Ricky Ochilo, staff writer
Beginning in the fall of 2010, the College will be changing its financial lender from the Federal Family Educational Loan Program (FFELP) to the William D. Ford Direct Loan Program. Kathy Pack, Director of Financial Aid at Warren Wilson explained that the new lender program differs from FFELP in that students and parents will have guaranteed funding from the federal government as opposed to dependence on several banking institutions independent of the federal government.
One of the major reasons for the change in lenders is that several banks and credit unions withdrew from the FFELP program, which left no assurance on student credit because of inconsistencies with lending institutions, as well as the recent economic crisis, which has led to reduced credit availability.
According to Pack, the new lender serves as a benefit to “eligible students and parents who wish to borrow through subsidized, unsubsidized, Parent PLUS and Graduate PLUS loan programs.”
The PLUS loan allows parents to borrow up to the cost of education for undergraduate children. In addition, Pack emphaized that the program allows for guaranteed aid if a student is eligible. She added that student borrowers would no longer need to search for banks that will offer aid and have no definite commitment on maintaining the loan relationship. Pack noted that in the past two years some 150 banks have bailed out on the loan programs offered to college students.
However, there are some difficulties to expect for students and parents. Students who are under the old plan will be required to file and complete new Master Promissory Notes (MPN’s), which are agreements between the lender and the borrower on their intent to pay back the loan upon completion of a degree program. Similarly, students will be required to participate in Entrance Counseling with the Department of Education.
Apart from that, students and parents who have prior contracts with the FFELP and borrow with the new Direct Loan will have to balance two loans and make two payments when the students graduate. Likewise, Pack explained that the change will add more work for the financial aid department. There will be new forms and procedures for aidcompletion and submission in accordance with new software.
Nonetheless, Pack maintained that students and parents who have two loans will have the option of paying separately or consolidating the loans into one payment once a student graduates. In terms of annual amounts for aid, the Direct Loan offers the same amounts as the FFELP.
For example, freshmen and sophomores are still allotted $3,500 and $4,500 respectively under the subsidized loan program. Also, the interest rates for the subsidized and unsubsidized loans stand at 5.6 percent and 6.8 percent.
Direct loan is not accessible to international students.
“It is still a loan program offered by the federal government as are the FFELP loans,” Pack said.
She added that those eligible were U.S citizens and persons who qualify as permanent residents. Students still have the option to seek aid from banks and credit unions for private loans. These loans are not supported or subsidized by the federal government and usually have higher interest rates over time.
In relation to the change with the federal loan program is President Obama’s new economic stimulus bill, which further increases the amount of credit for college students to offset the rising tuition costs.
Obama’s plan will raise the HOPE credit, which is a tax credit and acts as a subsidy for loans. The credit stands at $1,800 and under the Obama administration plan it will be $3,700 and will go towards supplementing tuition, books and other college related fees.