FFELP Loans Vs. Direct Loans: Which Should You Choose?
The average cost of a college education is rising at an alarming rate across the United States. Hence, most American students need financial aid to pursue higher education. Two of the most common financing programs for students include the Federal Family Education Loan Program (FFELP) and Direct loans, both backed by the Department of Education (ED).
While both options fall under the category of federal student lending products, they differ from one another a great deal. To help you understand both the programs’ benefits, let’s delve a little deeper into the Direct loan versus the FFEL program.
What Is An FFEL Program?
Let’s first take a look at what FFELP loans are.
The Federal Family Education Loan Program, commonly known as FFELP, is federal student aid where the funds for lending products come from credit unions, banks, and other financial organizations.
As of July 2010, no new lending products are being offered by the FFEL program. Yet, if you’re still paying off your student debt, it’s essential to know about the program. There were four types of products issued under the FFELP umbrella:
- Subsidized Federal Stafford: These entail that the interest was paid by the government when the student enrolls in the school, during deferment times, and grace periods
- Unsubsidized Federal Stafford: This program has a similar structure to the subsidized option. Although, the government doesn’t pay the interest on the student’s behalf
- FFEL PLUS: Through this type of financing, parents are allowed to borrow money to put toward the costs of college education for their dependents or children
- Consolidated: This financing type involves merging various federal student debts to form a single loan
Benefits Of The FFEL Program
The advantages of the FFEL program are similar to those embodied by the Direct program. Moreover, it’s essential to be aware of the following:
- FFELP lending products can’t be forgiven. Even if you’re qualified for Direct financing and you’re already working in an eligible job, any payment made towards the five-year or ten-year requirements wouldn’t be shown in an active FFELP type
- Students may be asked to consolidate all their lending products into the Direct program to qualify for the forgiveness plan. In this case, the borrower may have their five-year or ten-year repayment clock reset
What Is A Direct Loan?
This program offers low-interest lending products to eligible students and parents. It’s allotted and managed by the Department of Education. Moreover, it’s the only educational lending program backed by the Federal government.
This product can be categorized into two different types: subsidized and subsidized loans.
- Direct subsidized: These are provided to undergraduates with a demonstrated financial requirement. It offers low rates and easy repayment terms
- Direct unsubsidized: These are non-needs-based lending products with reduced interest and flexible repayment options
The financing options granted under this initiative come with a maximum set of amounts for every year. Whether you apply for a subsidized or unsubsidized type, you’ll need to submit the FAFSA application.
Benefits of A Direct Loan
- Borrowers are eligible for public service debt forgiveness
- These come with a reduced interest rate when compared to private lending products
- There’s no mandatory credit history required at the time of applying unless you’re applying for the PLUS option
- Rates will remain fixed for the entire term
- This financing option eliminates the requirement of a co-signer when applying. Also, family members won’t have to be concerned about covering the repayments
- You can pause or postpone the payments by opting for deferment plans when facing an economic crisis
- Students with high financial requirements qualify for the subsidized type
The Bottom Line
The FFEL program has helped thousands of students over the years, especially during the recession in 2008. However, it was shut down in July 2010. Therefore, all new lending products are now being underwritten by the Direct loans program.
If you need financial aid for further studies, make sure to fill out the FAFSA form to check your eligibility for this initiative.
