President Obama has signed into law legislation that ends new loans in the Federal Family Education Loan Program after June 30, 2010. To help as your school transitions to the Federal Direct Loan Program, NELA provides answers to your frequently asked questions.

Effective Date and Trigger Event

Q1: Loans that are scheduled with first disbursements to occur on or after July 1, 2010, are to be made under the Direct Loan Program. How should my school handle those loans scheduled for first disbursement on or after that date that already have been certified and guaranteed?

A1: For Stafford and PLUS loans scheduled for first disbursement on or after July 1, 2010, the school must contact the affected student- and parent-borrowers to ensure that they complete the appropriate Direct Loan Master Promissory Note — Stafford and/or PLUS — and the school must certify those loans using the applicable Direct Loan process.

NELA offers a sample letter to assist as you communicate with your students and their parents about your school’s conversion to the Direct Loan Program.

Q2: How should my school handle loans that will be first disbursed prior to July 1, 2010, but have at least one subsequent disbursement scheduled to occur after Sept. 30, 2010? Will FFELP lenders make disbursements after Sept. 30?

A2: Under the new law, FFELP loans first disbursed prior to July 1, 2010, must be fully disbursed under FFELP. If those loans have one or more disbursements that occur after Sept. 30, 2010, however, the loans would not be eligible for sale to the U.S. Department of Education under the terms of the Ensuring Continued Access to Student Loans Act, commonly referred to as the put loan program. NELA encourages the school to consult with its lenders to verify that those lenders plan to make disbursements on or after Sept. 30.

Entrance and Exit Counseling

Q3: A student has a FFELP Stafford or Grad PLUS loan but no prior Direct Stafford or Grad PLUS loans. Would that student need to complete Direct Loan entrance counseling before receiving the first disbursement of the Direct Stafford or Grad PLUS loan?

A3: The Department has indicated that a student in this scenario would not be required to complete entrance counseling under the Direct Loan Program, if that student has completed FFELP entrance counseling that is applicable to that particular loan type (Stafford or PLUS).

• If the student has a FFELP Stafford loan and has completed FFELP Stafford loan entrance counseling, that student does not need to complete Direct Stafford loan counseling prior to the first disbursement of a Direct Stafford loan. Students receiving Stafford loans for the first time must complete Direct Stafford loan entrance counseling prior to receiving the first Stafford disbursement.
• If the student has a FFELP Grad PLUS loan and has completed FFELP Grad PLUS loan entrance counseling, that student is not required to complete Direct Grad PLUS counseling prior to receiving the first disbursement of a Direct Grad PLUS loan. Students receiving Grad PLUS loans for the first time must complete Direct Grad PLUS entrance counseling prior to receiving the first Grad PLUS disbursement.

Q4: If a student has both FFELP and Direct Stafford or Grad PLUS loans, must the student complete exit counseling for both FFELP and the Direct Loan Program?

A4: According to the Department, a student who has received loans from both the FFELP and Direct Loan Program may complete either FFELP or Direct Loan counseling, provided that the counseling contains the information required for exit counseling in both programs.

Overlapping Loan Periods

Q5: How should my school deal with a situation in which a student has received one loan under the FFELP and now qualifies for additional loan funds for the same loan period? Must the additional funds be disbursed under the Direct Loan program?
For example, my school’s summer term runs from May through early August. If my school certifies a FFELP loan for summer that is fully disbursed prior to July 1, 2010, but the student decides after July 1 that the student needs more loan funds, can we certify additional FFELP loans funds for summer?

A5: If the existing loan amount can be increased, your school may add the increased amount and disburse it as part of the existing summer FFELP loan. If your school’s processes — or the processes of the loan’s originator — would require a new loan certification for those additional funds, however, the new certification must be made for a Direct Loan.

The Department has stated that it will waive the prohibition against making loans under the two different loan programs to the same student- or parent-borrower for the same loan period. So a student or parent may receive one loan under FFELP for the loan period and subsequently receive Direct Loan funds for any remaining eligibility for that same loan period.

DUNS Number

Q6: Does my school need to submit its DUNS Number to the Department before we can certify and disburse Direct Stafford and PLUS loans?

A6: As part of a school’s “Request to Participate in the Direct Loan Program”, the school must provide information such as its OPE-ID, name, address and DUNS Number, if known.

If your school has multiple locations, each of those locations must be set up for the Direct Loan program before processing can begin. If your school plans to have any of its locations originate Direct Loans separate from the main campus, each of those locations must have its own OPE-ID and DUNS Number.