Introduction
The William D. Ford Federal Direct Loan (Direct Loan) is a low-interest loan for students and parents to help pay for the cost of college or career school. Direct Loans are made by the U.S. Department of Education and are not based on the applicant’s credit history.
Types of Direct Loans
There are three types of Direct Loans:
- Subsidized Direct Loans are available to undergraduate students who demonstrate financial need. The government pays the interest on these loans while the student is in school and during the first six months after graduation.
- Unsubsidized Direct Loans are available to all undergraduate and graduate students, regardless of financial need. The student is responsible for paying the interest on these loans while in school and during the first six months after graduation.
- Parent PLUS Loans are available to parents of dependent undergraduate students. The parent is responsible for paying the interest on these loans while the student is in school and during the first six months after graduation.
Loan Limits
The amount of money you can borrow in Direct Loans depends on your year in school, your dependency status, and whether you are a first-time borrower.
Loan Limits for Undergraduate Students
| Year in School | Loan Limit |
|---|---|
| First-year | $5,500 |
| Second-year | $6,500 |
| Third-year | $7,500 |
| Fourth-year | $8,500 |
Loan Limits for Graduate Students
| Year in School | Loan Limit |
|---|---|
| First-year | $20,500 |
| Second-year | $20,500 |
Loan Limits for Parents
| Year in School | Loan Limit |
|---|---|
| Any year | Cost of attendance – other financial aid |
Interest Rates
The interest rates on Direct Loans are set by the U.S. Department of Education and change each year. The current interest rates are:
- Subsidized Direct Loans: 4.99%
- Unsubsidized Direct Loans: 4.99%
- Parent PLUS Loans: 7.54%
Repayment
Direct Loans must be repaid within 10 years. You can choose to repay your loans through a standard repayment plan or an extended repayment plan. The standard repayment plan has a fixed monthly payment that is due on the same day each month. The extended repayment plan has a lower monthly payment but takes longer to repay.
Tips and Tricks
- Apply for a Direct Loan as early as possible. The earlier you apply, the more time you will have to compare loan options and find the best loan for you.
- Compare loan options before you apply. There are many different types of student loans available, so it is important to compare the interest rates, fees, and repayment terms before you apply for a loan.
- Make sure you understand the terms of your loan. Before you sign a loan agreement, make sure you understand the interest rate, the repayment terms, and the fees associated with the loan.
- Make your loan payments on time. Making your loan payments on time will help you avoid late fees and damage to your credit score.
Common Mistakes to Avoid
- Don’t borrow more than you need. It is important to only borrow the amount of money that you need to pay for your education. Borrowing more than you need will only lead to higher loan payments and more debt.
- Don’t consolidate your loans too early. Consolidating your loans can make it easier to manage your payments, but it can also increase the amount of interest you pay over the life of the loan.
- Don’t default on your loans. Defaulting on your loans can damage your credit score and make it difficult to get future loans.
FAQs
Q: What is the difference between a Direct Loan and a private student loan?
A: Direct Loans are made by the U.S. Department of Education and are not based on the applicant’s credit history. Private student loans are made by banks and other lenders and are based on the applicant’s credit history. Direct Loans typically have lower interest rates than private student loans.
Q: Can I get a Direct Loan if I have bad credit?
A: Yes, you can get a Direct Loan if you have bad credit. Direct Loans are not based on the applicant’s credit history.
Q: How do I apply for a Direct Loan?
A: You can apply for a Direct Loan online at the Federal Student Aid website.
Q: What is the interest rate on Direct Loans?
A: The interest rates on Direct Loans are set by the U.S. Department of Education and change each year. The current interest rates are:
- Subsidized Direct Loans: 4.99%
- Unsubsidized Direct Loans: 4.99%
- Parent PLUS Loans: 7.54%
Q: How do I repay my Direct Loans?
A: Direct Loans must be repaid within 10 years. You can choose to repay your loans through a standard repayment plan or an extended repayment plan. The standard repayment plan has a fixed monthly payment that is due on the same day each month. The extended repayment plan has a lower monthly payment but takes longer to repay.
Q: What happens if I default on my Direct Loans?
A: Defaulting on your Direct Loans can damage your credit score and make it difficult to get future loans.
