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Direct Student Loans

Direct federal loans are for students to help cover the costs of their school expenses. These loans can be subsidized or unsubsidized. You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.

What is the difference between a subsidized and an unsubsidized student loan?

A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment. (Deferment is a period during which a borrower who meets certain criteria may suspend making loan payments.) The federal government "subsidizes" the interest during these periods.

Note: If you received a Direct Loan that was first disbursed between July 1, 2012 and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during the grace period, the interest will be added to your principal balance.

An unsubsidized loan is not awarded on the basis of need. You'll be charged interest from the time the loan is disbursed until it is paid in full. (Disbursement is the release of loan funds to the school for delivery to the borrower.) In other words, your interest can grow while you're in school.

If you allow the interest to accumulate while you are in school or during other periods of nonpayment, it will be capitalized. This means that the interest will be added to the principal amount of your loan and additional interest will be based upon this higher amount. The total amount of your loan will be bigger!

If you choose to pay the interest as it accumulates while you're still in school, you'll pay less in the long run.

Who can get a Direct Loan?

Undergraduate and graduate students may receive a Direct Student Loan. You must be a regular student enrolled in an eligible program at least half time. You must also meet other general eligibility requirements. If you are a first-time borrower on or after July 1, 2013 you may only receive a subsidized direct loan for 150% of the published length of your college program. This does not apply to unsubsidized loans.

How do I apply for a Direct Loan?

You apply using the Free Application for Federal Student Aid (FAFSA) or Renewal FAFSA, just the way you would for other federal student aid.

Then you sign a promissory note that you'll get from your school, lender, or guarantor. A promissory note is a legal document listing the terms and conditions of the loan. It is binding - when you sign it, you're agreeing to repay your loan under these terms. You'll want to read the note carefully and save it for future reference!

How much money can I borrow each year?

If you're a dependent undergraduate student (except students whose parents are unable to obtain PLUS loans), you can borrow annually up to:

  • $5,500 if you're a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans)
  • $6,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans)
  • $7,500 if you've completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans)

If you're an independent undergraduate student, or a dependent student whose parents are unable to get a PLUS Loan, you can borrow annually up to:

  • $9,500 if you're a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans)
  • $10,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans)
  • $12,500 if you've completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans)

Generally, if you're a graduate student, you can borrow up to $20,500 in unsubsidized amounts each academic year.

If your period of study is less than an academic year, the amounts you can borrow will be less than those listed. Check with your school's financial aid office to find out how much you can borrow. Direct Loans are not made to students enrolled in programs that are less than one-third of an academic year.

Note that the amounts given above are the maximum yearly amounts you can borrow in both subsidized and unsubsidized loans, individually or in combination.

You might receive less than these amounts if you receive other financial aid that you use to cover a portion of your costs.

How much money can I borrow in total over the years?

Generally, the total debt you can have outstanding from all Direct Loans combined is:

  • $31,000 as a dependent undergraduate student (no more than $23,000 of this amount may be in subsidized loans)
  • $57,500 as an independent undergraduate student (no more than $23,000 of this amount may be in subsidized loans)
  • $138,500 as a graduate or professional student (no more than $65,500 of this amount may be in subsidized loans). The graduate debt limit includes all federal loans received for undergraduate study.

Graduate and professional students enrolled in certain health profession programs may receive additional unsubsidized Direct Loan amounts each academic year beyond those shown above. If you are enrolled in a health profession program, talk with your college's financial aid office for these limits.

Can the school refuse the loan application?

Your school can refuse to certify your loan application or can certify a loan for a smaller amount than you would otherwise be eligible to receive.

A school may only make these decisions on a case-by-case basis, not as a pattern or practice that denies loan access to borrowers because of race, sex, color, income, religion, national origin, age, handicapped status or selection of a particular lender or guarantor. The school must document the reason for its decision and explain the reason to you in writing. The school's decision is final and cannot be appealed to the U.S. Department of Education.

What's the interest rate on Direct Loans?

Direct Loans have a fixed interest rate, For loans first disbursed on or after July 1, 2018 and before July 1, 2019 as shown below.

Interest Rates for Direct Loans
Direct Subsidized Loans Undergraduate 5.05%
Direct Unsubsidized Loans Undergraduate 5.05%
Direct Unsubsidized Loans Graduate or Professional 6.60%

Interest rates for federal student loans are set each year by federal law. View more information on the rates here.

Other than interest, is there a charge to get a Direct Loan?

You will pay a fee of 1.069% for loans disbursed after October 1, 2016. This fee is deducted proportionately each time a loan disbursement is made.

Also, if you don't make your loan payments when scheduled, you may be charged late fees, collection costs and other fees.

How will I receive my Direct Loan?

The loan funds will be sent to your school. In most cases, your loan will be disbursed in at least two installments. No installment will be more than half the amount of your loan.

Your loan money must first be used to pay for your tuition, fees, and room and board. If loan money remains, you'll receive it by check or in cash, unless you give the school written permission to hold the funds until later in the enrollment period.

If you're both a first-year undergraduate student and a first-time borrower, your first disbursement can't be made until 30 days after the first day of your enrollment period.

That way, you won't have to repay the loan if you withdraw during the first 30 days of classes. (However, you might owe money to the school for a portion of tuition or other fees.)

I've changed my mind! Can I cancel the loan, even after I've signed the promissory note?

Don't panic! It's possible to cancel the loan if you meet certain conditions.

Your school must notify you in writing whenever it credits your account with your Direct Loan funds. This notification must be sent to you within 30 days of the date the school credits your account.

You may cancel all or a portion of your loan if you inform your school within 14 days after the date your school sends you this notice, or by the first day of the payment period, whichever is later. (Your school can tell you the first day of your payment period.)

If you receive Direct Loan funds directly by check, you may refuse the funds by returning the check.

When do I pay back these loans?

After you graduate, leave school, or drop below half-time enrollment, you will have six months before you begin repayment. This period of time is called a grace period.

During the grace period on a subsidized loan, you don't have to pay any of the principal loan amount, and you won't be charged interest.

During the grace period on an unsubsidized loan, you don't have to pay any principal, but you will be charged interest. You can either pay the interest or it will be capitalized, which means the interest will be added to the principal amount.

After you leave school or drop below half-time enrollment, your lender will send you information about repayment and you'll be notified of the date repayment begins. However, you're responsible for beginning repayment on time even if you don't receive this information.

Failing to make payments on your loan is likely to have a negative effect on your credit rating, so stay on top of this! If you don't hear from your lender, contact them.

How do I pay back my loans?

When you first receive the loan, you will be contacted by your loan servicer. Your loan servicer will provide updates on the status of your current loan, as well as any additional federal loans you receive. You can find out who your loan servicer is by visiting http://studentaid.ed.gov/repay-loans/understand/servicers.

What if I have trouble repaying the loan?

Under certain circumstances, you can receive a deferment or forbearance on your loan. To qualify, your loan must not be in default already.

A deferment means no payments are required. You won't be charged interest for a subsidized Direct Loan. If you have an unsubsidized Direct Loan, you are responsible for the interest that accumulates during deferment.

During forbearance, loan payments are postponed or reduced. Your lender might grant you forbearance for a limited and specified period under certain circumstances. For example, you may be temporarily unable to meet your repayment schedule due to poor health or other unforeseen personal problems, but you're not eligible for a deferment.

Can my Direct Loan ever be discharged (canceled)?

Yes, but only under a few conditions.

The following reasons are not good enough to cancel your Direct Loan:

  • You didn't complete your program of study at your school (unless you couldn't complete the program for a valid reason, for example, the school closed)
  • You didn't like the school or the program of study
  • You didn't obtain employment after completing the program of study

How can I get more information?

For more information on Student Financial Assistance Programs, contact the Federal Student Aid Information Center:

Internet: http://studentaid.ed.gov/types/loans/subsidized-and-unsubsidized

Phone: 1-800-4-FED-AID (1-800-433-3243)

TTY: 1-800-730-8913

Spanish speakers are available (se habla español).