Federal Direct Student Loans...Government School Loans

Federal Direct Student Loans are now the only federal government school loans in the U.S.- direct loans for everything from student loans consolidation, to federal student loan forgiveness.

The good news is that students will no longer have to scramble to find the best deal, but that's the bad news also.

The switch from FFELP loans by private lenders (97% backed by the government) to direct loans was projected to save $94 billion over 10 years. This money will be used to increase Pell grant amounts for students with low EFC (expected family contribution) scores.

Unlike federal government student loans, these grants do not have to be repaid.

These changes are now in place, having been just finished in time for the 2010-2011 school year and thereafter.

All students now get the same treatment, (no matter what school they attend) pay the same fees, and consolidate at the same federal interest rates.

(You can check your consolidation interest rate using the student loan consolidation calculator.)

The results so far? The automatic deduction benefit for federal Direct student loans was eliminated, now that there are no FFELP competitors to offer it. (It was only .25%,but still...) As for Pell grants, the amounts have stayed the same, but the second award in the same calender year (for summer classes) has also been eliminated. Doesn't seem much like a win-win, anymore, does it?

Federal Direct Student Loans...The Good Points

• Whether its a federal direct subsidized loan, an unsubsidized Stafford loan, or a PLUS loan (graduate or parents) you simply need your FAFSA PIN to go to the direct loans login and fill out/sign your master promissory note. Its that simple.
• Your signature is good for multiple loans (up to ten years)
• You always know who your lender is (the U.S. Department of Education) and where to find your information
• Unlike some FFELP lenders' sites, any form you might need is on the official site (accessible from the direct loans homepage) and ready to download.
• Here's the big one: federal direct PLUS loans have a lower interest rate than FFELP PLUS loans- 7.9% as compared to 8.5%- If you're in the market for parent college loans, this is a savings.

Federal Direct Student Loans...The Bad Points

• Your direct loans servicing center is the U.S. Department of Education (or one of four other companies under contract to the Department). If it is the Department of Education,
• You cannot make your direct loans payment over the phone when their payment scheduling and processing is down. (which is fairly frequent)
• Customer service is not great- Your questions may receive different answers from different people.
• Getting anything in writing which reflects your phone conversation is just about impossible.
• You may be referred to other government departments for answers to student loan questions.
• You cannot look for added benefits either on the front end or back end of your loan. Some of the benefits that FFELP lenders used to offer were:
• waiving of fees
• reduced interest for a number of on-time payments
• different interest rate reductions for automatic payment- for direct loans, its a flat .25%
• reduction of principal or interest for graduating on time or with a minimum GPA