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UConn to administer direct loan program

by Karen A. Grava - January 20, 2009

UConn is changing its student loan program to offer students and parents a more stable, streamlined, and predictable borrowing experience.

The new program, called the William D. Ford Federal Direct Loan Program, is backed not by individual banks but through loan funds coming directly from the U.S. Department of Education.

The Direct Loan Program will be the source of funding for all Federal Stafford and Federal PLUS loans, starting with the 2009/2010 academic year. These are the loans available to students regardless of income level and typically are used by middle income people.

“The Direct Loan program provides a guaranteed source of funding for student loans,” said Jean Main, director of financial aid. “Volatility in the credit markets and reductions in lender subsidies have caused many lenders to stop offering borrower benefits and other services to students and parents. The Direct Loan program is not affected by changes in the economy and provides a more stable loan process.”

Currently, UConn uses the Federal Family Education Loan program (FFEL), in which students and parents borrow from private banks and lenders.

The change means that current students who have federal loans will have to complete a new Master Promissory Note for the Direct Loan Program rather than just renewing their loans.

Students receive notification of their federal loan eligibility and complete the Master Promissory Note in February or March.

There are several benefits in the Direct Loan Program, said Main, including:

  • A guaranteed source of funding for student loans.

  • The option of an income-contingent repayment plan or an income-based repayment plan when a student enters repayment. This means a student has the option of ensuring that the loan repayment amount will always be affordable based on what the borrower’s income will allow.

  • Students in the Direct Loan Program who enter into public service jobs can have any remaining balance on the loans forgiven after 10 years of repayment while in public service work. (While this option does not exist in the FFEL Program, students who borrowed in that program can consolidate their loans into the Direct Loan Program in order to take advantage of this forgiveness.)

  • The interest rate for the parent PLUS loan and for the graduate PLUS loan is 7.9 percent in the Direct Loan Program compared to 8.5 percent in the FFEL Program.
  • Should a student make payments late under the Direct Loan Program, the late fees charged are less than the late fees charged by lenders in the FFEL Program.

More information for parents and students can be found at http://www.financialaid.uconn.edu/directFAQ2.



Differences in interest rates and fees between the FFEL and Direct Loan Program
Loan Type

Gross Fee

Minus Rebate*

Equals Net Fee Charged for 2009/2010

Direct Loan: Federal Stafford

1.5 percent

1 percent *

0.5 percent

FFEL: Federal Stafford

0.5 percent to 1.5 percent (varies by lender)


0.5% to 1.5% (varies by lender)

Direct Loan: PLUS

4 percent

1.5 percent *

2.5 percent


3 percent to 4 percent (varies by lender)


3 percent to 4 percent (varies by lender

*The upfront rebate reduces the fee a borrower pays at origination. If the first 12 monthly payments are not made on-time, the rebate amount will be added to the principal balance.


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