Financial Aid 101: Everything You Need to Know About Federal Direct Loans

FINANCIAL AID
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Financial Aid 101: Everything You Need to Know About Federal Direct Loans

All students who submit a FAFSA are offered a Federal Direct Subsidized and/or Unsubsidized loan in their financial aid package. Do you have questions about these loans? Read on!

What are Federal Direct Subsidized and Unsubsidized loans?
Federal Direct loans are made available by the U.S. Department of Education for students to help cover the cost of higher education.

Who is eligible for Federal Direct loans?
Students who submit the FAFSA, meet the eligibility requirements for all types of federal student aid, and are enrolled at least half-time (6 credits) can borrow these loans.

What is the difference between Subsidized and Unsubsidized loans?
Subsidized loans are available to students who demonstrate financial need (which is determined by the FAFSA). The U.S. Department of Education pays the interest on these loans while you are enrolled at least half time (6 credits) and during the grace period, which means that until you begin repayment, they're basically interest-free!

Unsubsidized loans are available to all students, even if they do not demonstrate financial need. Interest begins accruing on these loans immediately after they are disbursed (paid out).

What are the terms of Federal Direct loans?
Here's a quick rundown:

Federal Direct Loan Terms:
Lender:	U.S. Department of Education
Maximum Loan Amount:	Depends on your dependency status and grade level
Interest Rate:	6.8% fixed. Interest does not accrue on subsidized loans while you are enrolled at least half time (6 credits) or during the grace period.
Origination Fee:	1.051% of the loan
Requirements to Receive Funds:	Complete both a Master Promissory Note and Entrance Counseling online at www.StudentLoans.gov, and be enrolled at least half time.
Repayment Terms:
Grace Period:	6 months
Repayment Length:	Between 10 and 25 years, depending on total borrowing and repayment plan.
Payment Due:	Monthly
Payment Amount:	Depends on chosen repayment plan

So what exactly do these terms mean? Let's talk about them in more detail:

Lender: The lender for Federal Direct loans is the U.S. Department of Education. However, once your loan has completely disbursed (or paid out) to DU, you will be assigned a loan servicer who will handle the billing and other borrower-based services related to your federal student loan.
Maximum Loan Amount: Most students will be offered a total of $5,500 in Direct loans for their first year in school. Depending on the results of the FAFSA, many students will be offered a combination of both Subsidized and Unsubsidized loans. However, the total amount you can borrow depends on your dependency status and your year in school. (See the chart below for more details.)
Interest Rate: The interest rate is fixed at 6.8% for both Subsidized and Unsubsidized Federal Direct loans, so it will never change.
Origination Fee: These loans have a 1.051% origination fee--charged by the U.S. Department of Education--that is deducted from each installment of the loan at disbursement. This means the amount you receive will be slightly lower than the amount you have to repay. The fee on a $5,500 loan, for example, will be $57.80.
Requirements to Receive Funds: If you accept a Direct Subsidized and/or Unsubsidized loan, you must complete both a Master Promissory Note (which is your agreement that you will repay the loan) and Entrance Counseling (which will help you understand the terms of the loan) online at www.StudentLoans.gov before any funds can be sent to DU on your behalf.
Grace Period: A grace period is the period of time after you graduate (or drop below half-time enrollment) when you do not have to make loan payments. That means you won't have to start paying back your Federal Direct loans until 6 months after you graduate.
Repayment Length: There are multiple repayment plans available, which have repayment terms that range from 10 years to 25 years. The amount of time you have to pay back your Direct loans depends on which plan you choose.
Payment Due: Once you begin repaying your loans, you will need to make a payment to your servicer every month.
Payment Amount: Your monthly payments will depend on the repayment plan you choose and the total amount you have borrowed. If you choose the Standard Repayment Plan, for example, your payments will be at least $50 (although most students will have higher payments than that). If you choose a plan such as Income-Based Repayment, however, your payment amount will be based on your income. Learn the differences between each repayment plan through the Federal Student Aid website.

Maximum Loan Limits:
As mentioned above, the total amount you can borrow in Direct loans depends on your dependency status and year in school. (Remember, you are considered to be an independent student if you are married, have children, at least 24 years old, are a graduate student, a veteran, a member of the armed forces, or an orphan, ward of the court or homeless.) Here are the maximum annual and lifetime loan limits:

Year in School	Dependent Students*	Independent Students
1st Year:	$5,500 (no more than $3,500 may be in subsidized loans)	$9,500 (no more than $3,500 may be in subsidized loans)
2nd Year:	$6,500 (no more than $4,500 may be in subsidized loans)	$10,500 (no more than $4,500 may be in subsidized loans)
3rd & Year:	$7,500 (no more than $5,500 may be in subsidized loans)	$12,500 (no more than $5,500 may be in subsidized loans)
Maximum Total Loan Debt:	$31,000 (no more than $23,000 may be in subsidized loans)	$57,500 (no more than $23,000 may be in subsidized loans)

*Dependent students whose parents are not able to borrow a PLUS loan are eligible for an additional $4,000 in unsubsidized loans during the 1st and 2nd years, and an additional $5,000 in unsubsidized loans during the 3rd year and beyond.

How will I receive my loan money?
As with all other types of financial aid, your Direct loan(s) will first be sent to the Bursar's Office at DU (who is responsible for the collection and billing of tuition-related charges) and then be applied directly to your University bill. The total amount of your loan will be disbursed evenly over three separate installments--one each for fall, winter and spring quarters.

What if I am unable to make my loan payments?
Under some circumstances, you may be able to request a deferment or forbearance on your loan, which means you can postpone payments for a period of time. Circumstances that may warrant a deferment or forbearance include enrolling in graduate school, inability to find employment, and economic hardship. You would request a deferment or forbearance, if necessary, directly with your loan servicer.

Can my loan ever be cancelled or forgiven?
You must repay your loans even if you don't finish school or can't find a job. However, your loans may be forgiven if you take part in the Teacher Loan Forgiveness and Public Service Loan Forgiveness programs.

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We know there is a lot of information about Federal Direct loans here, so if you still have questions, please don't hesitate to contact us!

Up next week: Everything You Need to Know About the Federal Direct Parent PLUS Loan!

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