Direct loan programs overlap the alternative which is called the FFELP, or Federal Family Education Loan Program, which is a program designed to work through a network of private lenders. Since direct loan programs duplicate in many ways the FFEL programs, it is important to decide which program you want. Both programs offer both Stafford and PLUS loans.



The criteria for eligibility on both programs is the same and they follow identical need based guidelines, or have identical credit check requirements as those for non need based programs. Since both programs essentially provide the same loan funding this raises the natural question of how to choose between them.

To some degree the decision involves choosing which of two providers you will have to deal with. For example, although both will provide customer service personnel to answer any questions, in some cases you may find that private lenders will be more helpful and flexible while the government will be indifferent or more bureaucratic. This will not always be the case of course and sometimes you will find that just the opposite is true.

One of the best ways to get a feel for the service you are likely to receive from different lenders is to read some of the Internet forums dealing with the subject of student loans. Also with the tremendous growth of social networks in recent years it has become much easier to find a diverse set of opinions. Of course you do have to be careful as many of the views expressed are based more on personal taste than objective criteria, but reading the posts will quickly show you which side the poster favors.

There are however some more concrete differences between the two types of loan. For example, because FFELP loans are both funded and serviced by private financial institutions the organization with which you sign a promissory note might not be the organization to which you make repayments. It is a common practice these days for lenders to 'sell' loans on to other companies in much the same as most mortgage companies do.

This is an important consideration because you might have gone to the trouble of finding a lender you like, choosing beyond simply the interest rate on the loan and repayment terms and preferring their customer service, only to find that your loan is sold on and you are dealing with a company which you had previously rejected. In the case of direct loans however, because loans are not sold on by the Federal government, this problem does not arise.

Perhaps the most important difference for the majority of lenders however will be the difference in rates, repayment terms and fees between the two. Here you need to remember that while the interest rates on Stafford and PLUS loans are officially fixed private lenders do enjoy some flexibility in other areas.

They might or might not for example charge both origination and insurance fees, which are currently assessed at 3% and 1%, according to Federal rules. Though these charges will still be applied to your loan, a private lender might agree to absorb these in order to get your business. They might as an example choose to alter the dates on which interest charges are calculated or to either extend a grace period or increase your repayment period.

At the end of the day the only way to discover just what is available is to shop around in much the same way as you would if you were looking for any other kind of loan.