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Direct Loans

The Direct Subsidized and Direct Unsubsidized Loans, sometimes known as Stafford Loans, are the most popular low-interest federal loans. These loans are offered to undergraduate and graduate students. They are insured by the federal government and offers flexible repayment options. Schools that participate in the William D. Ford Federal Direct Loan Program offer these loans.

Subsidized vs. Unsubsidized Loans

There are two types of Direct Loans: subsidized and unsubsidized. Depending on household income as reported in the FAFSA, a student can be eligible for one or both varieties of student loans. The school specifies for which loans the student is eligible. Due to rates and repayment policy, Direct Loans are the second thing a student should pursue, after conducting a scholarship search. If you aren't able to completely fund your college education with scholarships, the Direct Loan is the first loan option you should consider.

Direct Subsidized Loans are need-based loans. The government pays the interest on the loan while the student is in school, in deferment (if applicable), and during the sixth-month grace period after graduation and before repayment begins.

Direct Unsubsidized Loans are not based on income and not all students are eligible for the maximum loan amount. Eligibility is determined by the student’s year in school, other financial aid awards, and the estimated cost of attendance. Students who borrow Unsubsidized Loans are responsible for all interest that accumulates while they are in school, in deferment, and during the grace period. Students can take out both subsidized and unsubsidized loans as long as they don’t exceed yearly Direct Loan borrowing limits.

Borrowing Limits

Each year, dependent undergraduate students except students who are unable to obtain PLUS Loans can borrow up to:

  • $5,500 for first-year students enrolled in a program of study that is at least one full academic year. Only $3,500 of that can be subsidized loans.
  • $6,500 if you've completed your first year of study and the remainder of your program is at least one full academic year. Only $4,500 of that can be subsidized loans.
  • $7,500 if you've completed at least two years of study and the remainder of your program is at least one full academic year. Only $5,500 of that can be subsidized loans.

Each year, independent undergraduate students or dependent students whose parents were unable to get a PLUS Loan can borrow up to:

  • $9,500 if you're a first-year student enrolled in a program of study that is at least one full academic year. Only $3,500 of that can be in subsidized loans.
  • $10,500 if you've completed your first year of study and the remainder of your program is at least one full academic year. Only $4,500 of that can be in subsidized loans.
  • $12,500 if you've completed two years of study and the remainder of your program is at least one full academic year. Only $5,500 of that can be in subsidized loans.

Graduate students, who are automatically considered independent students, can take out up to $20,500 in unsubsidized loans only.

Interest Rates and Fees

Interest rates on current Direct Subsidized Loans at the undergraduate level, first disbursed on or after July 1, 2018 and before July 1, 2019 are fixed at 5.05%.

Interest rates on current Direct Unsubsidized Loans at the undergraduate level, first disbursed on or after July 1, 2018 and before July 1, 2019 are fixed at 5.05% Interest rates for Direct Unsubsidized Loans at the graduate or professional level are fixed at 6.6%

In addition to interest rates, there are loan fees charged to 1.066% for loans first disbursed on or after Oct. 1, 2017 and before Oct. 1, 2018 and 1.062% for loans first disbursed on or after Oct. 1, 2018, and before Oct. 1, 2019.

Eligibility Requirements

Students are eligible for federal loans based on the following criteria:

  • Demonstrate financial need (for Direct Subsidized Loans.)
  • A U.S. citizen or eligible noncitizen with a valid Social Security number.
  • Enrolled at least half-time at an eligible school and maintaining satisfactory academic progress.
  • Registered with Selective Service (if borrower is a male under age 25.)
  • Sign the certification statement on the FAFSA stating that you are not in default on any federal student loans, that you do not owe money on a federal student grant, and that you will use federal student aid only for educational purposes.
  • Show qualification to receive a college education by displaying a high school diploma or GED.

Loan Repayment

Students have a six-month grace period after graduating, leaving school, or dropping below half-time status. After this time, payments must be made. During the grace period, interest will not be charged on subsidized loans but will be charged on unsubsidized loans. Payments are due on a monthly basis. Under certain circumstances, e.g. health problems, a student may be eligible for loan deferment.

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Last Reviewed: August 2020