Federal Direct Loans


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Federal Direct Loans!

As a result of Federal legislation, Federal student loans will now be made through the U.S. Department of Education through the Direct Loan Program. The following types of loans are available:
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans

You must fill out a FAFSA form to be considered for a Federal Direct Loan. Once the FAFSA has been processed, the school will inform you of your eligibility. If you are to receive a loan, you will have to sign a promissory note that will spell out the terms and conditions of the loan.

Maximum Loan Amounts

The maximum loan amount depends on your year of study and whether you are a dependent student. For dependent students:

  • If you are a first year student in a program that is at least a full year of study, you can borrow up to $5,500. ($3,500 is the maximum subsidized loan)
  • If you are a second year student, the maximum is $6,500. ($4,500 is the maximum subsidized loan)
  • Junior and senior years, you can receive up to $7,500. ($5,500 is the maximum subsidized loan)

For independent students or dependent students whose parents applied for, but were not able to get a PLUS loan:

  • If you are a first year student in a program that is at least a full year of study, you can borrow up to $9,500. ($3,500 is the maximum subsidized loan)
  • If you are a second year student, the maximum is $10,500. ($4,500 is the maximum subsidized loan)
  • Junior and senior years, you can receive up to $12,500. ($5,500 is the maximum subsidized loan)

What is the interest rate?

Unsubsidized Federal Direct loans have an interest rate fixed at 6.8 percent. Subsidized Federal Direct Loans have an interest rate fixed at 3.4%.

If you have the financial need, some or all of your Direct Loans may be subsidized. This means that the federal government will pay the interest on the loans while you are attending school and for up to six months after you leave school. You may also be eligible to get some funds up to the yearly maximum as an unsubsidized loan.
As an example, if you are a first year student and you are eligible for a $2,000 subsidized Direct Loan, you may also borrow $3,500 - $2,000 = $1,500 as an unsubsidized Direct Loan.

Why didn't I get the whole amount?

For loans first disbursed after July 1, 2010, the loan fee is 1.0%. The loan fee will be deducted proportionately from each loan disbursement.

Can I get a Federal PLUS Loan?

If you are a graduate or professional degree student or the parent of an undergraduate student, you may be eligible for a Direct PLUS Loan. One big difference between PLUS and Direct Loans is that for the PLUS loans, your credit history is taken into account. If you have credit issues, this may prevent you from qualifying for a PLUS Loan, though getting a cosigner with better credit may allow you to get the loan.

Direct PLUS LOans are more expensive than the regular Direct Loans. The interest rate is 7.9% and there is a 4% origination charge which is proportionaltely deducted from each loan disbursement.

What is a Direct Consolidation Loan?

A Direct Consolidation Loan allows you to combine several loans into one larger loan and extend the period of repayment over a longer period of time. This will leave you with a single payment, which may be lower than the combined total of your existing loans. The interest rate will be determined by the weighted average of your existing loans and you may choose to repay over as much as 30 years.

What loans can be consolidated?

Curently, most federal student loans are eligible, including the following:
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Supplemental Loans for Students (SLS)
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Some existing consolidation loans
Direct PLUS Loans of the parent can not be consolidated with the loans of the student.

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