Federal Student Loan Consolidation: Direct vs. FFELP

I have mentioned that there are two different types of Federal Student Consolidation Loan programs available for affording college, but I haven’t really gone into details on the differences between each of them.

The names of these programs are the William D. Ford Direct Loan Program (referred to as FDSLP, “Direct Loan”, and “Direct Loan Consolidation”) and the Federal Family Education Loan Program (known as FFELP). Although they both issue regular student loans and offer student loan consolidation, the ways in which the programs work are different, and you do not get to choose which to use while you are in college (although you get to once you have graduated and are consolidating your loans).

The William D. Ford Federal Direct Loan Program issues both regular student loans and consolidates student loans. Through this program, the Department of Education acts as the lender, and provides the same amount of money for loans (such as the Stafford and PLUS loans) as does the Federal Family Education Loan Program.

The Federal Family Education Loan Program is different from FDSLP (or direct loan) in that through this program, the loan is actually funded through approved financial institutions (i.e. banks, credit unions, etc.) and backed by the government. Since the government guarantees to repay these loans to the lender, they are able to offer it to you at a decent fixed rate (you will know what rate you will be paying when you sign up).

During college, you do not need to worry about which program to choose for student loans, as your school decides for you. However, once you graduate and choose to consolidate your student loans, you have the option of choosing to use FDSLP or FFELP and should figure out which one is best for you.

Here are some things to consider in making your decision on which program to use for consolidation:

-Each program will offer incentives that the other one doesn’t. For example, each program has certain repayment plans that the other one doesn’t.

-Defaulted loans can be consolidated in a direct loan consolidation, but cannot be through FFELP

-You should have at least one direct student loan if you are applying for direct student loan consolidation. However, if you don’t, but have at least one FFELP loan and have been unable to obtain a student consolidation loan with an FFELP lender, you may still be eligible.

-Remember that with FFELP, you are consolidating through a private lender. Because of this, there is a chance they that will require you to have a minimum balance in outstanding federal student loans, which would probably not happen through the direct loan program.

These are the only big differences that I have come across so far. Overall, the two programs are pretty similar, and one probably won’t put you TOO much further ahead than the other will. If I find any more significant information on differences between the programs, I will post it right away.