December 07, 2001
By: Bev Dodd
School loan: Fast service, helpful info
Under the Direct Loan Program, the U.S. Government makes a school loan directly to students and parents through their schools. (Under the FFELP, private banks make the school loan.) Both programs, however, offer the same types of loans. Whether you receive a Direct Loan or a FFELP loan will depend upon which program or programs your school participates in. Once a school loan is made, it will be managed and collected by the U.S. Department of Education's Direct Loan Servicing Center (1-800-848-0979). A FFELP loan is managed and collected by the lender or agency that holds the school loan. We'll discuss this more below.
While you are still enrolled, you will have to work out your financial aid package with your school. That package will often consist of a combination of government-subsidized loans and unsubsidized loans. A subsidized school loan is the most attractive because you don't have to start repaying them until after you graduate. With a subsidized school loan, the government pays the interest while you are in school and you pay interest and principal after you graduate.
You may have heard many lenders sell their loans to secondary markets. Secondary markets are important partners in the student loan program. By selling a student loan to secondary markets, lenders are provided with additional money to make new educational loans. If your lender sells your school loan, you will be notified by mail using the last address your lender had on record.
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