Loans

Federal Stafford Loan Program & Direct Loan Program

In the Federal Stafford Loan Program, there are two parallel loan programs: Federal Family Education Loans (FFEL) and Direct Loans (DL). With the FFEL Program you can work with a lender, a guarantor, possibly a different loan servicer, your college and the U.S. Department of Education. In the Direct Loan Program, you work with your college and the Direct Loan Program of the U.S. Department of Education. The University of Michigan-Dearborn participates in only the Direct Loan Program.

Students can complete their Direct Loan Master Promissory Note online after the loan has been originated (about a week after acceptance.) You will need your U.S. Dept. of Education PIN to complete your promissory note at Direct Loan Web site.

What are Direct Loans?

What are the qualifications to get a Direct Loan?

How do I apply?

Are there limits on how much I can borrow?

Is there a loan check that I need to sign?

If I change my mind about taking the loan, can it be cancelled?

How much interest is charged?

Are there loan fees?

When do I start to repay my loans?

Are there different terms for repayment?

Can loan repayment be postponed or loans cancelled?

What if I don't repay my loan?

What are Direct Loans?
The Direct Loan Program provides students with the means to borrow funds for college without a cosigner or credit check. There are two components of the Direct Loan Program: subsidized and unsubsidized loans.

Subsidized loans are awarded on the basis of financial need. No interest will accrue during half-time enrollment or authorized periods of deferment. You can help to remember the term by thinking of the Federal government subsidizing interest during these periods.

Unsubsidized loans are not awarded on the basis of financial need. Interest will accrue from the time of disbursement until the loan is paid in full. While you are not required to make monthly payments during half-time enrollment or authorized periods of deferment, interest will accrue on the loan. Each quarter, unpaid interest will capitalize (interest will become additional loan principal). If you make quarterly interest payments on your unsubsidized loan during periods when no repayment is required, you will reduce the amount that you repay over the life of the loan.

What are the qualifications to get a Direct Loan?
You must meet the general eligibility requirements for all Federal student aid programs. To view these requirements, please review the student status eligibility section of the Student Guide.

How do I apply?
You must apply by completing a FAFSA in paper format or online—the same way that you apply for other forms of financial aid. If you accept the loan offered in your financial aid award, you will be sent a master promissory note (a legally binding contract to repay your loan). You must also complete entrance loan counseling requirements at the Direct Loan website at http://www.dlssonline.com/exitcounseling/ecec-main.asp before your loan can be disbursed.

Are there limits on how much I can borrow?
Loan limits are determined by grade level and dependency status.

Beginning in 2008-09, the annual limits are:

Annual and Aggregate (Total) Loan Limits for Direct Loans

Is there a loan check that I need to sign?
No, the loan funds will be applied to your tuition account electronically. Your loan will be disbursed in two payments: once at the beginning of the term and once at the midpoint of your loan period. Any amount that exceeds your tuition account balance will result in a refund check sent to your home.

If I change my mind about taking the loan, can it be cancelled?
If your loan has not disbursed, you can complete a new Student Decision Form (available in our Forms section on the Web site) and indicate that you now decline your loan. You can also use this form to reduce your loan. Although students can accept their loans online at the UM-D Connect secured Web site UMConnect, changes cannot be made online--you must complete a paper Student Decision Form to reflect the changes you want made and submit it to the OFA.

If your loan has disbursed, you will receive notification of disbursement from the OFA. You must contact the OFA in writing within 14 days of disbursement to cancel or reduce your loan. Cancelled loan funds will be remitted to the Direct Loan Program.

It is important to remember that the cancellation or reduction of a loan does not change a tuition obligation at the University. If your other forms of financial aid do not cover all of your tuition, you will be responsible for meeting any outstanding tuition obligation.

How much interest is charged?
The interest rate for Subsidized Direct Loans is a fixed 6.0% for 2008-09 for undergraduates.

The interest rate for Unsubsidized Direct Loans is a fixed 6.8% for 2008-09 for undergraduates and graduate students.

The interest rate for Subsidized Direct Loans is a fixed 6.8% for 2008-09 for graduate students.

If you have subsidized loans, you won’t be charged any interest as long as you are enrolled at least half-time (6 credits undergraduate and 4 credits graduate), during your grace period or during authorized periods of deferment.

If you have unsubsidized loans, you will be charged interest from the day the loan disbursed until it is repaid. You are able to pay interest on a quarterly basis even if you are not required to make monthly loan payments. If you do not pay the interest while in school, grace or authorized deferment periods, your interest will capitalize (your unpaid interest becomes additional loan principal).

Are there loan fees?
The Direct Loan Program charges a nominal origination fee deducted from the proceeds of each loan disbursement—no fees are paid directly by the student upfront.

When do I start to repay my loans?
After you graduate, withdraw or drop below half-time enrollment status, you will have 6 months before you begin monthly repayment. This is called your grace period. For subsidized loan borrowers, no interest accrues during the grace period. For unsubsidized loan borrowers, interest will continue to accrue. During the grace period, unsubsidized loan borrowers may make interest payments.

Before graduation, you will be required to participate in Exit Loan Counseling online.

Failure to make required loan payments on your loan will have a negative effect on your credit rating.

Are there different terms for repayment?
The Direct Loan Program offers you a choice of repayment plans. You may also change your repayment plan.

• The Standard Repayment Plan requires a fixed payment each month of no less than $50 for up to 10 years. The length of your repayment period will depend on the amount that you have borrowed.

• The Extended Repayment Plan allows you to repay your loan over a period of 12 to 30 years—depending on your loan amount. While your monthly payment may be less than a loan payment under the Standard Plan, you will probably pay a higher total of interest over the life of your loan.

• The Graduated Repayment Plan allows your loan payments to be artificially low at first, but increasing in amount every 2 years. The length of repayment will range from 12 to 30 years—depending on the amount that you have borrowed.

• The Income Contingent Repayment Plan bases your monthly payment on your yearly income, family size, interest rate and loan amount. As your income rises or falls, so do your payments. After 25 years, any remaining balance of the loan will be forgiven, but you will be required to pay taxes on the amount forgiven.

Loan payments are made to the U.S. Department of Education. For additional information on repayment options or payment calculations, you can visit the Direct Loan Web site.

Can loan payments be postponed or loans cancelled?
Under certain conditions, you can receive a deferment or a forbearance as long as your loan is not in default. A deferment allows the temporary postponement of payment. One of the most important parts of your Entrance Loan Counseling and your Exit Loan Counseling discusses the situations in which these options would apply. You may wish to visit the Direct Loan Web site for information and forms on deferments , forbearances, and other special circumstances for borrowers, including cancellation and discharge of loans.

What happens if I don’t repay my loan?
Failure to repay a loan according to the terms agreed to when you signed promissory notes will result in a status called default. In many cases, default can be avoided by submitting a request for deferment, forbearance or cancellation and by providing the required documentation before you reach the point of default.

The consequences of default are severe. Action may be taken to recover the money, including notifying national credit bureaus of your default. This will affect your credit rating for a long time. For example, you may find it very difficult to borrow money from a bank to buy a house or a car. In addition, if your account is turned over to the U.S. Department of Education for collection, the Internal Revenue Service (IRS) might withhold any U.S. individual income tax refund and apply it to the amount that you owe, or the agency holding your loan might ask your employer to deduct payments from your paycheck. In addition, you are responsible for the expenses in collecting the loan. If you decide to return to school, you will not be eligible for any additional Federal student aid until your loan has been repaid or you have made satisfactory payment arrangements (and kept them.) You may even face legal action.