What Are “Direct” or “FDL” Student Loans?

After July 1, 2010, the federal government became the direct lender of federal student loans under a program called the “William D. Ford Federal Direct Loan Program” (sometimes referred to as “Direct Loans” or “FDL”).  Before July 1, 2010, federal student loans were originated by private banks and guaranteed by the federal government.

Under the Direct Loan program, the U.S. Department of Education is the lender, not private banks.

There are four types of Direct Loans available:

  1. Direct Subsidized Loans – loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
  2. Direct Unsubsidized Loans – loans made to eligible undergraduate, graduate, and professional students. Eligibility is not based on financial need.
  3. Direct PLUS Loans – loans made to graduate or professional students and to the parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but credit worthiness as determined by a credit application is considered.
  4. Direct Consolidation Loans – loans which allow the borrower to combine all eligible federal student loans into a single loan with a single loan servicer.

What is a Direct Loan Servicer?

While Direct Loans are originated by the Department of Education, the loans are serviced by “loan servicers”.  Loan services are companies hired by the Department of Education to service Direct loans including sending regular billing statements, offering and administering forbearances and deferments, assisting with repayment options, helping to keep borrowers out of default and assisting borrowers in getting out of default through rehabilitation.

The most common Direct Loan Services include:

What is a Student Loan Debt Collector?

If a federal student loan is in default, the account is transferred from the loan servicer to a debt collector.  Federal student loan debt collectors are tasked with collecting defaulted federal student loans. Debt collectors do not work on accounts that are not in default, even if they are delinquent.

Debt collectors make demand for payments through written letters and telephone calls.  They collect payments and assist borrowers in getting out of default through rehabilitation.

By rnahoum