Federal Direct Loans
Beginning with the 2010-2011 academic year, CSU Channel Islands will participate in the Federal Direct Student Loan Program. This means that if you borrow a federal Stafford or PLUS loan next year, your funding will come directly from the federal government instead of private lenders as in the past. By participating in the Direct Loan Program, we ensure that CI families will have access to a secure, dependable, and affordable source of funds to finance their educational costs.
In this first year of our participation, there are steps that you will need to take to receive a Federal Stafford loan. All borrowers, regardless of whether they have borrowed a Federal Stafford Loan at CSU Channel Islands in a previous year, must complete these steps to receive a Federal Direct Stafford Loan.
Below is a list of questions related to the Direct Loan Program that should help students & families understand how this program will serve them.
Why did CSU Channel Islands decide to switch to the Direct Loan Program?
Federal Direct lending provides the most stable source of loan funding available because the funds are provided by the U.S. Treasury. The instability and uncertainty of the debt markets strongly influenced our decision to find the most secure funding solution possible. While there are many private lenders still in the Federal Family Education Loan Program (FFELP), we were concerned about future developments that could negatively impact students and the timely receipt of their loan funds.
By entering the Direct Loan program, students at CSU Channel Islands will not have to shop around for a lender, or look for the “best deal” on their student loan, or worry that the lender they chose may not still be in the program in future years. The Direct Loan Program provides certainty that access to student loans will not be a problem in the future.
What is the difference between the Direct loan Program and the Federal Family Education Loan Program (FFELP)?
The most important difference between the two programs is the source of loan funding. Direct loans come through the U.S. Department of Education using funds obtained from the U.S. Treasury. This program offers students one point of contact because the loans are made, backed, and serviced by the U.S. Department of Education. In the FFELP program, funds come from independent lenders (banks). In addition to the lender, a student may need to contact the guarantor and/or servicer of their –loan--which may be different agencies. Having multiple points of contact can be confusing for the student and can complicate the repayment process.
CSU Channel Islands’ participation in Direct Loans will give students, parents, and the university just one contact point in case of problems or questions with loans.
How will this change affect my current loans?
All loans for the 2009-2010 academic year will continue to be processed as in the past. The change to the Direct Loan program will begin with loans for 2010-11.
Any loans borrowed for the 2009-10 academic year or prior will remain with those lenders; they will not be converted to Direct Loans. For the 2010-11 academic year, borrowers will receive new loans directly from the U.S. Department of Education.
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. This will be the last Federal Stafford MPN you will have to sign as long as you continue to attend CSU Channel Islands. The Direct Loan MPN is completely on-line. You will need to have your Federal PIN (used to complete the FAFSA) in order to electronically sign the MPN.
How and when do I complete a Direct Loan Master Promissory Note?
If you have borrowed a loan in the past, and plan to use a Federal Stafford Loan during the 2010-11 academic year, you will need to complete a new MPN for Direct Loans. You can choose to complete the MPN at any time – whether or not you have received your Financial Aid Award Notice.
Once you’ve completed your MPN, your loan will not be processed until after you have been awarded a loan and accepted it online via MyCI. We expect to begin emailing Financial Aid Award Notices to continuing students in mid-June. You will have an opportunity to specify the precise amount of your loan when you accept it.
What if I find a lender that offers a better interest rate than the Direct Loan?
The interest rates and fees in the Direct Loan Program are comparable to those in the FFELP. CSU Channel Islands believes the student will benefit from the stability and ease of the Direct Loan Program; therefore, all federal loans beginning with the 2010-11 academic year will be processed only through the Direct Loan program.
What are the interest rates and fees charged in Direct Loans compared to FFELP?
| Types of Loans | Direct Loan | FFELP Loan | ||
|---|---|---|---|---|
| Program | Interest | Fees* | Interest | Fees |
| Subsidized Stafford Loan (for Undergraduates only) | 5.6% | 0.5% | 5.6% | 0.5 – 1.5% |
| Subsidized Loan (for all other students) | 6.8% | 0.5% | 6.8% | 0.5 – 1.5% |
| Unsubsidized Stafford Loan | 6.8% | 0.5% | 6.8% | 0.5 – 1.5% |
| Parent or Graduate PLUS Loan | 7.9% | 2.5% | 8.5% | 3.0 – 4.0% |
*Direct Loan Fee Rebate: The Direct Stafford Loan offers a 1.0% rebate on the origination fee – resulting in a net fee of .5%, which will be deducted from the gross amount of loan borrowed (if you borrow $3,500, for example, you will actually receive $3,482.50 – or $17.50 less). Once you enter repayment, if you make your first 12 monthly payments on time, the rebate becomes permanent. If you fail to make 12 on-time monthly payments, however, a charge for the initial rebate (i.e., $17.50) will be added to the outstanding balance of the loan.
The Direct PLUS Loan offers a 1.5% rebate on the origination fee – resulting in a net fee of 2.5%, which will be deducted from the gross amount of the loan borrowed. The 12 on-time payments rule also applies to the PLUS loan in order to keep the rebate.
We know that many students who borrowed a loan through the FFEL program over the past several years are accustomed to a loan with no fees. It is important to know that the current situation in the financial markets limits the ability of lenders to offer these discounted fees. Thus the loan fees in both programs will become comparable.
What happens if I have prior federal student loans through a bank, and now will have some through the Department of Education?
It is not unusual for a student to have loans from both Federal Stafford loan programs (FFEL & Direct). Since the choice of which loan program to participate in is made by the school, students transferring from one school to another, or pursuing a post-Baccalaureate degree, could already have loans from both programs. Once your loans enter a repayment status, you can proceed in one of two ways:
- You can keep your loans separate – and make payment to your FFEL loans as well as a payment to your Direct Loans.
- You can take out a consolidation loan which combines both types of loans into a single loan – providing you with just one payment to one source.
How does the consolidation process work?
Once a student graduates or chooses to no longer attend school on a half-time basis, she/he can contact the Direct Loan Program for an application for a Direct Consolidation Loan, which will combine the FFEL and Direct Stafford Loans into a single loan. When it comes time to begin repaying the loans, the borrower will be provided with several options concerning consolidation and will be able to choose which one has the greatest advantage.
For more information on the Federal Direct Loan Program, visit the links below:
- Direct Loan Basics for Students (PDF, 2.09KB)
- Direct Loan Basics for Parents (PDF, 2.49 KB)
- Direct Loan Basics for Graduate Students (PDF, 1.26 KB)