubsidized loans accrue from when the loan is disbursed.

3) The Direct Loan offers you a rebate, which reduces the 1 percent fee deducted from your loan to 0.5 percent. This fee is added back to your loan principal if you fail to make your first 12 monthly payments on time when you enter repayment. The Federal Direct PLUS and GradPLUS Loans have a 4 percent origination fee, a 1.5 percent rebate, and a resulting net origination fee of 2.5 percent, which will be deducted from each loan disbursement. The same conditions as stated above for retaining the rebate apply.

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Will the loan limits remain the same?

Yes, the loan limits in the Direct Loan program are the same as in the FFEL program. The annual maximum in subsidized Stafford loans is $8500. The combined maximum of both subsidized and unsubsidized Stafford loans is $20,500 annually. The Stafford lifetime aggregates remain $65,500 (subsidized) and $138,500 (combined subsidized and unsubsidized).

For graduate students, the Federal Direct GradPLUS Loans may be used as supplemental funding when Stafford Loan maximums are reached. As always, the total amount you may borrow in student loans for any academic year is limited to your annual Cost of Attendance minus all other sources of funding.

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Will I still be able to borrow from the same lender as last year?

No. If you are awarded Federal Stafford and/or Federal GradPLUS loans for the 2010-2011 academic year, you will be required to borrow through the Direct Loan program.

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If I borrowed Federal Stafford and/or GradPLUS loans in prior years and I borrow loans for 2010-2011, will I have to repay two different lenders?

You may be repaying your federal loans to multiple servicers. You will receive correspondence and payment information from the Department of Education and your prior lender(s) and/or servicer(s).

If you prefer a single payment, when you begin repayment you can consolidate your old FFEL loans with your new Direct loans with the U.S. Department of Education. For more information regarding Direct Loan Consolidation, please visit the U.S. Department of Education's Web site at

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How can I find out who services my federal loans?

Information regarding your federal loan debt can be accessed via the National Student Loan Data System (NSLDS) at Note that any private alternative loans (i.e. Wells Fargo Collegiate Loan, U.S. Bank No Fee Education Loan, Sallie Mae Smart Option Loan or CitiAssist Loan) you have borrowed will not appear in the NSLDS.

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Will my current Master Promissory Note (MPN) remain in effect or will I have to complete a new MPN?

If you are awarded Federal Stafford and/or Federal GradPLUS loans for the 2010-2011 academic year and decide to accept the loans, you must complete new Direct Loan Master Promissory Notes because you will be borrowing from a new lender—the U.S. Department of Education.

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How and when do I complete a Direct Loan Master Promissory Note (MPN)?

Your award notice for the 2010-2011 academic year (beginning in April 2010) will include instructions regarding completing the MPN(s) for your Stafford and/or GradPLUS loan(s). You will need to have the federal PIN number that you used to complete your FAFSA in order to electronically sign the MPN(s).

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Will the Stafford and GradPLUS Loans I borrowed through my lender in prior years still be eligible for in-school deferment?

Yes. If you are enrolled at least half-time (six credit hours per term), your prior federal loans will continue to be deferred. The Direct Loan Program offers the same deferment and forbearance provisions as the Federal Family Education Loan (FFEL) Program.

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How do the Direct Loan repayment options differ from FFELP?

With the exception of Income Contingent Repayment, which is only available in Direct Loans, all repayment options offered to FFELP borrowers are also available for Direct Loan borrowers. There are five repayment plans available for Direct Loans:

  • Standard Repayment
  • Extended Repayment
  • Graduated Repayment
  • Income Contingent Repayment
  • Income-Based Repayment

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When is interest capitalized in Direct Loan Servicing?

Direct Loan Servicing capitalizes all unpaid interest:

  • when repayment begins
  • when a period of deferment ends
  • when a period of forbearance ends
  • annually, under the Income Contingent Repayment (ICR) plan, for borrowers whose payments do not cover their monthly interest accrual.

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How can I obtain more information about Direct loans?

Comprehensive information is available on the U.S. Department of Education Web site:

IMPORTANT: Please wait until you receive your 2010-2011 email award notice before completing any Direct Loan requirements.

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If you have further questions, please contact a student financial aid representative at apply4$ or 1-800-794-6945.

Last updated: March 25, 2010