banner
Student Financial Aid

Direct Lending Frequently Asked Questions

Beginning Fall 2010, the University of Maryland College Park began participation in the William D. Ford Direct Loan program. As a result of this change in policy, all student and parent borrowers receive funding for their federal student loans directly from the U.S. Department of Education rather than from private banks and other lending institutions. Below is a list of questions and answers related to the Direct Loan program that should help students and families understand how this program works.

Q. What are Direct Loans?

A. Direct Loans are federally insured low-interest education loans for students and parents. These include the Direct Subsidized Loan, the Direct Unsubsidized Loan, the Direct Parent Loan for Undergraduate Students (PLUS) and the Direct Graduate PLUS Loan programs for graduate and professional students.

Q. Why did the University of Maryland College Park change to the Direct Loan Program?

A. As many of you are aware, the Reconciliation Bill that passed both the House and the Senate and is now law. Included in the Reconciliation Bill was HR3221, a Student Loan Bill, which requires all federal educational loans be processed through the Federal Government rather than through private lenders.

Q. What is the difference between Direct Loans and the Federal Family Education Loan Program (FFELP)?

A. The primary difference between Direct Loans and the Federal Family Education Loan Program, (Stafford Loan) is the source of funding. While FFELP loans are funded through a variety of banks and private lending institutions, Direct Loan funds are borrowed directly from the federal government. Additionally, Direct Loans borrowers have a single contact, the Direct Loan Servicing Center, for everything related to the repayment of the loan.

Q. Does this change impact me?

A. If you are a new or continuing student or parent borrower who plans to borrow a federal loan for the 2010-2011 academic year, this change will affect you. After the 2009-2010 academic year UMD will no longer process any loans through the Federal Family Education Loan Program (FFELP).

Q. Will other student aid programs such as federal and state grants be affected by what is happening with student loans?

A. No, those programs are not affected.

Q. What are the interest rates for Direct Loans?

A. Direct Federal PLUS Loans have a 6.84% fixed interest rate. The Federal Subsidized and Unsubsidized Loans have a 4.29% fixed interest rate for undergraduates. The Federal Unsubsidized Loan has a 5.84% fixed interest rate for graduate students.

Q. What do I need to do to receive a Direct Loan?

A. Students will continue to complete the Free Application for Federal Student Aid (FAFSA) on the web, as they've done in the past. Parents who wish to use the PLUS loan will need to complete the application with the Department of Education at StudentLoans.gov.

Q. Do I have to complete a Master Promissory Note?

A. Yes, you must sign a Direct Loan Master Promissory Note (MPN) to receive Direct Loan funds. Your MPN may be used for multiple award years so you do not need to sign another Direct Loan MPN for future loans at UMD.

Q. How do I complete my Master Promissory Note?

A. You may choose to complete your new Direct Loan MPN at any time, even before you've received your award letter! This process can be completed online. You will need the Federal Student Aid ID (FSA ID) in order to electronically sign your MPN. This is the same FSA ID used to sign the FAFSA. More information on your FSA ID is available online.

Q. Do I have to complete entrance counseling for Direct Loan?

A. Yes. If you have previously completed entrance loan counseling here at UMD, you will not be required to complete another one. Only new borrowers are required to complete entrance counseling. If you are a first time borrower, you need to fill out Direct Loan Entrance Counseling.

Q. I am a parent. I plan to borrow a PLUS Loan for my student. I had previously been pre-approved through my lender. What should I do this year?

A. You will borrow through the Direct Loan program as well. Please complete the PLUS Loan application with the Department of Education at StudentLoans.gov.

Q. What will happen to the existing loans that I have borrowed with other lenders? Will I have to repay two different lenders now?

A. Any loan(s) you borrowed from another lender either here at UMD or at another institution will be maintained by the lender/servicer with whom you signed your original MPN. Your Direct Loan will be serviced by the Department of Education. You will receive correspondence and payment information from both the Department of Education and your prior lender/servicer.

With a consolidation loan, you will have only one payment to make each month and one lender. To learn more about consolidation, please refer to Federal Direct Consolidation Loans Information Center. You may review all of your loans at National Student Loan Data System, the U.S. Department of Education’s (ED’s) central database for student aid.