- What is a Direct Student Loan?
- What are the benefits of a Direct Student Loan?
- How to apply for a Direct Student Loan
- What are the different types of Direct Student Loans?
- What are the interest rates for Direct Student Loans?
- What are the repayment options for Direct Student Loans?
- What are the consequences of defaulting on a Direct Student Loan?
A direct student loan is a loan that is issued by the federal government to help cover the cost of education. The loan is made directly to the student, and the funds can be used to cover tuition, room and board, books, and other education-related expenses.
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What is a Direct Student Loan?
A Direct Student Loan is a type of federal student loan that is issued directly to the student by the U.S. Department of Education. Direct Student Loans have fixed interest rates and offer flexible repayment terms. You can receive a Direct Student Loan for undergraduate or graduate study, and you can use the loan to pay for tuition, fees, room and board, and other educational expenses.
What are the benefits of a Direct Student Loan?
There are several key benefits to taking out a Direct Student Loan:
-You’ll have a fixed interest rate for the life of the loan, which means your monthly payments will stay the same.
-You can choose from several repayment plans, including an Income-Based Repayment Plan, which could lower your monthly payments.
-You can get a Direct Consolidation Loan, which allows you to combine all of your federal student loans into one loan with a single monthly payment.
-You may be eligible for loan forgiveness if you work in certain public service jobs.
How to apply for a Direct Student Loan
To apply for a Direct Student Loan, you’ll need to fill out a Free Application for Federal Student Aid (FAFSA®) form. The FAFSA form is available for free on the U.S. Department of Education’s website and must be submitted annually.
If you’re not sure if you qualify for a Direct Student Loan or not, you can check the eligibility requirements on the Federal Student Aid website. After you complete the FAFSA form, you’ll receive a Student Aid Report (SAR), which will detail your expected family contribution (EFC) and whether or not you’re eligible for need-based aid.
Once you’ve been determined to be eligible for a Direct Student Loan, you’ll need to complete a Master Promissory Note (MPN). The MPN is a legal document that outlines the terms and conditions of your loan, and it’s binding once you sign it. You can complete the MPN online at the Federal Student Aid website.
If you have any questions about completing the FAFSA form or the MPN, you can contact the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).
What are the different types of Direct Student Loans?
There are four types of Direct Student Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Direct Subsidized Loans are need-based loans that are awarded to eligible undergraduate students. Direct Unsubsidized Loans are not need-based loans that are awarded to eligible undergraduate and graduate students. Direct PLUS Loans are credit-based loans that are awarded to eligible graduate and professional students. Direct Consolidation Loans allow you to combine all of your eligible federal student loans into one loan.
Direct Subsidized Loans
Direct Subsidized Loans are low-interest loans available to eligible undergraduate students who demonstrate financial need. If you qualify, the U.S. Department of Education will pay the interest on your loan while you’re in school at least half-time, during your six-month grace period, and during any deferment periods.
##Heading:Direct Unsubsidized Loans
Direct Unsubsidized Loans are low-interest loans available to eligible undergraduate, graduate, and professional students. Unlike Direct Subsidized Loans, you’re responsible for paying the interest on a Direct Unsubsidized Loan throughout the life of the loan, even during periods when you’re not required to make payments.
Direct Unsubsidized Loans
Most students who borrow through the Direct Loan Program will have Direct Subsidized Loans and/or Direct Unsubsidized Loans. You’re not required to demonstrate financial need to receive a Direct Unsubsidized Loan.
With this type of loan, the U.S. Department of Education isn’t involved in subsidizing the interest while you’re in school or during your grace period or deferment periods; as a result, your interest accrues (accumulates) during these times. However, you can choose to pay the interest as it accrues, or you can allow it to accumulate and be capitalized (added to the principal amount of your loan).
Direct PLUS Loans
A Direct PLUS Loan for parents is a federal loan that enables parents with good credit to help pay for their child’s education. PLUS loans have a fixed interest rate and can be used to cover any cost of attendance not already covered by other financial aid.
Eligible parents can borrow up to the full cost of their child’s education, minus any other financial aid the child receives. The interest rate on a Direct PLUS Loan is 7.08% for loans first disbursed on or after July 1, 2020, and before July 1, 2021.
Repayment on a Direct PLUS Loan for parents begins 60 days after the loan is fully disbursed. Parents can choose from several repayment plans, including the Standard Repayment Plan ( loans are repaid in equal monthly installments over 10 years), the Extended Repayment Plan (loans are repaid in equal monthly installments over 25 years), and the Graduated Repayment Plan (monthly payments start out low and increase every two years; repayment period is up to 10 years).
What are the interest rates for Direct Student Loans?
The interest rates for Direct Student Loans are set by the federal government. For the 2019-2020 year, the interest rates are 4.53% for Direct Subsidized Loans and 6.08% for Direct Unsubsidized Loans. If you’re struggling to keep up with your student loan payments, you can find help here.
Direct Subsidized Loans
The interest rate for Direct Subsidized Loans first disbursed before July 1, 2020, is 2.75%. The interest rate for Direct Subsidized Loans first disbursed on or after July 1, 2020, and before July 1, 2021, is 3.00%.
Direct Unsubsidized Loans
Federal Direct Unsubsidized Stafford Loans are not based on financial need. The U.S. Department of Education sets the interest rate each year. For the 2018-2019 academic year, the interest rate is 5.05%.
You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods. If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).
Direct PLUS Loans
Annual interest rates for Direct PLUS Loans first disbursed on or after July 1, 2020, and before July 1, 2021, are 7.08%.
Direct PLUS Loan interest rates vary depending on when the loan is first disbursed, and whether the loan is a Direct PLUS Loan for parents or a Direct PLUS Loan for graduate or professional students.
What are the repayment options for Direct Student Loans?
There are two repayment options for Direct Student Loans: the Standard Repayment Plan and the Graduated Repayment Plan. The Standard Repayment Plan offers fixed monthly payments for up to 10 years. The Graduated Repayment Plan offers lower monthly payments at first, and then gradually increases the payments over time. You can choose the repayment plan that best suits your needs.
Standard Repayment Plan
The Standard Repayment Plan is the default repayment plan for federal student loans. You’ll have up to 10 years to repay your loan in full.
Your monthly payments will be a fixed amount, and you’ll likely pay off your loan faster and pay less interest than you would under the other repayment plans.
If you have more than one loan, you’ll have a separate Standard Repayment Plan for each loan.
Graduated Repayment Plan
The Graduated Repayment Plan is designed to keep your payments manageable at first and then increase them every two years. The repayment term for this plan is up to 10 years.
With the Graduated Repayment Plan, your monthly payments will be lower at first and then gradually increase, usually every two years. Even though your monthly payments will be low at first, more interest will accrue over the life of the loan because your balance is not decreasing as quickly as it would with other repayment plans. This means you will ultimately pay more for your loan than you would with other repayment plans.
Extended Repayment Plan
The Extended Repayment Plan is available to Direct Loan borrowers with more than $30,000 in outstanding Direct Loans. Under this plan, your repayment period can be up to 25 years. Because your repayment period will be longer, your monthly payments will usually be smaller than they would be under the Standard or Graduated Repayment Plans. As a result, you’ll pay more in interest over the life of the loan than you would under other plans.
What are the consequences of defaulting on a Direct Student Loan?
A Direct Student Loan is a type of loan that is given directly to the student by the federal government. The interest rate on these loans is often lower than private loans, and the repayment terms are more flexible. However, if you default on your loan, there can be some serious consequences.
The biggest consequence of defaulting on a Direct Student Loan is that it will wreck your credit score. This will make it very difficult to get any kind of loan in the future, including auto loans, home loans, and even personal loans. Your interest rates will also go up, which means you’ll end up paying more for any loan you’re able to get. In addition, you may have trouble getting a job or renting an apartment if your potential employer or landlord does a credit check.
If you default on a Direct Student Loan, the entire unpaid balance of your loan and any interest is immediately due and payable. The Department of Education can then take action to recover the money you owe, which may include wage garnishment.
Wage garnishment is when your employer withholds a portion of your earnings to repay your debt. Your employer will send the money to the Department of Education or to a collection agency contracted by the Department. If you have more than one defaulted student loan, payments may be divided among all of your loans.
Your employer can withhold up to 15% of your disposable pay (the amount of your earnings left after mandatory deductions) to repay your debt. If you have other debts in addition to your student loan, wage garnishment for those debts may also reduce the amount available to repay your student loan.
In addition to wage garnishment, the Department can also withhold federal and state tax refunds and Social Security benefits to repay defaulted student loans. The Department may also sue you for the unpaid balance of your loan plus interest and fees, and get a court order requiring you to pay what you owe through wage withholding or income execution (seizure of assets).
Tax Refund Seizure
If you default on your student loan, the entire unpaid balance of your loan and any interest is immediately due and payable. In addition, you will lose eligibility for deferment, forbearance, and repayment plans. You will also be ineligible for additional federal student aid. Your loan holder can take legal action to collect the debt, which may include wage garnishment, seizure of your tax refund, and assignment of your debt to a collection agency. Additionally, defaulting on your student loan will damage your credit rating for up to seven years.