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Direct Loan Program: History, Types, and Process Basics

This session provides a brief history of student aid, an overview of the Direct Loan Program, and discusses the types of loans, loan limits, repayment options, and processing basics.

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Direct Loan Program: History, Types, and Process Basics

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  1. Session 44 Direct Loan A-Z Julie Aloisio

  2. Topics of Discussion • Brief History of Student Aid • Basic Overview of the Direct Loan Program • Direct Loan Processing Basics • Roles and Responsibilities

  3. Brief History of Student Aid

  4. Student Aid History National Defense Education Act Higher Education Act College Work-Study Program The GI Bill 1965 1958 1964 1944

  5. Student Aid History Basic Educational Opportunity Grant (PELL) PLUS and Consolidation created Renamed FFEL, unsub begins Creation of SLS Direct Loan Program HERA 1969 1980 1986 1992 1994 2006

  6. Basic Overview of the Direct Loan Program

  7. Direct Loan Overview • Official Name: • William D. Ford Federal Direct Loan Program • What is it? • Federal Student Aid program providing low-interest loans to students and parents

  8. Direct Loan Types • Subsidized • Need-based; no interest charged while in school and during grace periods or deferment • Unsubsidized • Not need-based; interest charged during all periods • PLUS • Not need-based; for parents or graduate/professional students • Consolidation • Combines loans for easy repayment

  9. Subsidized and Unsubsidized Loans • Enrollment • Eligibility • Agreement- Master Promissory Note • Interest • Loan Limits

  10. Year Dependent Undergraduate Independent Undergraduate Graduate/ Professional Student 1st Year $2,625 $6,625 (maximum $2,625 subsidized) Up to $18,500 each academic year (maximum $8,500 subsidized) 2nd Year $3,500 $7,500 (maximum $3,500 subsidized) 3rd Year and above $5,500 $10,500 (maximum $5,500 subsidized) Annual Loan Limits (Sub/Unsub Only)

  11. Subsidized and Unsubsidized Loans • True or False? • There is no charge for Direct Loans • The student can cancel his/her loan • Students begin repayment immediately after graduation

  12. Subsidized and Unsubsidized Loans • True or False? • There is only one type of repayment plan. • Students can postpone payments. • Loans can be discharged (forgiven)

  13. PLUS Loans • Eligibility • Credit Check • Agreement-MPN • Single loan MPNs • Interest • Loan limit

  14. PLUS Loans • Borrower Type • Parents • Graduate/Professional students • What is the difference between borrower types?

  15. PLUS Loans • True or False? • There is a charge for the loan • Parents receive the money directly • There is only one repayment plan • Repayment is delayed until after school • There are set loan limits for Graduate/Professional students

  16. Master Promissory Note (MPN) • Legal agreement • Multi-year, multi-loan notes • Exceptions • Plain Language Disclosures • Disclosure Statements

  17. Direct Loan Program Processing Basics

  18. School Bird’s Eye View of the Direct Loan Process Student/Borrower Apply Disburse Origination Servicing Repayment Drawdown Federal Student Aid

  19. Common Origination and Disbursement (COD) Processing • School confirms eligibility, awards, and disburses aid • School creates student record • Common Record or COD Web site • School sends information to COD • COD processes/edits and returns response • Error correction, when necessary

  20. CPS Match and Student Identifiers Common Record XML Origination Disbursement Drawdowns “Booked” Loans Message Classes Reconciliation/Closeout SAIG EDExpress Terms and Definitions

  21. School Setup OptionsTrue or False, what do you think? • Funding • Schools have no options for funding • MPN Printing and Processing • MPN processing is hard • Multi-year vs. Single-year • Only 4-year schools can use the multi-year function of the MPN

  22. Paper Processing COD or school can print Forms available to order School handles the paper Electronic Processing School signs up via Customer Service Setup options Faster processing and reduces errors MPNs-Paper or Electronic

  23. School Tools • COD Web site • COD Technical Reference • Reports • Publications • Communications

  24. Roles and Responsibilities

  25. Students and Schools • Students • Apply for aid and meet eligibility requirements • Receive and repay • Schools • Certify eligibility • Deliver proceeds • Educate borrowers about their responsibilities • Send/receive financial and student data to/from Federal Student Aid • Funds management and reconciliation

  26. Federal Student Aid • Policy Liaison and Implementation • Financial Partners • Borrower Services • Chief Financial Officer • Ombudsman • Business Operations • Application, Operation, and Delivery Services • Direct Loan Operations

  27. Direct Loan Operations • Provides operational, system, and service support to schools • Eligibility • Funding • Reconciliation/Closeout • Communication/Customer Service

  28. Direct Loan Information • Regulatory Cites: Code of Federal Regulations 34 • Part 668 provides the general provisions for all the Title IV programs • Part 685 is specific to the Direct Loan Program • FSA Handbook References • Origination: Volume 4, Chapter 1 • MPNs: Volume 4, Chapter 1 • Disbursements: Volume 4, Chapter 2 • Cash Management: Volume 4, Chapter 3

  29. Resources for Schools • COD School Relations Center • www.cod.ed.gov 800/848-0978 • General Direct Loan Information • www.ed.gov/offices/OSFAP/DirectLoan/index.html • General Federal Student Aid Information • www.ifap.ed.gov • Common Services for Borrowers-School Services • http://schools.dlssonline.com/ 888/877-7658 •  Direct Loan Consolidation Center • www.loanconsolidation.ed.gov 800/557-7392

  30. Resources for Borrowers • Direct Loan Information • www.ed.gov/offices/OSFAP/DirectLoan/index.html • General Federal Student Aid Information • www.studentaid.ed.gov 800-433-7327 • COD School Relations-Applicant Services • 800/557-7394 • Direct Loan Servicing Center/Common Services for Borrowers • www.dl.ed.gov 800/848-0979 •  Direct Loan Consolidation Center • www.loanconsolidation.ed.gov 800/557-7392 • Federal Student Aid Ombudsman • www.ombudsman.ed.gov 877/557-2575

  31. Other Direct Loan Sessions Session 40 Hands On Tour of DL Tools Session 41 Best Practices in Using DL LSDA Session 42 DL Funding & Cash Management A-Z Session 43 Best Practices for Processing DL at Your School Session 45 Direct Loans – How to Get Started Session 46 What’s New in Direct Loans: Grad PLUS and other HERA Related Changes Session 47 Direct Loan Reconciliation and Closeout Session 48 Direct Loan Reports & Reference Materials-Tools of the Trade Session 49 How Direct Loan Servicing is Improving the Financial Aid Experience for You and Your Students

  32. Questions or Comments? We appreciate your feedback and comments. Direct Loan Operations Team can be reached via e-mail at: dlops@ed.gov

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