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AwardYear: 1998-1999 EnterChapterNo: 11 EnterChapterTitle: William D. Ford Federal Direct Loan Program SectionNumber: SectionTitle: Introduction PageNumbers: 1-4 The William D. Ford Federal Direct Loan Program (also known as the Direct Loan Program and Direct Loans) was authorized under Title IV of the Higher Education Act with passage of the Student Loan Reform Act of 1993. A major source of federal student assistance, the Direct Loan Program provides loans to eligible borrowers to cover postsecondary education costs. The program uses loan capital the federal government provides, requires only one aid application (the Free Application for Federal Student Aid), and makes loans available directly through participating schools rather than through private lenders and guaranty agencies. The following types of loans are available through the Direct Loan Program: - Federal Direct Stafford/Ford Loans (Direct Subsidized Loans) are awarded to students who demonstrate financial need. Because the Department subsidizes the interest, borrowers are not charged interest while they are enrolled in school at least half time and during in-school, grace, and deferment periods. - Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans) are awarded to students regardless of financial need. Borrowers are responsible for the interest that accrues during any period. - Federal Direct PLUS Loans (Direct PLUS Loans) allow parents to borrow on behalf of their dependent undergraduate children who are enrolled at least half time. As with Direct Unsubsidized Loans, borrowers are responsible for the interest that accrues on a Direct PLUS Loan during any period. - Federal Direct Consolidation Loans (Direct Consolidation Loans) allow any borrower to combine one or more federal education loans into a new Direct Loan. The main participants in the Direct Loan Program are the borrowers (students and parents), the postsecondary schools, and the U.S. Department of Education (the Department). Each participant has a particular role. - Student borrowers must complete the Free Application for Federal Student Aid (FAFSA), sign a completed promissory note, participate in loan counseling, and repay the loan. - Parent borrowers must complete and sign the required application/promissory note, meet established credit standards, borrow on behalf of an eligible student, and repay the loan. - Postsecondary schools must meet and maintain specific eligibility criteria, meet and maintain specific criteria to originate loans, and execute a Program Participation Agreement with the Department. Schools must also certify borrower eligibility and disburse loan funds. - The Department funds, services, and collects loans; provides support services to schools; and oversees the program. Basic student and institutional eligibility requirements under the Direct Loan Program are consistent with other Student Financial Assistance (SFA) Programs. In addition, there are similarities, as well as important differences, between the Direct Loan Program and the Federal Family Education Loan (FFEL) Program. Chapter 11 focuses primarily on federal requirements and policies specific to Direct Loans. Chapter 2 covers general student eligibility requirements; Chapter 3 discusses general institutional requirements. For a comparison with the FFEL Program, see Chapter 10. RECENT CHANGES ----------------- There have been a few changes for the Direct Loan Program: - The separate application for schools wanting to participate in the Direct Loan Program has been eliminated (see page 11-10). - The aggregate loan limit has been increased for certain health professions students (see page 11-19). Other possible changes were under consideration at the time this Handbook went to print. The Department also expects to issue further guidance on some topics. - On September 25, 1997, the Department published a Notice of Proposed Rulemaking that would make changes to the Direct Loan Program regulations. These proposed modifications are intended to eliminate certain differences between the FFEL and Direct Loan programs. At the time this Handbook went to print, the Department expected to publish final regulations by December 1, 1997. - The interest rate formula for all Direct Loans is scheduled to change for loans first disbursed on or after July 1, 1998 (see pages 11-26 and 11-44). - The Department is planning to provide further guidance on the calculation of cohort default rates when a school changes its status (see page 11-65). Up-to-date information on these and other topics will be available on the SFA BBS. |
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