How the New Direct Loan Program Will Impact Your Financial Aid

Updated December 14, 2016 |
Learn about the Department of Education's new Direct Loan Program and how you can prepare for the change in your financial aid.
The tide has turned in federal financial aid – and students will be the benefactors. The newly minted U.S. Department of Education’s Direct Loan Program will now administer federal financial aid, cutting out the middlemen banks that once profited on doling out these funds to students. 


Amidst all of the changes, “student loans are in transition, and those who use them need to pay particular attention right now as the U.S. Department of Education's Direct Loan Program takes responsibility for lending,” The Daily Press sagely advises. 


Make sure that you are taking the right steps to apply for and manage your community college financial aid, using this article as your guide. 
Financial Aid & the Federal Government: Overview of New Legislation
According to the New York Times, President Obama recently passed legislation that allows the Department of Education to directly provide students with financial aid loans. This new law eliminates any fees paid to private banks, as banks will no longer serve as intermediary parties between students and their access to college loans. Without banks acting as middlemen, an estimated $6 to $7 billion dollars of federal money will be saved annually, benefiting the government, taxpayers, and students, according to the Congressional Budget Office.   
As outlined by the legislation, as of July 2014, students set to borrow money for college will be permitted to, “cap repayments at 10 percent of income above a basic living allowance, instead of 15 percent.” 
Adding to this advantage, students who maintain responsible repayment histories will have their college loan balances forgiven after the span of 20 years, as opposed to the current forgiveness span of 25 years. 
In fact, if college students serve, or have served, in qualified realms of public service, such as the military, teaching and, nursing, their loans may be forgiven after just 10 years. According to President Obama, this newest college-reform initiative eliminates an unjust practice of spending billions of dollars, “‘padding student lenders’ pockets.”’     
How to Apply for Financial Aid Under the New Legislation
Further reported by the Daily Press, all community colleges and universities will operate under the same streamlined process for providing students with applications and processes associated with federal aid. In moving forward, all students and parents seeking to obtain federal student or parent loans must apply through the “Direct Loan Program.” 
To apply, both future and currently enrolled individuals must officially fill out and complete the standard FAFSA application, as well as new master promissory notes electronically. In moving forward, the steps to apply for aid have become simplified and increasingly efficient. 
While the Direct Loan federal website provides borrowers with step-by-step guidance, the Department of Education encourages students to speak with a Direct Loan counselor and/or your community college’s financial aid advisor. By visiting the Department of Education’s Direct Loan website, students can access a comprehensive list of schools and staff members with experience in assisting students through the Direct Loans process. 
Monitoring Your Loans and Financial Aid
While there are many benefits associated with the new Direct Loan program, it may cause confusion in managing repayments. Thomas Nelson Community College Financial Advisor, Kathryn Anderson, cautions, ‘"Down the road I think it's going to cause confusion for students because they're going to have different lenders…They'll have the bank they had before, and the federal government.’” To avoid any errors on their lending reports, Anderson encourages students to keep track of their loans and respond to all forms of correspondence from their school and lenders.
Despite the short-term inconvenience, the process has been significantly simplified using several measures:
  • Students will now be provided with a single-contact in the Direct Loan Servicing Center, regardless of whether or not the Direct Loans have been dispersed at different schools for one student.
  • Students have full-time online access to their Direct Loan account details via the Direct Loans website
  • Upon graduating, students can evaluate and choose from various repayment plans. These options serve to meet the needs of diverse borrowers. Borrowers can alter their repayment plans if / when financial needs change. 
The Direct Loan program will certainly benefit community college students in the long term, and as long as you stay abreast of the changes now, you can avoid any confusion with your federal financial aid.

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Financial Aid

Our articles will provide you with the tools and resources needed to make sure you are qualifying for all the financial aid available, as well as maintaining your aid throughout your college career. Get the latest news on student loan interest rates, learn what to do when your financial aid is late, and explore all of your financial aid options.