Direct Loans

Image of graduation cap on top of a coin jar

A Direct Loan is a federally-funded student loan used to help eligible students cover the cost of their higher education. There are several types of Direct Loans that you may be eligible for and the interest rates and repayment terms will vary between each type. The type of Direct Loan you get is determined by your school's financial aid department, and will depend on several factors, including eligibility, need, and which school you plan on attending. All Direct Loans are issued and serviced by the U.S. Department of Education.

What Are the different types of Direct Loans?

Direct Subsidized Loan: Direct Subsidized Loans are intended for undergraduate students that demonstrate some kind of financial need. The interest for this loan is subsidized by the government while the student is in school, for the first 6 months after leaving school, and during deferment periods. No payment of interest accrued during these periods is required.

Direct Unsubsidized Loan: Direct Unsubsidized Loans, on the other hand, require no financial need and are available to both undergraduate and graduate students. The interest for this loan accrues from disbursal to full repayment - the student is responsible for all interest accrued.

Stafford Loan: Stafford loans are also either subsidized or subsidized. There were two types of Stafford loans at one time point in time either through the Direct Loan program or the Federal Family Education Loans Program (FFELP). However, now these loans are now only offered through the Direct Loan Program. Click here to learn more about Stafford Loans.

I have FFEL Loans. Are they the same as Direct Loans?

Prior to July 1, 2010, the U.S Department of Education provided funds through the Direct Loan Program, while banks and other private lenders provided funds through the Federal Family Loan Program, or FFEL. (Because the government backed FFEL loans, they were sometimes referred to as federally guaranteed student loans.) As of July 1, 2010, all federal student loans are issued through the Direct Loan Program. What this means is that the U.S. Department of Education is the only provider of funds for all federal student loans. Please note that there are some differences in repayment options for FFEL loans. Click here to learn more about FFEL Loans.

Am I eligible for a Direct Loan?

In order to be eligible for a Direct Loan (aside from demonstrating financial need for a Direct Subsidized Loan), you are required to be enrolled at least half-time in a school that participates in the Direct Loan Program. Additionally, you are also required to be enrolled in a program that leads to being awarded a degree or certificate.

How do I apply for a direct loan?

Step 1: Complete the FAFSA Application.

Step 2: Your school will then determine your student aid eligibility.

Step 3: If you are eligible for aid, Direct Loans are usually included in your financial aid package and your school will inform you of how to accept your loan.

Step 4: If you are a first time as a Direct Loan borrower, you are required to complete an entrance counseling session to make sure you understand that you are obligated to pay back your loan when the time comes.

Step 5: You will then need to sign a Master Promissory Note, or MPN, that proves you agree to all of the terms of your Direct Loan.

*Please note that your Direct Loan may NOT be included in your financial aid package and it is always best to check with your school directly to understand their individual process for Direct Loans.

Is there a deadline to apply for a Direct Loan?

There is no specific deadline to request a Direct Loan. There are, however, FAFSA deadlines that should be met. These deadlines vary by each school and state so you should check online to find your specific deadline for your state and school.

How much can i borrow with a Direct Loan?

The amount you are allowed to borrow using your Direct Loan is based on your grade level and dependency status. Both of these are decided by your school when you apply for aid. It is important that you do not plan your student loans based on your personal opinion of your dependency status. Your school may very well deem you dependent, even if you are already living alone and supporting yourself financially.

According to, the current cumulative loan limits for subsidized and unsubsidized loans are:

Dependent Undergraduate Student: $31,000 (No more than $23,000 of this can be subsidized)

Independent Undergraduate Student: $57,500 (No more than $23,000 of this can be subsidized)

Independent Graduate and Professional Student: $138,500* (No more than $65,500 of this can be subsidized)

*Includes all federal loans received for undergraduate study.

When will my Direct Loan funds be disbursed?

Your Direct Loan will first be taken and applied to your tuition, fees, room and board, and anything else that is required with initial arrival on campus. If, after these payments are made, there are funds left over, they will be returned to you.

What is the interest on a Direct Loan?

The interest rates for a Direct Loan, remain the same for you during each individual academic year, but are subject to change from year to year. According to, the current interest rates for the 2013-2014 academic year are:

  • 3.86% for undergraduate subsidized loans
  • 3.86% for undergraduate unsubsidized loans
  • 5.41% for graduate direct unsubsidized loans

When am I required to pay back my Direct Loan?

Your loans do not need to be paid back until 6 months after one of the following events occurs:

  • Graduation
  • Withdrawal from school for any reason
  • Dropping below half-time enrollment

During the 6 month grace period, your loan servicer will be contacting you with information regarding your loan repayment. Your loan servicer will also notify you when your first payment comes due.

What are my Direct Loan repayment options?

Standard Repayment Plan

Allows you to pay off your student loan debt in 10 years or less with a minimum monthly payment of $50. Your monthly payment will be a fixed amount based on your principle and interest.

Graduated Repayment Plan

Allows you to pay off your student loan debt in 10-30 years depending on the amount you owe. You will have a minimum monthly payment of $25 that will increase over time until your loan is paid completely. Your monthly payment will be determined by your debt amount.

Income-Based Repayment Plan

You must have partial financial hardship to select this repayment plan. If you qualify, this plan allows you to pay off your student loan debt in 25 years or less. Your monthly payment is capped at 15% of your discretionary income*. These monthly payments may change due to income changes.

Extended Repayment Plan

You must have at least $30,000 in federal student loan debt with a single lender to qualify for this repayment plan. If you qualify, this plan allows you to pay off your student loan debt in 25 years or less with a minimum monthly payment of $50. You have a choice of a fixed or graduated payment in this plan. You may also choose this option with consolidation and your payment period would change to 10-30 years.

Pay as You Earn Repayment Plan

With this repayment plan, your monthly payments will change as your income changes. You will have a maximum monthly payment that is equivalent to 10% of your discretionary income*. You will have up to 20 years to make your monthly payments and pay your loan off in full.

Income-Contingent Repayment Plan

Using this repayment plan, you will have up to 25 years to pay your loan off in full. Your monthly payments are calculated and adjusted each year based on your adjusted gross income, family size, and the total amount of your Direct Loans.

* Discretionary income = Adjusted Gross Income ? 150% of the poverty line

Who do I send my Direct Loan payment to?

You will make your monthly payments (either the minimum or more if you're able) to the U.S. Department of Education. When it comes time to start making your monthly payments ? after graduation, withdrawal, or decrease in attendance below half-time ? you must complete an exit counseling session. This counseling is a crucial part of the borrowing process as it will provide you with information on your rights and responsibilities, as well as any deferment and repayment options you may have. Once you have completed your exit counseling, you are ready to begin making your monthly payments.