What Are Federal Direct Student Loans?

In this article explain what federal direct student loans are, types of student loans, how to apply and eligibility requirements for obtaining student loans.

Federal Direct Student Loans

Federal Direct Student Loans represent a form of financial assistance extended by the U.S. Department of Education to qualified students in order to assist with the expenses associated with pursuing higher education. Referred to as Direct Loans, these financial aids are disbursed directly to students and their parents by educational institutions that are part of the program. It is Important to note that Federal Direct Student Loans have a maximum loan limit. The maximum amount that undergraduate students can borrow each year in federal direct subsidized and unsubsidized loans ranges from $5,500 to $12,500 per year, depending on their year in school and whether they’re a dependent or independent student.

The interest rate for federal student loans for the 2023–2024 school year is 5.50% for undergraduate students and 7.05% for graduate or professional students. The interest rate for Direct PLUS loans is 8.05%. 

Types Of Federal Direct Student Loans

There are two main types of Federal Direct Student Loans namely:

1. Direct Subsidized Loans
2. Direct Unsubsidized Loans
3. PLUS Loans

Direct Subsidized Loans

Direct Subsidized Loans are available to undergraduate students with demonstrated financial need. The government pays the interest on these loans while the student is in school at least half-time, during the grace period after leaving school, and during deferment periods.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to both undergraduate and graduate students, regardless of financial need. Interest accrues on unsubsidized loans from the time the loan is disbursed, and borrowers are responsible for paying all interest accrued.

The major difference between Direct Subsidized Loans and Direct Unsubsidized Loans is that with Direct Subsidized loans the government pays the interest on loans during the grace and deferment periods while recipients of Direct Unsubsidized Loans pay all interest accrued on the loan from the time the loan is disbursed.

PLUS Loans

Parents and graduate students can take out PLUS Loans. PLUS loans require a credit check, unlike subsidized and unsubsidized loans.

There are two types of PLUS Loans available to lenders:

• Grad PLUS Loans are available to grad students.
• Parent PLUS Loans are available to parents of undergraduates.

With PLUS Loans, you can borrow up to the cost of attendance for your school . PLUS Loans carry the highest interest rates of any federal student loan — currently 8.05%. This rate is based on the 10-year treasury rate plus a fixed margin of 4.6%. There’s also a 4.228% up-front fee that’s taken out of your loan.

How To Apply For Federal Direct Student Loans

Step 1

To apply for a federal student loan, you must first complete and submit a Free Application for Federal Student Aid (FAFSA) form. We have an article on FAFSA here.

Step 2

You will automatically be considered for Direct Subsidized and Unsubsidized Loans if you submit the Free Application for Federal Student Aid (FAFSA). The loans will be added to your student aid Financial Aid Offer once awarding begins for the academic year (April for first time students and July for returning students).

First-time borrowers also need to complete Entrance Counseling and a Master Promissory Note at studentaid.gov. In most cases, you will only need to complete these items once during your college career.

Federal student loans require completion of the FAFSA to apply, necessitating adherence to the FAFSA deadline. The deadline is June 30. It is important to note that certain financial aid is distributed on a first-come, first-served basis, underscoring the importance of submitting the FAFSA early, particularly for those with significant financial need.

Step 3

Get your financial aid letter from your school to do this you’ll need to contact the school’s financial aid office to accept and complete any additional paperwork that might be required. You’ll also need to contact the financial aid office in order to appeal your award letter if you believe that the amount offered is insufficient to meet your needs.

Eligibility Requirements

• Be enrolled in a degree-seeking program
• Be enrolled half time (6 credits for undergraduates and 5 for graduates)
• Meet the minimum requirements for Satisfactory Academic Progress
• Not be in default on previous federal direct loans

Bottom Line

It is crucial for students who need financial assistance for their college education to thoroughly investigate various options available to them. This includes actively seeking out scholarships and grants that can help alleviate the burden of tuition fees. Nevertheless, with the ever-increasing costs associated with higher education, loans can serve as a valuable resource for students to continue their academic pursuits. Federal Direct Loans, in particular, offer borrowers who meet the eligibility criteria, the advantage of benefiting from comparatively low interest rates. Additionally, these loans provide certain safeguards such as deferment, forbearance, loan forgiveness alternatives, and income-driven repayment plans, which can further assist borrowers in managing their loan obligations effectively.