Federal Direct Student Loans Overview
The U.S. Department of Education administers the old Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan Program. Both the FFEL and Direct Loan programs consist of what are often referred to as the
- Stafford Loans (for students)
- Direct PLUS Loans for Parents
- Direct PLUS Loans for Graduate and Professional Students.
There are also Federal Direct Consolidation Loans which help people manage their debt after graduation. As of 2010, federal student loans for undergraduate and graduate students are referred to simply as Direct Student Loans. All participating schools offer federal loans through the Direct Loan program.
The funds for these loans, as you might guess, come directly from the federal government. The interest rate and repayment terms offered under this program are generally better than those offered by private student loans.
Borrowing Process for Direct Student Loans
In order to apply for a Direct Student Loan, you must first complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to apply for all types of federal student aid and serves as your application for Direct Student Loans as well.
Your school will provide all the necessary instructions for you to obtain your Direct Student Loan, including the amount you may borrow. You will usually receive this information when you receive your financial aid award letter.
Once you have received approval from the Direct Loan Program, you will need to sign a master promissory note (MPN). The promissory note is your legally binding agreement to repay your loan. Be sure to also read the "Borrower's Rights and Responsibilities" which will be part of the loan package.
Your school will also conduct an "Entrance Interview" that you must complete in order to receive your loan proceeds. The Entrance Interview will be conducted in-person or online and is an informational session to ensure you understand your rights and responsibilities connected with borrowing a federal loan.
The session will likely last no more than 20-30 minutes. Your school will determine your eligibility for either a Subsidized and/or Unsubsidized Direct Student Loan.
- “Subsidized” means the government pays the interest on your loan while you are in school at least half-time and during periods of deferment depending on your financial need.
- “Unsubsidized” means you are responsible for either making interest-only payments on your loan while you are in school or allowing the interest to accrue (added to the loan principal) while you are in school. Interest on Direct Unsubsidized Student Loans accrues daily.
Direct Student Loan Limits
Direct Student Loans have fixed maximums based on your year in school and dependency status. If you’re a dependent undergraduate student, each year you can borrow up to:
- $5,500 if you’re a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans).
- $6,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans).
- $7,500 if you’ve completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans).
If you're an independent undergraduate student or a dependent student whose parents have applied for but were unable to get a Direct PLUS Loan for Parents, each year you can borrow up to:
- $9,500 if you’re a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans).
- $10,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans).
- $12,500 if you’ve completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans). This amount remains unchanged for both academic years.
If you are a graduate student each year you can borrow up to $20,500. Graduate students may not receive Direct Subsidized Loans.
You cannot borrow more than your cost of attendance (determined by your school) minus other financial aid including other loans. As a result, the amount you may borrow could be less than the maximums listed above.
The amount you can borrow will be communicated to you by your school. This communication comes in the form of an “award letter” that lists all of the assistance for which you qualify through your school, federal and state financial aid programs. You may accept up to the full amount of the Direct Student Loan offered or request a reduction if you do not require the full amount.
Direct Student Loan Interest Rates
All Direct Subsidized and Unsubsidized Loans disbursed between July 1, 2014 and June 30, 2015 carry a fixed interest rate of 4.66% for undergraduates. Graduate or professional students receiving a Direct Unsubsidized Loan disbursed between July 1, 2014 and June 30, 2015 will have a fixed interest rate of 6.21%.
Direct Loan Fees
Direct Subsidized and Unsubsidized Student Loans disbursed on or after December 1, 2013 and before October 1, 2014 will have a 1.072% origination fee. Loans disbursed on or after October 1, 2014 and before October 1, 2015 will have a 1.073% origination fee. This fee is deducted from the amount borrowed.
What this means is that the amount your school receives will be 1.072% less than the total amount of the loan. Loan made before December 1, 2013 have different origination fees. You are still responsible for repaying the entire amount you borrow.
Direct Student Loan Repayment Plans
You will not have to begin repayment of your Direct Student Loan until 6 months after you graduate, leave school or drop below half-time attendance. There are seven different repayment plans available.
You can learn about all of the options available to you at our Federal Student Loan Repayment page. Remember, borrow only what you need and compare student loans before you apply to make sure you get the loan that’s right for you.