FFELP and DL Comparison
Federal Family Education Loan Program vs. the Federal Direct Loan Program
The primary difference between these two programs is the source of the loan application and loan funding, as listed below:
FFELP
This model combines the use of the three entities of lender, guarantor, servicer, as follows, to provide loan funding:
Loan Lender: A lender is the financial institution that provides the money to be borrowed through a student loan program. The lender approves the loan and applies for the loan guarantor.
Loan Guarantor: The loan guarantor is the agency or institution that insures up-to-permissible limits against loss to lenders in the event of a default. The loan guarantor often reviews and approves the loan on a lender's behalf, where such arrangements have been made between the guarantor and the lender. When federal loans are guaranteed by the guaranty agency, the agency is affixing federal protection to the loan. This protection ensures that the lender is repaid in the case of a default. The guaranty agency assumes responsibility for the defaulted loan and attempts to correct it.
Loan Servicer: A loan servicer is a company hired by your lender to process loan repayments.
DIRECT LOAN
This model uses the US Department of Education to provide the loan funding directly from the U.S. Treasury.
| Type of Loan | FFELP | Direct Loans | ||||
| Interest | Fees* | Interest | Fees* | |||
| Federal Subsidized Stafford | 5.6% | 0-2% | 5.6% | 0.5% | ||
| Federal Unsubsidized Stafford | 6.8% | 0-2% | 6.8% | 0.5% | ||
| Federal Parent PLUS | 8.5% | 3% | 7.9% | 2.5% | ||
| Federal Graduate PLUS | 8.5% | 3% | 7.9% | 2.5% | ||
*NOTE: Exact fees for the 2009-10 year are not known. Fee estimates are based on 2008-09 figures. In 2009-10, there may be a few lenders in the FFELP program who are still able to offer a zero-fee loan, but many banks will start charging the full 2 percent fee. We know that many students who borrowed through private lenders over the past several years are accustomed to a loan with no fees or a 1% fee. It is important to know that the current crisis in the financial markets limits the ability of lenders to offer these discounted fees.
Repayment Comparison
Federal Stafford Loan: Both the FFELP and DL programs have a 6 month grace period and have a 10 year period in order to repay the loan.
Federal Parent PLUS: A repayment period of 10 years begins immediately upon full disbursement of this loan in a given year. However, provisions to postpone repayment for up to four years in available in the DL program and through some private FFELP PLUS lenders.
Federal Graduate PLUS: Both the FFELP and DL programs have repayment deferred as long as you are enrolled at least half-time (6 semester units). Once repayment begins, you will have up to ten years to pay off the loan.
Both the FFELP and DL programs for all loan types currently incorporate an interest rate reduction of an additional .25% interest if a person chooses to use auto debit in repayment.
Loan Forgiveness Programs
Both FFELP and Direct Lending offer loan forgiveness programs. However, recent legislation provides students in Direct Lending with a new partial forgiveness program for those who enter public service during their repayment period. For comprehensive information on loan forgiveness programs, access:
