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What is the Difference Between a FFEL and a Direct Student Loan?

When it comes to federal student loans, the program under which you obtained them can make a difference. When you look at your loans in the National Student Loan Data System (NSLDS), you might be wondering what FFEL and DL mean. Fortunately, the answer is simple.

What Is the Difference?

FFEL is the Federal Family Education Loan program, and it was active through July of 2010. Under that system, a private bank would originate the loan with a federally designated Guarantee Agency (GA) to back it up. Should the loan go into default, then the bank would put in a claim for payment, and the GA would "buy" the loan. From there the GA would assign it to a collection agency.

In 1993, the U.S. Department of Education rolled out the William D. Ford Direct Loan program in which it would originate the loans directly, rather than private banks. Then, in July of 2010, they decided to "cut out the middleman" entirely, and discontinued the FFEL program.

How Can This Difference Affect Me?

This move to direct loans simplified things, especially in the event of default. This is because when FFEL loans are rehabilitated out of default, the GA must then "sell" the loan to a new private bank before rehab can be complete, and the loan back on track. This is not necessary with Direct Loans.

This distinction also comes into play when you are looking for repayment plans for your student loan. For example, Parent PLUS loans can only use Income Contingent Repayment (ICR) and not Income Based Repayment (IBR). But ICR is only available for Direct Loans, not FFEL.

Want to Know More?

Thus you would need to consolidate (refinance) these loans into a Direct Loan before applying for ICR. Just be careful not to consolidate other types of loans (e.g. Stafford), or it will taint your ability to get IBR for those other loans.

If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

If you live in southern New Jersey and would like to consult with me on your loans, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.

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Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.