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William D. Ford Federal Direct Loan Program - Introduction

AwardYear: 1997-1998
EnterChapterNo: 11
EnterChapterTitle: William D. Ford Federal Direct Loan Program
SectionNumber:
SectionTitle: Introduction
PageNumbers: 1-2


The William D. Ford Federal Direct Loan Program (also known as
the Direct Loan Program and Direct Loans) was authorized under
Title IV of the Higher Education Act with passage of the Student
Loan Reform Act of 1993. The program began operation in the
1994-95 award year. A major source of federal student assistance,
the Direct Loan Program provides loans to eligible borrowers to
cover postsecondary education costs. The program uses loan capital
the federal government provides, requires only one aid application
(the Free Application for Federal Student Aid), and makes loans
available directly through participating schools rather than through
private lenders and guaranty agencies.

The following types of loans are available through the Direct Loan
Program:

- FEDERAL DIRECT STAFFORD/FORD LOANS (DIRECT
SUBSIDIZED LOANS) are awarded to students who demonstrate
financial need. Because the Department subsidizes the interest,
borrowers are not charged interest while they are enrolled in
school at least half time and during in-school, grace, and
deferment periods.

- FEDERAL DIRECT UNSUBSIDIZED STAFFORD/FORD
LOANS (DIRECT UNSUBSIDIZED LOANS) are awarded to
students regardless of financial need. Borrowers are responsible
for the interest that accrues during any period.

- FEDERAL DIRECT PLUS LOANS (DIRECT PLUS LOANS)
allow parents to borrow on behalf of their dependent
undergraduate children who are enrolled at least half time. As with
Direct Unsubsidized Loans, borrowers are responsible for the
interest that accrues on a Direct PLUS Loan during any period.

- FEDERAL DIRECT CONSOLIDATION LOANS (DIRECT
CONSOLIDATION LOANS) allow any borrower to combine one
or more federal education loans into a new Direct Loan.

The main participants in the Direct Loan Program are the borrowers
(students and parents), the postsecondary schools, and the U.S.
Department of Education (the Department). Each participant has a
particular role.

- STUDENT BORROWERS must complete the Free Application
for Federal Student Aid (FAFSA), sign a completed promissory
note, participate in loan counseling, and repay the loan.

- PARENT BORROWERS must complete and sign the required
application/promissory note, meet established credit standards,
borrow on behalf of an eligible student, and repay the loan.

- POSTSECONDARY SCHOOLS must meet and maintain specific
eligibility criteria, meet and maintain specific criteria to originate
loans, and execute a Program Participation Agreement with the
Department. Schools must also certify borrower eligibility and
disburse loan funds.

- THE DEPARTMENT funds, services, and collects loans; provides
support services to schools; and oversees the program.

Basic student and institutional eligibility requirements under the
Direct Loan Program are consistent with other Student Financial
Assistance (SFA) Programs. In addition, there are similarities, as
well as important differences, between the Direct Loan Program and
the Federal Family Education Loan (FFEL) Program. Chapter 11
focuses primarily on federal requirements and policies specific to
Direct Loans. Chapter 2 covers general student eligibility
requirements; Chapter 3 discusses general institutional requirements.
For a comparison with the FFEL Program, see Chapter 10.

Last Modified: 02/24/1998