An In-Depth Look At Direct Loans

The Department of Education offers several Federal Student Aid programs, one of which is the Direct Loan Program. Direct Loans are some of the most common loans used by universities and college students alike, in part because students can borrow money and pay it back all to and from the same place. Direct Loans offer college students an easy, affordable way to borrow money for college. It provides a way for almost anyone to afford the continuation of their educations. However, before understanding exactly what the Direct Loan Program does, it is important to first understand the specifics of the Federal Student Aid programs.

Without a doubt, the Federal Student Aid programs provide the most widely-used means of financial aid for college students. Virtually billions of dollars each year go to funding college educations. Federal Student Aid programs offer everything from grants - which do not have to be paid back - to loans - which much be paid back, along with the interest - to work study programs, which allow students to work during college (usually at the college). In general, the Federal Student Aid programs include but are not limited to: Pell Grants; Stafford Loans offered through either Direct Loans or the Federal Family Education Loan Program; PLUS Loans, available solely for parents and graduate or professional students (these, too, are offered either through Direct Loans or the Federal Family Education Loan Program); consolidation loans, also available through Direct Loans or FFEL; work study programs; Perkins Loans; and Federal Supplemental Educational Opportunity Grants.

Federal work study programs, Perkins Loans, and Federal Supplemental Educational Opportunity Grants are also known as Campus-based programs, as they are offered only through individual universities.

Now to focus on Direct Loans, which the United States government offers directly (whereas those loans offered by the Federal Family Education Loan Programs are private loans). As aforementioned, Direct Loans offer Stafford Loans, PLUS loans, and consolidation loans. While receiving Direct Loans are relatively easy, there are a few steps which must be followed. For starters, a student must complete the FAFSA form, after which, the university which the student wishes to attend will create a financial aid package that may include Direct Loans. The student then has to sign a master promissory note, assuming he or she wants to accept the loan.

For the entire life of the loan, the student must make payments directly to the Department of Education. This is because Direct Loans are not sold. A definite pro of Direct Loans is their numerous options for repayment. They have four very flexible repayment plans: standard, extended, graduated, and income contingent. No matter which option a student chooses, they can always go back and change it. Before a student graduates, there are counselors who discuss the repayment options and provisions.

Direct Loans is one of the easiest, most rewarding financial aid programs available today. Their repayment options are second to none and they are very understanding when it comes to unemployment deferrals and the like. Students about to embark on the college experience would do well to check into Direct Loans thoroughly, because they truly do have something to fit every student's financial needs.

The William D Ford Direct Student Loan Program

The Direct student loan program started approximately 15 years ago and was intended to cut out the middle man so that, instead of involving banks, credit unions and other private lenders, the Federal government loans the money directly to students and parents.

Direct loan programs overlap the alternative which is called the FFELP, or Federal Family Education Loan Program, which is a program designed to work through a network of private lenders. Since direct loan programs duplicate in many ways the FFEL programs, it is important to decide which program you want. Both programs offer both Stafford and PLUS loans.

The criteria for eligibility on both programs is the same and they follow identical need based guidelines, or have identical credit check requirements as those for non need based programs. Since both programs essentially provide the same loan funding this raises the natural question of how to choose between them.

To some degree the decision involves choosing which of two providers you will have to deal with. For example, although both will provide customer service personnel to answer any questions, in some cases you may find that private lenders will be more helpful and flexible while the government will be indifferent or more bureaucratic. This will not always be the case of course and sometimes you will find that just the opposite is true.

One of the best ways to get a feel for the service you are likely to receive from different lenders is to read some of the Internet forums dealing with the subject of student loans. Also with the tremendous growth of social networks in recent years it has become much easier to find a diverse set of opinions. Of course you do have to be careful as many of the views expressed are based more on personal taste than objective criteria, but reading the posts will quickly show you which side the poster favors.

There are however some more concrete differences between the two types of loan. For example, because FFELP loans are both funded and serviced by private financial institutions the organization with which you sign a promissory note might not be the organization to which you make repayments. It is a common practice these days for lenders to 'sell' loans on to other companies in much the same as most mortgage companies do.

This is an important consideration because you might have gone to the trouble of finding a lender you like, choosing beyond simply the interest rate on the loan and repayment terms and preferring their customer service, only to find that your loan is sold on and you are dealing with a company which you had previously rejected. In the case of direct loans however, because loans are not sold on by the Federal government, this problem does not arise.

Perhaps the most important difference for the majority of lenders however will be the difference in rates, repayment terms and fees between the two. Here you need to remember that while the interest rates on Stafford and PLUS loans are officially fixed private lenders do enjoy some flexibility in other areas.

They might or might not for example charge both origination and insurance fees, which are currently assessed at 3% and 1%, according to Federal rules. Though these charges will still be applied to your loan, a private lender might agree to absorb these in order to get your business. They might as an example choose to alter the dates on which interest charges are calculated or to either extend a grace period or increase your repayment period.

At the end of the day the only way to discover just what is available is to shop around in much the same way as you would if you were looking for any other kind of loan.