Direct Loans, sometimes called Stafford Loans, are low-cost, fixed-rate federal student loans available to both undergraduate and graduate students.
There are two types of Direct Loans for undergraduate students:
Direct Subsidized Loans
Direct Unsubsidized Loans
Key Direct Loan benefits for undergraduate students:
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 rate on Direct Subsidized and Unsubsidized Loans for undergraduate students is fixed and does not change over the life of the loan. The interest rate for the 2018-2019 academic year is 5.05%. This is less expensive than the 7.6% interest rate on Parent PLUS Loans.
The interest on Direct Subsidized and Unsubsidized 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.
Fees on Direct Loans
The current fee (Oct. 1, 2017 - Sept. 30, 2018) on Direct Subsidized and Unsubsidized Loans for undergraduate students is 1.066%. This is less expensive than the 4.264% fee on Parent PLUS Loans.
How Fees Affect the Total Loan Cost
Loan fees are basically a form of up-front interest. For example, if your loan has a 10-year repayment term, a 4% fee is the about the same as an increase of about .875% to 1% in the interest rate. If your loan has a 30-year repayment term, a 4% fee is the same as an increase of about .334% to .5% in the interest rate.
The amount you can borrow from the Direct Loans program is subject to annual and aggregate (cumulative) loan limits.
Loan limits are also capped at the college’s annual cost of attendance.
The cost of attendance includes:
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 the loan funds are sent to your school. Even though you aren’t making any payments, interest is still adding up and the federal government is not going to cover these payments.
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:
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