What are federal direct loans? Who is the lender?
Federal Direct Loans are low-interest loans for eligible students to help cover the cost of higher education. Students may be eligible to borrow subsidized and/or unsubsidized loans. The lender is the U.S. Department of Education.
How do I apply for a federal Direct loan?
- Complete the Free Application for Federal Student Aid (FAFSA).
- Provide any documents requested by our office (i.e. verification worksheet & tax return transcripts if selected).
- Review the loan amount(s) on your award; if you plan to accept the loan(s) then proceed to the next step. If you want to reduce or decline the loan(s) please send an email to firstname.lastname@example.org.
- New student borrowers will need to complete Entrance Counseling. (Returning students who have borrowed previously have already completed this requirement).
- Complete a Master Promissory Note (new borrowers only).
How do I complete the MPN and Entrance Counseling?
The Department of Education has a web site that serves as a portal for Direct Loan borrowers to manage their Direct Loans. Borrowers will use the studentloans.gov web site to:
- Complete Entrance Counseling
- Complete a Direct Loan Master Promissory Note (MPN)
You will need your FSA ID (that you used for your FAFSA) to electronically sign the MPN. If you do not have a FSA ID, you need to obtain one.
Note for Graduate Students: If you will borrow from both the Direct and GradPLUS programs, you need to complete a separate MPN for each loan program.
What are the fees in the Direct Loan program?
In the Direct program there is a 1.069% origination fee for Subsidized and Unsubsidized loans. The Federal Direct PLUS/ GradPLUS loan has a 4.276% origination fee.
Where can I find information about who services my federal loans?
You can find information about the servicer(s) of your federal loans at www.nslds.ed.gov. You will need your FSA ID to access this site.
What are the repayment options?
- Standard Repayment-With the standard plan, borrowers pay a fixed amount each month until the loans are paid in full. The monthly payments will be at least $50; borrowers have up to 10 years to repay the loans.
- Extended Repayment- Borrowers must have more than $30,000 to be eligible for the extended plan and they have 25 years to repay it. Under the extended plan borrowers have two options: fixed or graduated payments. Fixed payments are the same amount each month while in repayment, like the standard plan; graduated payments start low and increase every two years, like the graduated plan (below).
- Graduated Repayment- With this plan the payments start out low and increase every two years. The length of the repayment period will be up to ten years. If a borrower expects their income to increase steadily over time, this plan may be right for them. The monthly payment will never be less than the amount of interest that accrues between payments. Although the monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.
- Income Contingent Repayment- This plan gives the borrower the flexibility to meet the Direct Loan payment obligation without causing undue financial hardship. Each year, the monthly payments will be calculated on the basis of the borrower’s adjusted gross income, family size, and the total borrowed amount from the Direct Loans. Under this plan borrowers will pay the lesser of:
- The amount that would be paid if you repaid the loan in 12 years multiplied by an income percentage factor that varies with the borrower’s annual income, or
- 20% of the borrower’s monthly discretionary income.
If loan payments are not large enough to cover the interest that has accumulated on the borrower’s loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount the borrower owed when they entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If a borrower hasn't fully repaid their loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. Borrowers may have to pay taxes on the amount that is discharged.
Income-based Loan Repayment Program - Under this plan the required monthly payment will be based on your income during any period when you have a partial financial hardship. Your monthly payment may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you meet certain requirements over a specified period of time, you may qualify for cancellation of any outstanding balance of your loans.
I am a student and need to borrow a loan in my name. I have borrowed the maximum amount from the federal Direct loan program. What other loan programs are available?
There are alternative loan programs available for students who need to borrow additional money for their education. Eligibility for most of these programs is based on the creditworthiness of the borrower. We recommend that students apply with a creditworthy cosigner to receive the most beneficial loan terms. As with any loan, be sure to review all loan information carefully and contact the lender directly with any questions related to specific terms, conditions, and repayment.