Purdue University has announced in a press release that the Purdue West Lafayette campus has been approved to participate in the Federal Direct Student Loan Program for Stafford and PLUS loans processed beginning in the fall 2008 semester.  Previously, Purdue West Lafayette students have used Federal Family Education Loan Program (FFELP) banks and credit unions as private lenders and service providers such as Sallie Mae. These lenders and service providers were able to provide Purdue borrowers with generous borrower discounts in the past; however, turmoil in the national credit markets and a reduction in federal subsidies have led to a series of recent announcements about FFELP lenders reducing borrower discounts and ending participation in FFELP loan consolidation. In fact, many FFELP lenders have discontinued participation in FFELP altogether.

In a review of loan options for Purdue students in the current climate, the decision was made to facilitate students and parents being able to borrow directly from the federal government’s student loan program commonly referred to as the Direct Loan program.  Participation in Direct Lending offers a streamlined process so that students will always know with whom they are borrowing. In addition, Federal Direct Loan program borrower discounts are competitive with FFELP borrower discounts.  Borrowing from the federal government should ensure a high-quality, cost-effective, dependable loan program for Purdue families.  According to Purdue peer institutions (including 8 of 10 other Big Ten institutions), Purdue students and parents will find the Direct Loan program very easy to work with.

At this point, Purdue-West Lafayette students will be able to accept FFELP Stafford Loans and Grad PLUS loans in the 2008-09 Financial Aid Self Service web option, but will not have to select a lender choice.  Parent borrowers can submit a revised Parent PLUS Request Form.  

All Purdue FFELP borrowers will be required to submit a new Federal Direct Loan Master Promissary Note (MPN) at www.dlenote.ed.gov. Borrowers will be notified in June 2008 about changes in the MPN process. It is important that students read email from facontact@purdue.edu regarding new MPN instructions.

NOTE: FFELP loans processed for the 2008 summer session will continue to be processed through regular FFELP lender choices.

Questions about Purdue-West Lafayette Implementation of the Federal Direct Lending Program:

Q: Will all students and parents have to sign new master promissory notes (MPN) for Stafford and PLUS Loans?

A: Yes. They will sign their notes at a Department of Education website (now available at www.dlenote.ed.gov) with the same PIN they use to sign the Free Application for Federal Student Aid (FAFSA).

Q: Do Direct Lending Stafford and PLUS Loans have different interest rates than FFELP Stafford and PLUS Loans?

Stafford Loans: the interest rates in the two programs are the same. For Stafford Loans disbursed between July 1, 2008, and June 30, 2009, the interest rate is fixed at 6.0% for undergraduate Subsidized Stafford Loans (only) and fixed at 6.8 for Unsubsidized Stafford Loans and all graduate/professional Stafford Loans.

PLUS Loans: the interest rate is lower in the Federal Direct Loan Program than FFELP. For PLUS Loans disbursed between July 1, 2008, and June 30, 2009, the interest rate is 7.9%.

Q: What are the loan fees in Direct Lending?

Stafford: The effective up front fee will be 0.5% of the loan. For example, the proceeds of a $10,000 loan will be reduced by $50. If a student fails to make 12 consecutive on-time payments, they will be billed an additional 1.5% fee.

PLUS:  The effective up front fee will be 2.5% of the loan. For example, the proceeds of a $10,000 loan will be reduced by $250. If the borrower fails to make 12 consecutive on-time payments, they will be billed an additional 1.5% fee.

Q: Will the Division of Financial Aid (DFA) process a FFELP loan after summer 2008?

A: No, that will not be an option for Purdue-West Lafayette borrowers.

Q: Will borrowers in both the FFELP and Direct Loan program have multiple loan repayment servicers?

A: Yes.  However the borrower can consolidate in the Federal Direct Loan Consolidation program.

Q: Who will provide loan services in the Direct Lending Program?

A: Borrowers will work with the Division of Financial Aid (DFA) and the Federal Direct Loan Servicing Center.

Q: What kinds of repayment options are available with Direct Lending?

A: Repayment options in FFELP and Direct Lending are similar.