What is a Federal Direct Loan?

A Federal Direct Loan is a student loan made by the US Department of Education. Direct Loans are available to both undergraduate and graduate students, and can be used for a variety of educational expenses including tuition, room and board, books and supplies, and transportation.

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What is a Federal Direct Loan?

A Federal Direct Loan is a loan made by the U.S. Department of Education to help pay for your education. The biggest benefit of a Direct Loan is that it offers fixed interest rates, so your monthly payments will never go up. You also have the option of choosing a repayment plan that best fits your needs, and you can consolidate your loans to get a lower monthly payment.

How to Apply for a Federal Direct Loan

Eligible students may borrow up to $5,500 annually, with a maximum of $27,500 for undergraduate study.

To apply for a Federal Direct Loan, fill out a Free Application for Federal Student Aid (FAFSA®) form. If you’re a returning student and have already completed the FAFSA form, you may not need to fill it out again. Check with your financial aid office to find out.

There are two types of Direct Loans available: subsidized and unsubsidized. A subsidized loan is based on financial need as determined by the FAFSA form, and the U.S. Department of Education pays the interest while you’re in school at least half-time, during your grace period, and during deferment periods. An unsubsidized loan is not based on financial need; however, you are responsible for paying the interest on an unsubsidized loan at all times. You can choose to pay the interest while you are in school or allow it to accumulate (be capitalized) and be added to your principal balance.

Types of Federal Direct Loans

All Federal Direct Loans first disbursed on or after July 1, 2020, will have a fixed interest rate of 4.529%. This means that the interest rate will not change over the life of your loan. The only exception is if you have a Direct PLUS Loan for which the interest rate varies depending on when the loan is first disbursed.

There are four types of Federal Direct Loans:

-Direct Subsidized Loans are need-based loans available to undergraduate students with financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you’re in school at least half-time, during your grace period, and during any deferment periods.

-Direct Unsubsidized Loans are not need-based loans available to undergraduate and graduate students. You’re responsible for paying the interest on a Direct Unsubsidized Loan throughout the life of the loan, even if you don’t have to start making payments until after you graduate or leave school.

-Direct PLUS Loans are credit-based federal student loans for graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligible borrowers can receive up to the cost of attendance minus any other financial aid they receive. The U.S. Department of Education pays any accrued interest on Direct PLUS Loans first disbursed on or after July 1, 2008, while borrowers are in an in-school deferment period and during certain periods of forbearance; otherwise, borrowers are responsible for all accrued interest.

-Direct Consolidation Loans allow you to combine multiple federal student loans into one loan with one monthly payment. You may choose to consolidate all of your eligible federal student loans or just some of them

Repayment Plans for Federal Direct Loans

You’ll have plenty of time to repay your loan, and you can choose from several repayment plans. The repayment plan you choose will affect how long you have to repay your loan and how much you’ll pay each month.

The Standard Repayment Plan for Federal Direct Loans is the plan with the shortest repayment term. Under this plan, you’ll make fixed payments for up to 10 years.

The Graduated Repayment Plan for Federal Direct Loans has monthly payments that start out low and increase every two years. You’ll make payments for up to 10 years.
If your income is low enough that the Standard or Graduated repayment plans would cause a financial hardship, you can choose from one of the following Income-Driven Repayment Plans:

-Pay As You Earn Repayment Plan
-Income-Based Repayment Plan
-Income-Contingent Repayment Plan

Loan Forgiveness for Federal Direct Loans

If you have a Federal Direct Loan, you may be eligible for loan forgiveness through one of the following programs:

-The Public Service Loan Forgiveness Program
-The Teacher Loan Forgiveness Program
-The Perkins Loan Cancellation and Discharge program

To learn more about these programs and to see if you qualify, visit the website of the Department of Education.