Federal Direct Loan. All Federal Direct Loan(s) are eligible for Public Service Loan Forgiveness (PSLF) and income-driven repayment plans. Some of the loans may be eligible for Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE). This may offer even lower monthly payments for some eligible borrowers.
The Direct Parent PLUS loans consolidated into a Direct Consolidation Loan are eligible for the Income-Contingent Repayment plan Read this guide to learn the various type of Direct Loans and how it works.
Federal Direct Loan
This provides a low-interest student loan to the postsecondary student both undergraduate and graduate student and their parents. Willian D. Ford Federal Direct Loan Program is issued and managed by the U.S. Department of Education.
This is the only government-backed student loan program in the United States. So, if you need any government financial loan for educational purposes, you can fall to them. Being eligible is easy, but there are different types of this loan.
Type(s) of Direct Loan
Below are the four types of Direct Loans:
Direct Subsidized Loan
This loan is for an undergraduate who is eligible for financial assistance due to their family’s economic circumstances. The loan helps to cover the costs of a professional career school, college, or university. Qualified applicants can loan $12,500 each year and $57,000 in total during the undergraduate period.
Direct Unsubsidized Loan
These loans are available to eligible undergraduate, graduate, and professional students, and they are not based on financial need. Undergraduate borrowers can loan about $57,000 in total or $12,500 per year. While graduates can borrow about $20,500 per year and $138,500 in total.
Direct PLUS Loan
They are offered to both parents of undergraduate and graduate or professional students to aid offset the costs of education not covered by other financial aid.
The eligibility is not based on financial needs like subsidized loans, but applicants will need decent credit to qualify without meeting additional requirements. Borrowers with less than stellar credit can still access these loans, but they are to meet additional criteria.
Direct Consolidation Loan
These are loans that allow students or families to combine all eligible Federal Student Loans into one loan with a single service provider. Thus, making it easy to process all payments in one location. This loan also allows applicants to gain access to additional loan repayment programs.
Federal Direct Loan Program | How Federal Direct Loan Work
As you have known, the platform offers several types of loans. Note that subsidized direct loans are the only loan from the federal government based on financial need. The U.S. Department of Education pays the interest on such loans while the student is still in school.
All loans are granted through the Federal Direct Loan and have a maximum amount for each year. And each successive year allows for an increase in the total yearly amount, with set aggregate amounts. To apply for these loans, you must first submit the Free Application for Federal Student Aid (FAFSA).
Undergraduate students can borrow about $5,500 to $12,500 each year, based on the year they are in school and their dependency status. The amounts are both for direct subsidized and direct unsubsidized loans. Professionals and graduates may borrow $20,500 per year in direct unsubsidized loans, and the parents of the student can also borrow using the Direct PLUS loan.
How to Get a Federal Direct Loan
To receive this loan either subsidized or unsubsidized, you are required to fill out FAFSA to find out if you qualify. You will be prompted to sign up for an account with the U.S. Federal Student Aid Office which will give you an ID to use the website.
After filing your FAFSA, your college will send a student financial aid letter displaying the aid and loans available to you. If you qualify for a subsidized direct loan, you should get to them first as they come with low interest. Unsubsidized direct loans will also be listed, so ensure you take on the right loan.
The funds will be sent directly via your school’s financial aid office and board. If there is any money left over, it will be given to you, but it is wise to return the remains rather than spend it. Either way, you will have to repay the money.
Federal Direct Loan vs Private Loan
Private lenders also provide student loans to use instead of or in addition to federal loans. Yet, the federal program often has more favorable interest rates and other benefits like loan consolidation and forgiveness programs. If you are seeking a student loan, then you should carefully all available options.
Federal direct student loans have a cap on much they will lend, while private loan companies don’t impose a cap on how much they lend. Interest rates are high, but private loans may be more flexible in their rules of how the issued funds can be used. Also, private student loans end up being more expensive than federal ones.
Federal loan payments are deferred until the person graduates, but not all private loan payment offers the same options. Also, while direct loans are eligible for student loan forgiveness and repayment plans, not all private lenders do.
Is my direct loan a federal loan?
If you have a Direct Loan, then it is indeed a type of federal student loan provided by the U.S. Department of Education. Direct Loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. If you are unsure whether your specific Direct Loan is a federal loan, you can check the loan promissory note or billing statement, which should state the name of the federal loan program. Additionally, you can contact your loan servicer to confirm the loan type.