Summary: Undergraduate students can take out federal student loans from the Direct Loans program. Direct Loans, sometimes called Stafford Loans, offer a low, fixed interest rate and flexible repayment terms. Eligible undergraduates may receive subsidized interest loans.
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
- Available to undergraduates with demonstrated financial need
- Federal government pays the interest while in school, during the grace period, and during periods of authorized deferment
Direct Unsubsidized Loans
- Available to undergraduate and graduate and professional students regardless of financial need
- Student pays all interest
Key Direct Loan benefits for undergraduate students:
- Fixed interest rate of 5.05% for the 2018-2019 academic year
- No payments while enrolled in school at least a half-time and during the 6-month grace period
- Eligibility not based on credit
How to Apply
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.
- Complete the FAFSA or Renewal FAFSA (for returning students) at FAFSA.ed.gov.
- Receive a financial aid award letter by mail or email from your school's financial aid office. This letter will summarize your available financial aid.
- Contact your school’s financial aid office to accept the financial aid and student loans.
- Sign any associated paperwork such as the Master Promissory Note (MPN).
Most students who qualify for federal aid are eligible to take out Direct Loans.
- U.S. citizen, national, or eligible non-citizen
- Have received a high school diploma or the equivalent (e.g., GED)
- Enrolled at least half time in an eligible degree or certificate program
- Not in default on any existing federal student loans
- Meet general eligibility requirements for federal student aid
- Credit check
- Separate loan application
Interest Rates and Fees
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 1.062%. This is less expensive than the 4.248% 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.
Loan Limits: How Much Undergraduate Students Can Borrow
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:
- Tuition and fees
- Room and board
- Miscellaneous personal expenses
In-School Deferment and Grace Period
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:
- Standard Repayment
- Extended Repayment
- Graduated Repayment
- Revised Pay-As-You-Earn (REPAYE) Repayment
- Pay-As-You-Earn (PAYE) Repayment
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Income-Sensitive Repayment (ISR)
- File the FAFSA every year to maintain eligibility for student aid. And make sure you complete any forms provided by your school for additional aid options.
- Apply for grants and scholarships to maximize your “free money.”
- Borrow Direct Subsidized Loans (if eligible) first. Then, take out Direct Unsubsidized Loans. If you have borrowed the maximum in Direct Loans and still can’t pay all of your costs, consider other options.