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Office of Student Financial Aid prepares for direct lending

February 3, 2010 By John Lucas

Beginning with the 2010-11 academic year, the University of Wisconsin–Madison is joining thousands of other U.S. higher education institutions in the Federal Direct Student Loan Program.

As a result, UW–Madison students with federal Stafford, Grad PLUS and Parent PLUS loans will borrow their funds from the federal government instead of from multiple private banks and credit unions.

“Under the Direct Loan Program, there is one lender: the U.S. Department of Education. This makes the process much more efficient for schools and borrowers,” says Susan Fischer, director of the Office of Student Financial Aid.

However, the change is expected to have little visible impact on students and families.

“While this is a major change concerning the origination of our federal student loans, we don’t expect any significant problems,” says Fischer. “Everyone should expect the same first-class service from our loan area that they have received in the past. As we embark on this process, we’re ready to answer questions and make the transition smooth and seamless.”

The shift comes in the wake of turmoil in the financial markets, which led many private lenders to suspend or terminate their participation in the Federal Family Education Loan Program (FFELP). In addition many lenders sold their student loans to the Department of Education, leaving borrowers with multiple loan holders to repay.

For these reasons, UW–Madison decided to change lending programs and will convert to the William D. Ford Federal Direct Loan Program, commonly known as “Direct Loans.”

UW-Madison will begin making new loans under the Direct Loan Program beginning this summer.

The change necessitates only one action on the part of students, who need only to sign a new Master Promissory Note (MPN). More information about how to sign will be come directly to students via e-mail. Students must have completed a Free Application for Federal Student Aid (FAFSA) and received a financial-aid offer first. Therefore it is very important to apply for financial aid as soon as possible.

As part of direct lending, the Stafford direct loan is exactly the same in terms and conditions, interest rates and loan fees as the FFEL. The Grad PLUS loans and Parent PLUS loans will benefit from a lower interest rate of 7.9 percent, as compared to 8.5 percent in the FFEL program.

Federal direct loans offer other advantages, such as more flexible repayment plans, easier tracking and a greater possibility of loan forgiveness for students who perform public service after graduation.

Most loans will remain with their current service provider, most likely the Great Lakes Higher Education Corp. However, due to the sale of loans to the U.S. Department of Education, the Office of Student Financial Aid highly encourages students and families to pay very close attention to mailings from their loan provider. Letters with repayment information were sent to those who were affected by the sale.

Borrowers can also track their federal loans online through the National Student Loan Data System (NSLDS) at http://www.nslds.ed.gov. UW–Madison’s service provider, the Great Lakes Higher Education Corp., can also assist with any questions. Contact them at 800-236-4300.

Visit http://www.finaid.wisc.edu/ for more information.