Direct Loans (FFELs Loans)
 

How can I get a FFEL Loan?
You must fill out a FAFSA. After your FAFSA is processed, and you have also completed a Loan Request, your school will review the results and will inform you about your loan eligibility. Please remember that the loan request form is not a substitution for an MPN; a student will not receive a loan until a MPN has been completed. A Master Promissory Note (MPN) is a legally binding contract you sign, agreeing to repay the loan money you borrow. A student may complete an electronic version of the MPN on-line at www.sgc.edu/finaid/MPN. Also, students are required to complete entrance counseling each year for which a loan is requested. Loan Counseling may be completed on-line at www.mappingyourfuture.org.

How to Choose and Evaluate Lenders
You'll need to choose a lender if you obtain a FFEL Direct Loan. Schools that participate in the FFEL Program will usually have a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer (for example, a credit union). Here are a few things to think about when selecting a FFEL lender.

How much can I borrow?
It depends on your year in school and whether you have a subsidized or unsubsidized FFEL Direct Loan. A subsidized loan is awarded on the basis of financial need. If you're eligible for a subsidized loan, the government will pay (subsidize) the interest on your loan while you're in school, for the first six months after you leave school, and if you qualify to have your payments deferred. Depending on your financial need, you may borrow subsidized money for an amount up to the annual loan borrowing limit for your level of study (see below).

You might be able to borrow loan funds beyond your subsidized loan amount even if you don't have demonstrated financial need. In that case, you'd receive an unsubsidized loan. Your school will subtract the total amount of your other financial aid from your cost of attendance to determine whether you're eligible for an unsubsidized loan. Unlike a subsidized loan, you are responsible for the interest from the time the unsubsidized loan is disbursed until it's paid in full. You can choose to pay the interest or allow it to accrue (accumulate) and be capitalized (that is, added to the principal amount of your loan). Capitalizing the interest will increase the amount you have to repay.

You can receive a subsidized loan and an unsubsidized loan for the same enrollment period as long as you don't exceed the annual loan limits.

If you're a dependent undergraduate student (excluding students whose parents cannot borrow PLUS Loans), each year you can borrow up to:

• $5,500 if you're a first-year student enrolled in a program of study that is at least a full academic year. No more than $3,500 of this amount can be in subsidized loans.
• $6,500 if you've completed your first year of study and the remainder of your program is at least a full academic year. No more than $4,500 of this amount can be in subsidized loans.

If you're an independent undergraduate student or a dependent student whose parents have applied for but were denied a PLUS Loan (a parent loan), each year you can borrow up to:

• $9,500 if you're a first-year student enrolled in a program of study that is at least a full academic year. No more than $3,500 of this amount may be in subsidized loans.
• $10,500 if you've completed your first year of study and the remainder of your program is at least a full academic year. No more than $4,500 of this amount may be in subsidized loans.

When you graduate with a graduate or professional degree, the maximum total debt allowed from Direct Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans. This maximum total graduate debt limit includes Direct Loans received for undergraduate study. However, the aggregate loan limit for graduate and professional students enrolled in certain approved health profession programs is $224,000.

These amounts are the maximum yearly amounts you can borrow in both subsidized and unsubsidized FFELs or Direct Loans, individually or in combination. Because you can't borrow more than your cost of attendance minus the amount of any Federal Pell Grant you're eligible for and minus any other financial aid you'll get, you may receive less than the annual maximum amounts.

How will I get the loan money?
For the FFEL programs, you'll be paid through your school in at least two installments. No installment may exceed one-half of your loan amount. Your loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, you'll receive the funds by check.

Generally, if you're a first-year undergraduate student and a first-time borrower, your school cannot disburse your first payment until 30 days after the first day of your enrollment period. This practice ensures you won't have a loan to repay if you don't begin classes or if you withdraw during the first 30 days of classes.

What's the interest rate?
For all unsubsidized Direct loans first disbursed on or after July 1, 2006, the interest rate is fixed at 6.8 percent. The interest rate for subsidized Direct loans first disbursed on or after July 1, 2008 is fixed at 6.0 percent. This change from a variable to a fixed interest rate does not affect a borrower's variable interest rate on loans made before July 1, 2006.

For Direct Loans first disbursed between July 1, 1998 and June 30, 2006, the interest rate is variable (adjusted annually on July 1st) but will not exceed 8.25 percent. (You'll be notified any time the variable rate changes.) The interest rate for these loans in 2008-09 is 4.21. (These rates apply to loans in repayment status; the rate may be lower during grace and deferment periods.)

Interest Rate Reductions
Over a four-year period beginning July 1, 2008, the interest rate on subsidized Direct Loans made to undergraduate students will be reduced. The applicable interest rates for loans made during this period are as follows:

These changes apply to subsidized Direct loans first disbursed on or after July 1 of each year through June 30 of the next year. This change does not affect any prior loans made to borrowers; the terms and interest rates of those loans remain the same. These reduced interest rates apply only to subsidized loans; any unsubsidized Direct Loan for the same undergraduate borrower would continue to be made at the current fixed interest rate of 6.8 percent.

Other than interest, is there a charge for this loan?
For Direct Loans that are first disbursed between July 1, 2008 and June 30, 2009, there is a fee of up to 2 percent of the loan, deducted proportionately from each loan disbursement. For a FFEL Direct Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency (the organization that administers the FFEL Program in your state) to help reduce the cost of the loans. Also, if you don't make your loan payments when scheduled, you may be charged collection costs and late fees.

New interest rate cap for Military Members
Interest rate on a borrower’s loan may be changed to six percent during the borrower’s active duty military service. Additionally, this law applies to borrowers in military service as of August 14, 2008.

Borrower must contact the creditor (loan holder) in writing to request the interest rate adjustment and provide a copy of the borrower’s military orders.

When do I pay back my Direct Loans?
After you graduate, leave school, or drop below half-time enrollment, you will have a six-month "grace period" before you begin repayment. During this period, you'll receive repayment information, and you'll be notified of your first payment due date. You're responsible for beginning repayment on time, even if you don't receive this information. Payments are usually due monthly.

During the grace period on a subsidized loan, you don’t have to pay any principal, and you won’t be charged interest. During the grace period on an unsubsidized loan, you don’t have to pay any principal, but you will be charged interest. You can either pay the interest or it will be capitalized (added to your principal loan balance, thus increasing the amount you’ll repay).

How do I pay back my loans?
The FFEL program offers four repayment plans you can choose from. You will receive more detailed information on your repayment options during entrance and exit counseling sessions your school will provide.

What if I have trouble repaying the loan?
Under certain circumstances, you can receive a deferment or forbearance on your loan, as long as it’s not in default. During a deferment, no payments are required. You won’t be charged interest for a subsidized FFEL Direct loan. If you have an unsubsidized Direct Loan, you are responsible for the interest during deferment.
If you’re temporarily unable to meet your repayment schedule (for example due to poor health or other unforeseen personal problems), but you’re not eligible for a deferment, your lender might grant you forbearance for a limited and specified period. For more information, contact your Lender.

Can my Direct Loan ever be discharged (canceled)?
Yes, but only under a few circumstances. Your loan can’t be canceled because you didn’t complete the program of study at the school (unless you couldn’t complete the program for a valid reason—the school closed, for example), or because you didn’t like the school or the program of study, or you didn’t obtain employment after completing the program of study.