In the United States there are two different Federal student loan programs that provide college students with Federal student loans - you know, those loans with ‘wonderful’ names like Stafford, Parent PLUS and Grad PLUS. For this current academic year, approximately 70% of colleges today participate in the Federal Family Education Loan Program (FFELP) where numerous nonprofit lenders and banks compete to provide you with Federal student loans.
The other Federal Student loan program, known as the William D. Ford Direct Loan Program, provides federal student loans to roughly 30% of colleges and is administered by the U.S. Department of Education.
New legislation called the “Student Aid and Fiscal Responsibility Act” has proposed eliminating the FFELP program in favor having the federal government originate 100% of the Federal student loans in the United States beginning in the upcoming 2010-2011 school year. It has passed the House of Representatives and is pending in the Senate.
All I Care About is Getting My Loan for College so How Does It Affect Me?
If your institution already participates in the Direct Loan Program, then it should be business as usual for the upcoming 2010-11 academic year. However, if your institution participates in FFELP (where you choose your Federal student loans from a nonprofit lender or bank), then the legislation could affect your student loans in the following ways:
• You would receive your new loans from the Department of Education and not from a private lender.
• Your new loans may be serviced by a separate servicing company from your existing loans. You may have two separate bills to pay and two separate companies to contact if an issue arises.
• Even if your new loans are serviced by the same company as your existing loans, you would still have two separate bills to pay. This is because the servicing agent will be required to divide your FFELP Loan billing statement from your Direct Loan statement.
• You will want to check often with your financial aid office to ensure your loan funds are received on time. There are some concerns that there may be delays in getting student loans next year because like any organization, whether government or private, that goes from 30% to 100% market share, there are bound to be hiccups and delays in the process. The Department and schools are working on the transition issues, but it is up to you to be aware of the status of your loan funds.
No matter the outcome of this legislation, we encourage you to pay close attention in the next academic year to the correspondence sent to you by your school financial aid office (as you should always!) for important updates regarding your Federal loans for the 2010-11 academic year, as well as possible changes to the financial aid process you followed in the past. And as always, be sure to complete your FAFSA available January 1, 2010 for the next academic year.