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USC: Palmetto College

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Federal Direct Lending
Questions and Answers

 

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, and the Direct Parent Loan for Undergraduate Students (PLUS).

 

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.  Why is USC changing to the Direct Loan Program?
A.  The Direct Loan Program will provide USC 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.  Yes, this change will affect all student or parent borrowers who plan to borrow a federal loan for the 2010-2011 academic year. 

 

Q.  Does this change affect my current year federal loans?  Also, what happens if I want to attend summer school?
A.  No, all current year and 2010 summer session loans will be processed through the current Federal Family Education Loan Stafford Loan process.  Your first Direct Loan will be for the fall 2010 semester.


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.  Parents who wish to use the PLUS loan will need to complete a separate PLUS loan application. 


Q.  Do I have to complete another Master Promissory Note?
A.  Yes, you must sign a new Direct Loan Master Promissory Note (MPN) because you will be borrowing from a new lender, the federal Department of Education. 


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 previously completed entrance loan counseling for the Federal Stafford Loan Program, you will not be required to complete it for the Direct Loan Program.


Q.  I am a parent.  I plan to borrow a PLUS Loan for my student in 2010-2011.  I usually get pre-approved through my lender.  What should I do this year?
A.  You will borrow through the Direct Loan program as well.  We will have more information about this process in the weeks to come.


Q.  What will happen to the existing loans that I have borrowed with other lenders?  Will the payments still be deferred now that University of South Carolina is changing its loan processing?
A.  Any loan(s) you borrowed from another lender either here at USC 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.   Also, as long as you are enrolled in school on at least a half time basis, your prior year Federal Stafford Loans will continue to be deferred.


Q. If I borrowed a Federal Stafford or Federal PLUS loan through a lender previously, and borrow a Federal Direct Loan in the future, will I have to repay two different lenders?
A.  Yes. Your Federal Direct Loan will be serviced by the Department of Education and you will receive correspondence and payment information from the Department of Education. You will also be contacted by other lenders from whom you have borrowed Federal Stafford or Federal PLUS Loans. However, you may have the option of consolidating all of your federal loans with the Federal Direct Loan program or any other lender that offers federal loan consolidation loans after you graduate or discontinue half-time enrollment. When it is time to repay your loans, if you consolidate your previous federal loans would be paid in full and all your payments would be made to the Federal Direct Loan Consolidation program.


Q. Is there other information available on Federal Direct Lending?
A. Yes, you may find the following websites helpful:

  1. U.S. Department of Education Direct Loan
  2. Direct Loan Servicing Online
  3. Direct Loan Consolidation 

Other important links:

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