Direct Federal Loan

Direct Federal Loans (sometimes previously called Stafford Loans) are for students to help cover the costs of their school expenses. These loans can be subsidized or unsubsidized. They are part of the William D. Ford Federal Direct Loan (Direct Loan) Program.

Note: Prior to July 1, 2010, some Stafford Loans were through private lenders under the Federal Family Education Loan (FFELSM) Program. This program has been discontinued.

Are Federal Direct Loans subsidized?

Federal Direct 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 while you are attending school at least half-time 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.

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?

Only undergraduate students who have financial need may receive a Direct Subsidized Loan. You must be a regular student enrolled in an eligible program at least half time. Direct Unsubsidized Loans are available to both undergraduates and graduate or professional degree students. Financial need does not need to be demonstrated in order to qualify for a Direct Unsubsidized Loan.

How do I apply?

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

After you receive your loan for the first time, you sign a promissory note that you'll get from your school. 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 reference.

How much money can I borrow each year?

If you're a dependent undergraduate student, 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 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. (These 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 Federal 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. The graduate debt limit includes any Direct Loans received for undergraduate study. (no more than $65,000 of this amount may be in subsidized loans).

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 for.

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?

Direct subsidized and unsubsidized loans for undergraduate students first disbursed on or after July 1, 2017 and before July 1, 2018 have an interest rate of 4.45 percent.

Direct unsubsidized loans for graduate or professional students first disbursed on or after July 1, 2017 and before July 1, 2018 have an interest rate of 6 percent.

The interest rates for undergraduate, graduate and professional students are fixed rates for the life of the loan.

Other than interest, is there a charge?

Yes, there is a loan fee on all Direct Subsidized Loans and Direct Unsubsidized Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed.

Loans first disbursed on or after October 1, 2016 and before October 1, 2017, have a loan fee of 1.069%. Loans first disbursed on or after October 1, 2017 and before October 1, 2018, have a loan fee of 1.066%. Loans first disbursed prior to October 1, 2016 have different loan fees..

How will I receive my 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, they will be returned to you. All loan funds must be used for your education expenses.

If you're both a first-year undergraduate student and a first-time borrower, you may have to wait 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.

You may cancel all or a portion of your loan at any time by notifying your school. After your loan is disbursed, you may cancel all or part of the loan within certain time frames. The promissory note and additional information you receive from your school will explain the procedures and time frames for canceling your loan.

When do I pay back these loans?

After you graduate, leave school, or drop below half-time enrollment in your classes, you will have a six-month grace period before you are required to begin repayment. 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, you will receive 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 loan servicer, contact them.

You can check your interest rate, servicer information and other financial aid history by visiting the National Student Loan Data System. (https://www.nslds.ed.gov/nslds/nslds_SA)

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 check to find out who your loan servicer is by visiting the National Student Load Data System. (http://www.nslds.ed.gov/nslds_SA/)

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 on a subsidized loan. If you have an unsubsidized loan, you are responsible for the interest that accumulates during deferment.

During forbearance, loan payments are postponed or reduced. Your loan servicer 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 loan ever be discharged (canceled)?

Yes, but only under a few conditions.

The following reasons are not good enough to cancel your 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 :Student Aid on the Web

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

TTY : 1-800-730-8913

(Spanish speakers are available)