What Is a Direct Loan?

A direct loan is a loan from the federal government that you repay with interest. You may be able to get a Direct PLUS Loan to help pay for your education if you’re a graduate or professional student, or a parent of a dependent undergraduate student.

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What is a Direct Loan?

A Direct Loan is a federal student loan, made through the William D. Ford Federal Direct Loan Program, that you repay with interest. The U.S. Department of Education (Department) is your lender and handles all aspects of your loan, from Direct Subsidized Loans and Direct Unsubsidized Loans are low-interest loans for eligible students to help cover the costs of higher education at a four-year college or university, community college, or trade, career, or technical school.

If you have any questions about the program or would like more information on how to apply, please contact the Financial Aid Office at your school.

How to Apply for a Direct Loan

Direct loans are need-based, low-interest student loans available to eligible undergraduate and graduate students. To apply for a Direct Loan, you must fill out a Free Application for Federal Student Aid (FAFSA®).

You will be notified of your eligibility for a Direct Loan after you have received your Student Aid Report (SAR). If you are eligible, you will be contacted by your school’s financial aid office with instructions on how to complete the Direct Loan Master Promissory Note (MPN).

The MPN is a binding legal document in which you promise to repay your loan(s) and all accrued interest and fees to the U.S. Department of Education. You will also be required to complete entrance counseling, which provides important information about your rights and responsibilities as a student loan borrower.

Types of Direct Loans

There are four types of Direct Loans available:
-Direct Subsidized Loans – for undergraduate students with demonstrated financial need
-Direct Unsubsidized Loans – for undergraduate and graduate students; no demonstrated financial need required
-Direct PLUS Loans – for graduate or professional degree students and parents of dependent undergraduate students
-Direct Consolidation Loans – for borrowers who want to combine all of their eligible federal student loans into a single loan

Benefits of a Direct Loan

A Direct Loan is a loan that is made directly from the federal government to the student. The three main types of Direct Loans available are: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

The main benefits of a Direct Loan include:
-No credit check is required.
-You may be eligible for a lower interest rate.
-There are no origination fees or prepayment penalties.
-You have the option to defer your payments while you are in school or during periods of unemployment.

Disadvantages of a Direct Loan

There are some potential disadvantages of taking out a Direct Loan, including:

-You may end up paying more in interest than you would with a private loan, as Direct Loans typically have a higher interest rate.
-It can be difficult to qualify for a Direct Loan if you have bad credit or no credit history.
-You may not be able to get the full amount of money you need from a Direct Loan, as they typically have lower loan limits than private loans.
-You will likely have to pay origination fees and other charges when you take out a Direct Loan, which can add to the cost of the loan.

FAQs

1.What is a Direct Loan?
A Direct Loan is a loan made by the U.S. Department of Education to help students and their families pay for the costs of higher education. Direct Loans are low-interest loans for which you will not be charged origination or default fees. You can receive a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan. Depending on the type of loan you receive, the U.S. Department of Education may pay (subsidize) the interest on your loan while you are in school, during your grace period, and during deferment periods.

2.How do I apply for a Direct Loan?
To apply for a Direct Loan, you must first complete the Free Application for Federal Student Aid (FAFSA®) form at fafsa.gov. The information you provide on your FAFSA form will be used to determine if you are eligible to receive a Direct Loan. If you are eligible, your school’s financial aid office will send you a financial aid award letter that will list the types and amounts of aid you are eligible to receive.

3.What types of Direct Loans are there?
There are four types of Direct Loans:
-Direct Subsidized Loans – These loans are awarded based on financial need. The U.S Department of Education pays (subsidizes) the interest while you’re in school at least half-time, during your grace period, and during deferment periods;
-Direct Unsubsidized Loans – You’re not required to demonstrate financial need to receive this type of loan, and interest accrues (accumulates) while you’re in school and during grace and deferment periods;
-Direct PLUS Loans – These loans are for parents of dependent undergraduate students as well as for graduate/professional students;
-Direct Consolidation Loans – You can consolidate (combine) all or some of your federal student loans into one loan with one monthly payment; this may help if you want to lower your monthly payment amount or if you want to switch from variable interest rates to fixed interest rates

4.How much money can I borrow?
Loan limits vary depending on what year you are in school and whether you are an undergraduate or graduate student:
-Undergraduate student loan limits range from $5,500-$20,500 per year;
-Graduate/professional student loan limits range from $20,500-$40,500 per year;

Maximum cumulative (lifetime) limits also apply:
-Undergraduate students –$57,500 for dependent students ($31,000 for subsidized loans); $138,500 for independent students ($57,500 for subsidized loans)
-Graduate/professional students –No limit on unsubsidized loans; $224,000 total including all undergraduate borrowing