Direct Lending Frequently Asked Questions
Beginning in fall 2010, the University of South Carolina Upstate will begin to participate in the William D. Ford Direct Loan program. Student and parent borrowers will receive funding for their federal student loans directly from the U.S. Department of Education rather from private banks and other lending institutions as they do now through the Federal Family Education Loan Program (FFELP). Below is a list of questions related to the Direct Loan Program that should help students and families understand how this program works.
- Q. What are Direct Loans?
A. Direct Loans are federally insured low-interest education loans for students and parents. These include the Direct Subsidized Loan, the Direct Unsubsidized Loan, the Direct Parent Loan for Undergraduate Students (PLUS) and the Direct Graduate PLUS Loan programs for graduate and professional students.
- Q. Why is USC Upstate changing to the Direct Loan Program?
A. The Direct Loan Program will provide USC Upstate students with a reliable source of educational loan funding. While volatility in the credit markets and reductions in lender subsidies have caused some lenders to stop making federal student loans or to stop offering borrower benefits and other services, the Direct Loan Program is not impacted by such changes in the economy and can therefore provide a stable and predictable loan process.
- Q. Does this change impact me?
A. After the 2009-2010 academic year, USC will no longer process any loans through the Federal Family Education Loan Program.
- Q. Will other student aid programs such as federal and state grants be affected by what is happening with student loans?
A. No, those programs are not affected.
- Q. What is the difference between Direct Loans and the Federal Family Education Loan Program (FFELP)?
A. The primary difference between Direct Loans and the Federal Family Education Loan Program, (Stafford Loan) is the source of funding. While FFELP loans are funded through a variety of banks and private lending institutions, Direct Loan funds are borrowed directly from the federal government. Additionally, with Direct Loans borrowers have a single contact, the Direct Loan Servicing Center, for everything related to the repayment of the loan.
- 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 2010-11 |
| Direct Student Loan—Federal | 1.5% | 1% | 0.5% |
| FFEL—Federal Stafford | 0.5% to 1.5%
(varies by lender) | N/A | 0.5% 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. When can I complete my Master Promissory Note?
A. You may choose to complete your new Direct Loan MPN at any time, even before you’ve received your award letter. This process can be completed online. You will need your federal PIN in order to electronically sign your MPN. This is the same PIN you use to sign the FAFSA. More information on your PIN is available online.
- Q. I have previously completed entrance counseling under the FFELP program. Do I have to complete entrance counseling for Direct Loan?
A. No, if you have previously completed entrance loan counseling for the Federal Stafford Loan Program, you will not be required to complete it for the Direct Loan Program. Only new borrowers are required to complete entrance counseling. If you are a first time borrower, you need to fill out Direct Loan Entrance Counseling.
- Q. What will happen to the existing loans that I have borrowed with other lenders? Will I have to repay two different lenders now?
A. Any loan(s) you borrowed from another lender either here at USC Upstate or at another institution will be maintained by the lender/servicer with whom you signed your original MPN. Your Direct Loan will be serviced by the Department of Education. You will receive correspondence and payment information from both the Department of Education and your prior lender/servicer.
Once you graduate or choose not to attend school at least half time, you will have the option to combine your existing federal education loans into one new loan with the Federal Consolidation Loan Program. With a consolidation loan, you will have only one payment to make each month and one lender. To learn more about consolidation, access this Web site. You may review all of your loans at the student access Web site for the National Student Loan Data System.