University of Wisconsin students who qualify for federal financial aid will borrow directly from the United States Department of Education instead of private banks and credit unions, UW announced Wednesday.
Beginning this summer, UW will transition from the Federal Family Education Loan program to the William D. Ford Federal Direct Loan program.
The current Federal Family Education Loan Program offers student loans that are guaranteed by the government, but provided by private lenders, said Susan Fischer, director of the Office of Student of Financial Aid.
Under the new program, the U.S. government will act as the lender, giving direct loans to students and their parents, Fischer said.
“The program was created to cut out the middle man,” Fischer said. “Students will no longer have to worry about private lenders selling their loans to the government, because the government will already own [the loans].”
The transition comes as a result of the recent economic uncertainty that has forced some private lenders to drop out of the Federal Family Education Loan Program, leaving students and parents with multiple loan holders to repay, Fischer said.
Under the new Federal Direct Student Loan Program, students with federal Stafford, Grad PLUS and Parent PLUS loans will deal directly with the Department of Education, from loan application through repayment, according to the U.S. financial aid website.
According to Sara Goldrick-Rab, UW assistant professor of educational policy studies and sociology, the program will change the way loan money is processed and will only really affect the banks.
Goldrick-Rab said the transition will have no negative effect on students at all.
“Actually, the switch will have a positive effect on students,” she said, “Savings regained by the government will be used for programs that will benefit students.”
The new Stafford loans will have the same interest rates and loan fees as the previous loans offered, while the Grad PLUS and Parent PLUS loans will actually benefit under the new program, with a lower interest rate of 7.9 percent, according to the U.S. financial aid website.
The 7.9 percent is a decrease in percentage points from the FFEL interest rate, which is 8.5 percent, according to a UW statement.
The new program offers flexible repayment options that suit the individual borrower and can be changed at any time during the life of the loan.
Following the lead of the nine other Big Ten schools that have already implemented the direct lending program, UW is preparing for a smooth transition, Fischer said.
Once UW students have completed a Free Application for Federal Student Aid, the only action they must take in order to begin receiving loans under the new program is to sign an electronic Master Promissory Note.
Fischer added that students can expect plenty of “friendly reminder e-mails” from the financial aid office in the fall.
