What is the Federal Direct Lending Program?

The Federal Direct Loans Program provides low-interest student loans to post-secondary students (undergraduates and graduate students) and their parents. The Federal William D. Ford Direct Loan Program is issued and administered by the US Department of Education. It is the only government-backed student loan program in the United States.

Key points to remember

  • The Federal Direct Loans Program offers subsidized, unsubsidized direct loans, PLUS loans, and consolidation loans.
  • Federal subsidized student loans offer the lowest interest rates.
  • Parent PLUS loans often have the highest interest rates of any federal student loan offered by the government.
  • All loans have maximum amounts that are set annually, with each successive year allowing for a specific increase.
  • Federal direct loans often have lower interest rates than private loans.

How the Federal Direct Loan Program Works

The program offers several types of loans, including subsidized direct loans, non-subsidized direct loans, direct PLUS loans, and direct consolidation loans. Subsidized Direct Loans are the only federal government student loans based on financial need. The US Department of Education pays the interest on these loans while the student is in school.

All loans under the Federal Direct Lending Program have maximum amounts set each year, with each successive year allowing an increase in the total maximum annual amount, with overall amounts set. Students who wish to apply for funding must first submit the Free application for federal student aid (FAFSA).

Undergraduates can borrow anywhere from $ 5,500 to $ 12,500 per year, depending on the year they are in school and their dependency status. These amounts concern both subsidized direct loans and non-subsidized direct loans. Professional and graduate students can borrow $ 20,500 annually in unsubsidized direct loans, and parents of undergraduates can borrow using a PLUS direct loan.

Your college or university decides how much money you can borrow in federal loans.

Types of federal student loans

Direct subsidized loans

Direct subsidized loans are for undergraduates who are eligible for financial aid because of their economic situation or that of their family. These loans help cover the costs of a vocational school, college or university. Qualified individuals can borrow up to $ 12,500 per year in direct subsidized loans and $ 57,000 in total during their undergraduate years.

Direct unsubsidized loans

These federal loans are available to qualifying undergraduate, graduate, and professional students, and they are not based on financial need. Undergraduate borrowers can borrow up to $ 57,000 in total, or $ 12,500 per year, and graduate and professional students can borrow up to $ 20,500 per year and $ 138,500 in total.

Direct PLUS loans

These loans are available to parents of undergraduates and graduate or professional students to help offset education costs not covered by other financial aid. Eligibility is not based on financial need like subsidized loans, but you will need decent credit to qualify without meeting additional requirements. Borrowers with less than stellar credit can still access these loans, but they will have to meet additional criteria.

Direct consolidation loans

These loans allow a student or family to combine all of your eligible federal student loans into one loan with one service provider, making it easy to make all of your payments in one place. Direct consolidation loans also allow you to access additional loan repayment programs.

There is no minimum credit score required for parents to take out a Plus loan, but they cannot have “bad credit” on their history.

How to get a federal direct loan

To receive a federal direct loan (subsidized and unsubsidized), you must complete FAFSA to find out if you qualify. When you complete your FAFSA, you will be asked to create an account with the US Federal Student Aid Office, which will issue you with identification to use the site.

After you file your FAFSA, your college will send you a student financial aid letter outlining the assistance (including loans) available to you, including federal direct loans. If you qualify for subsidized direct loans, you should take them first as they come with a lower interest rate. Direct unsubsidized loans are also available, and PLUS loans are the most expensive of all federal direct loans because they have higher fees and interest rates.

When you decide which federal direct loans you want to take out, you will do so through your school’s financial aid office, and the money will be sent there directly and used for tuition, room and board, as well as other fees. If you have any money left over, it will be returned to you, but it may be a good idea to return it rather than spend it. In all cases, the money must be refunded.

Pros and Cons of the Federal Direct Student Loans Program

There are pros and cons of taking out federal direct student loans to pay for college and university education. One advantage of taking out federal direct student loans over private loans is the low fixed interest rate offered with federal loans. Federal loans (except PLUS loans) do not require strong credit, and interest on federal subsidized student loans is paid by the government when you are enrolled in school. Federal direct student loans also have multiple repayment routes through federal loan repayment and cancellation plans.

Disadvantages of Federal Direct Loans include the fact that only unsubsidized loans are available to graduate students, who also pay higher interest rates than undergraduates. The borrowers who default on these loans cannot escape the debt by declaring bankruptcy.

Federal direct loans have lower loan limits for undergraduates declared as income tax dependents of their parents or guardians. Finally, students must apply for direct loans again each year.

Low interest fixed rate loans
  • Federal reimbursement programs are available when the time comes to reimburse them

  • You don’t need good credit to get them

  • Grace period for reimbursement after graduation

Only direct unsubsidized loans are available to graduate students
  • Parents taking PLUS loans have to pay fees

  • You cannot declare federal student loans bankrupt

  • You can only borrow a specific amount each year

  • You can only take out subsidized direct student loans if you meet the necessary criteria.

Federal direct loans vs private loans

Private lenders also offer student loans to be used in place of or in addition to federal loans. Yet the federal program often has more favorable interest rates and other provisions, such as loan consolidation and forgiveness programs. Those looking for student loans should carefully study all available options.

Direct federal student loans are capped. Private loan companies often do not place a cap on the amount they will lend. Interest rates are higher, but private loans can be more flexible in their rules for using the money. Overall, private student loans generally end up being more expensive than federal student loans.

Direct federal student loan payments are deferred until you graduate, but not all private loan payments offer the same option. Additionally, while direct loans may qualify for student loan cancellation and repayment plans, not all private lenders do.

Federal Direct Program FAQs

What Are the Interest Rates for Federal Student Loans?

Direct subsidized loans and direct unsubsidized loans for undergraduates have an interest rate of 3.73%, and unsubsidized student loans for graduate students have an interest rate of 5.28%. Direct PLUS loans for parents and graduate students have an interest rate of 6.28%, the highest interest rate of all federal student loans.

Are student loans forgiven after 20 years?

Depends on type of repayment plan you have, your student loan can be canceled after 20 years. But no. Not all student loans are canceled after 20 years.

How often can you apply for the Federal Direct Loan Program?

You must apply every year you need funding (undergraduate and graduate) for higher education. A FAFSA is filed annually if you are in a four-year college. Federal direct loans can only be used for higher education.


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