Direct Loans vs. FFELP Loans - Which is Better for You?

There are two different types of federal loans commonly used to finance education: Direct Loans and FFELP (Family Federal Education Loan Program) loans. Direct Loans are funded through the Department of Education whereas FFELP loans, though still federally backed, are funded through approved financial institutions such as banks, consumer finance companies, and credit unions.

Both Direct Loans and FFELP loans are federally backed Stafford loans and offer all of the perks of the federal loan program such as deferment, forbearance, a low interest rate set by the federal government, and the ability to consolidate student loans through the federal loan consolidation program.

Students don’t have a say about which type of loan they’ll receive while in school. It is the school, not the borrower that dictates which type of loan will be issued. However, when it’s time to consolidate student loans, borrowers have a choice about their consolidation loan. Though similar, there are a variety of differences between a Direct Loan consolidation and an FFELP student loan consolidation that are worth considering before signing on the dotted line:

Money saving discounts

The real difference between obtaining loans through the Department of Education vs. a private lender are the money saving discounts. Like any free market competitive industry, there tend to be more perks for you when obtaining your loan through an FFELP lender. Because interest rates on federal loans are set by the government and non-negotiable, FFELP lenders compete for your business by offering additional money saving discounts for on-time payments and automatic withdraw.

Direct consolidation vs. FFELP student loan consolidation

Because most students take out multiple loans throughout their college years, the majority of students choose to consolidate student loans after graduation. Both Direct Loans and FFELP loans are eligible for student loan consolidation, but again, private student loan consolidation companies tend to have more money saving and customer satisfaction perks than are available with Direct Loan consolidation. One other major difference is that defaulted loans can be consolidated in a Direct Loan consolidation, a feature not available in an FFELP consolidation.

Need to consolidate student loans?ScholarPoint offers a range of money saving discounts including a 1.0% interest rate reduction after 24 consecutive on time payments and a 0.5% discount for auto payment. Discover the ScholarPoint difference today!