What Exactly Is a Federal Direct Loan and How Do I Qualify?

Federal Direct Loans Are the Department of Education’s Only New Federal Student Loans#

Lenders have made no new FFEL Program loans since June 30, 2010, and schools have made no new Federal Perkins Loans since September 30, 2017, so the U.S. Department of Education now makes all of its new federal student loans through the Direct Loan Program. Loans that used to come through the FFEL Program from private lenders are no longer made that way. All of the Department of Education’s new federal student loans now come under the Direct Loan Program.

Basic Eligibility for a Direct Loan#

To be eligible for a federal Direct Loan, you must be enrolled at least half-time at a school that participates in the Direct Loan Program, and you must be enrolled in a program that leads to a degree or certificate.

Direct Subsidized and Unsubsidized Loans Compared#

The Direct Loan Program includes two types of loans, Subsidized and Unsubsidized, each with its own rules about financial need and interest.

How to Apply for a Direct Loan#

• Step 1: Complete the FAFSA Application.
• Step 2: Your school will then determine your student aid eligibility.
• Step 3: If you are eligible for aid, Direct Loans are usually included in your financial aid package, and your school will inform you of how to accept your loan.
• Step 4: If you are a first-time Direct Loan borrower, you are required to complete an entrance counseling session.
• Step 5: You will then need to sign a Master Promissory Note, or MPN.

Your Direct Loan may not be included in your financial aid package, so it is always best to check with your school directly to understand its process for Direct Loans. There is no specific deadline to request a Direct Loan, but there are FAFSA deadlines that should be met, and these vary by school and state.

How Much You Can Borrow with a Direct Loan#

The amount you can borrow with a Direct Loan is based on your grade level and dependency status, and both are decided by your school when you apply for aid. Do not plan your student loans based on your personal opinion of your dependency status: your school may deem you dependent even if you are already living alone and supporting yourself financially.

According to www.studentaid.ed.gov, the cumulative loan limits for subsidized and unsubsidized loans for undergraduate students are:

• Dependent undergraduate student: $31,000 (no more than $23,000 of this can be subsidized)
• Independent undergraduate student: $57,500 (no more than $23,000 of this can be subsidized)

Steps Before You Can Borrow: Entrance Counseling and the Master Promissory Note#

A first-time Direct Loan borrower is required to complete an entrance counseling session and to sign a Master Promissory Note agreeing to the terms of the loan. These steps happen before any money is disbursed.

Steps Before Repayment Begins: Exit Counseling and the Grace Period#

Repayment of a Direct Subsidized or Unsubsidized Loan does not begin until six months after the borrower graduates, withdraws from school, or drops below half-time enrollment, unless the borrower has already used up the grace period. Before repayment begins, the borrower must complete an exit counseling session that covers the borrower’s rights and responsibilities and any deferment and repayment options.

Who Do You Send Your Direct Loan Payment To?

You make your monthly Direct Loan payments, either the minimum or more if you’re able, to the U.S. Department of Education. During the 6-month grace period, your loan servicer will contact you with information about your loan repayment and will notify you when your first payment comes due.

What Cambridge Credit Counseling’s Student Loan Counseling Covers#

Cambridge Credit Counseling’s student loan counseling does not cover private student loans and assists only with the federal student loan repayment process. Cambridge Credit Counseling’s student loan counselors review a borrower’s budget and all of the federal student loan repayment plans the borrower may qualify for. Cambridge Credit Counseling’s counseling can also explain your options for choosing or changing a repayment plan, lowering monthly payments, ending garnishments and tax levies, forbearance or deferment, forgiveness or cancellation, and consolidating federal student loans.

What to Do Next#

If you have questions about qualifying for a Direct Loan or about repaying federal student loans you already have, Cambridge Credit Counseling’s student loan counselors can walk through your budget and the repayment options that may apply to your situation.