Direct Lending

Beginning with the 2010-11 academic year, the Department of Education changed the way that many federal loans are processed. Continuing students and new transfer or graduate students may have borrowed student loans prior to 2010-11 and parent borrowers who previously were student borrowers will notice these changes more than others.

New UC student and parent loan borrowers
can skip this information and simply review the loan process
in order to complete their loan paperwork.

Direct Loan (DL) Program

Direct Lending is a way to provide the same federally-backed loans to student and parent borrowers but directly from the U.S. government rather than via private lenders. Though Congress worked to keep many issues similar between FFEL and DL programs, the key difference was in servicing during repayment. Borrowers in Direct Lending always worked with the assigned direct loan servicer, a federal contractor who managed all loans held by the government.

Direct Lending begun as a pilot in 1992 and is now the sole federal loan program as of July 2010. Additionally, Direct Lending became responsible for some FFEL loans from 2008 to 2010. Economic conditions led many lenders to "sell" loans to the U.S. Department of Education in order to maintain liquidity. The result is that both DL loans and FFEL loans taken out for the 2008-09 and 2009-10 school years are often both going to be serviced by the Direct Loan Service Center when the borrower is in repayment.

UC Change

Beginning with the 2010-11 academic year, all Subsidized, Unsubsidized, and PLUS Loans are processed via the Direct Loan Program. This change at UC will mean the following:

  • Master Promissory Notes: All borrowers of Direct Loans will need to sign new master promissory notes in order to receive funding for any academic year from 2010-11 forward. Signing a new master promissory note will be good for 10 years worth of student borrowing.
  • Lender Choice: Because Direct Loans do not use a lender other than the federal government, students will not choose a lender as part of the MPN process.
  • Loan Fees: Loan fees for Direct Loans are less than what borrowers have seen in the past. Direct Subsidized and Unsubsidized Loans will only see a 0.5% fee charged, and PLUS Loans will only see a 2.5% fee charged.
  • Servicer: Direct Loans are serviced via contracted DL Servicing Centers. Loans for a borrower will be randomly assigned to one of the federal servicers who will be in contact with you particularly when your loan is in repayment.


Direct Loan servicing is handled for most federal loans through your federal loan servicer. Each servicer offers consistent repayment options. It is important to explore the option best suited to your situation.

Federal Family Educational Loan (FFEL) Program

Previous UC student and parent borrowers secured their Federal Stafford and PLUS Loans via the FFEL program. This program was the traditional student or parent loan where the borrower utilized a lender (typically a bank or specialized student loan agency) to receive a federally-backed loan to pay for college costs. When the borrower went into repayment, they might work with the lender, a new holder of the loan (if the loan was sold), or a servicer who assisted the lender during the repayment period.

FFEL Loans utilize a guaranty agency that process loans on behalf of the federal government with individual lenders. Many students and parents are familiar with Great Lakes, the primary guaranty agency for most Stafford and PLUS Loans previously at UC. Guaranty agencies also often contract servicing loans for lenders when students are in repayment. 

Borrowers of FFEL program loans since 1999 completed a Master Promissory Note good for 10 years of borrowing. Their loans were consistently from the same lender unless that agency stopped lending student and parent loans.

The FFEL program, begun in 1965, ended June 30, 2010. Congressional action mandated that all federal loans after July 1, 2010, be done via the Direct Loan program.

passing through Varsity Village corridor

If you have not borrowed a Federal Direct Subsidized or Unsubsidized Loan or a Federal Parent or Graduate PLUS Loan since 2010-11, you may need to complete a new master promissory note. Once completed, the note is good for 10 years of loan borrowing. Website

IMPORTANT: Borrowers who had a past MPN for Federal Stafford or PLUS Loans will need to complete a new Direct Loan MPN for each program if they have not borrowed loans since 2009-10 due to the change in loan programs at UC. "Log in" as indicated on the government's student loan page.