Direct Loan Program FAQ
Due to the passage of the Health Care and Education Reconciliation Act of 2010, major changes will be made to the student loan program. Under this Act, all student loans with a disbursement date of July 1, 2010 or later must be processed under what is known as the Federal Direct Loan Program.
Previously, Alabama A&M University participated in the Federal Family Education Loan Program (FFELP), which allowed the student, to choose their lender and it encouraged the various lenders to compete for business by offering a wide array of loan repayment options and benefits. With the passage of this Act, students will no longer have that choice. Under the Direct Loan Program, the U. S. Department of Education serves as the lender, rather than a bank or other financial institution. Any questions concerning loans currently under the FFELP program should be directed to the lender(s).
- 01. What is the difference between Direct Loans and the Federal Family Education Loan
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.Back to Top
- 02. What are Direct Loans?
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.Back to Top
- 03. Why is AAMU changing to the Direct Loan Program?
The Direct Loan Program will provide AAMU 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.Back to Top
- 04. How will this impact me?
If you are a new or continuing student or parent borrower who plans to borrow a federal loan for the 2010-2011 academic year, this change will affect you. After the 2009-2010 academic year, AAMU will no longer process any loans through the Federal Family Education Loan Program.Back to Top
- 05. Does this change affect my current federal loans?
All current year and 2010 summer session loans will be processed through the current Federal Family Education Loan-Stafford Loan process.Back to Top
- 06. What happens if I want to attend summer school?
Your first Direct Loan will be for the fall 2010 semester.Back to Top
- 07. Are other programs affected?
No, federal and state grants are not affected.Back to Top
- 08. Are there any difference in interest rates & fees?
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.Back to Top
- 09. What do I need to do to receive a federal loan for the 2010-2011 academic year?
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 loan (or the Graduate PLUS loan if you are a graduate or professional student) will need to complete a separate PLUS loan application. We will have more information about this process in the weeks to come.Back to Top
- 10. Do I have to complete another Master Promissory Note?
Yes, you must sign a new Direct Loan Master Promissory Note (MPN) because you will be borrowing from a new lender, the U. S. Department of Education.Back to Top
- 11. When will I be able to complete my new Master Promissory Note?
You may choose to complete your new Direct Loan MPN at any time, even before you have received your award letter! This process can be completed online at Direct Loan Master Promissory Note. 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 at Federal PIN Website.Back to Top
- 12. Do I have to complete entrance counseling for Direct Loan?
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. All new borrowers are required to complete entrance counseling. Direct Loan Entrance and Exit CounselingBack to Top
- 13. I am a parent. I plan to borrow a PLUS Loan. Help?
You will borrow through the Direct Loan program as well. We will have more information about this process within the next few weeks.Back to Top
- 14. I am a graduate or professional student. Help?
I am a graduate or professional student and plan to borrow a Graduate PLUS Loan in 2010-2011. I usually get pre-approved through my lender. What should I do this year? You will borrow your Graduate PLUS Loan through the Direct Loan program as well.Back to Top
- 15. Will I still be able to continue borrowing through the same lender as last year?
No. If you wish to receive a federal student loan for the 2010-2011 academic year, you will be required to borrow through the Direct Loan program.Back to Top
- 16. What will happen to the existing loans that I have borrowed with other lenders?
Any loan(s) you borrowed from another lender either here at AAMU 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.Back to Top
- 17. Will I have to repay two different lenders now?
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. However, there are situations in which consolidation will not be the best repayment alternative. We encourage you to contact your prior lender for more information about repayment before you consolidate.Back to Top