Direct Loans (sometimes called Stafford Loans) are low-cost, fixed-rate federal student loans available to undergraduate and graduate students. Direct Loans are the most common — and among the lowest-cost — ways to pay for college.
There are two types of Direct Loans:
Direct Subsidized Loans
Direct Unsubsidized Loans
You need to file the FAFSA (Free Application for Federal Student Aid) before you can take out federal student loans from the Direct Loans program.
Most students who qualify for federal aid are eligible to take out Direct Loans.
The interest rates on Direct Loans are fixed and do not change over the life of the loan. The interest rate for the 2016-2017 academic year are:
Every year on July 1, interest rates are reset based on current market rates. The interest rates are based on the 10-year Treasury Notes (determined each year by the final auction prior to June 1) plus a fix margin (see table).
|Type of Direct Loan||Interest Rate Formula||Interest Rate Cap||Current Interest Rate (2016-2017)|
|Undergraduate Students||10-Year Treasury + 2.05%||8.25%||3.76%|
|Graduate Students||10-Year Treasury + 3.60%||9.5%||5.31%|
The interest on Direct Loans starts to add up (accrue) from the date the loan is first disbursed. If you don’t pay the interest as it accrues, it will be capitalized (added to the loan balance), increasing the size of the loan.
The current fee on Direct Loans is 1.068%. Fees are deducted from each loan disbursement. You can ask the college financial aid office to increase the loan amount to cover the fees, up to the annual loan limit.
The amount you can borrow from the Direct Loans program is subject to annual and aggregate loan limits.
Annual Loan Limits
Aggregate (Cumulative) Loan Limits
Loan limits are also capped at the college’s annual cost of attendance.
The cost of attendance includes:
If you are a first-time Direct Loans borrower, you will be required to attend entrance counseling before your loan funds are sent (disbursed) to your school. Some schools require in-person counseling, but many offer online counseling. You will learn about the loan terms, conditions, and requirements during the counseling session.
You will also be required to sign a Master Promissory Note (MPN) before the loans can be disbursed.
The Direct Loan program sends the funds to your school to be credited to your student account. In most cases, the loan will be sent (disbursed) in at least two installments.
Special reminder: There is typically a 30-day delay in disbursing student loans to first-time, first-year borrowers.
Loan funds are credited to your account in this order:
If any loan funds remain in your account, the credit balance will be refunded to you by check, cash, debit card, or electronic funds transfer (EFT) to your bank account. Remember, the refund must be used to pay for your direct and indirect education expenses, such as textbooks, supplies, and equipment.
While you are enrolled in school at least half-time, your Direct Loans will be placed into deferment, which means you don’t have to make any payments. In addition, you don’t have to make payments during the 6-month grace period after you graduate or drop below half-time enrollment status.
If you have Direct Subsidized Loans, the federal government pays the interest on your loans during these periods of authorized deferment.
If you have Direct Unsubsidized Loans, interest on your loans will start to accrue (add up) as soon as all of the loan funds are sent to your school. Even though you aren’t making any payments, interest is still adding up.
The standard repayment term on Direct Loans is 10 years. However, you can qualify for a longer repayment term if you consolidate the loans or have more than $30,000 in federal student loans.
Direct Loans are eligible for all of the different repayment plans offered by the U.S. Department of Education.
Eligible repayment plans:
The next table shows how much your monthly payments would be under various interest rates and repayment terms.
|Monthly Loan Payment ($100,000)
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