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Federal Direct Loans

Under the Direct Loan Program, funds are provided by the U.S. Department of Education, rather than by a bank or other financial institution. You work only with your school and the U.S. Department of Education servicer instead of commercial lenders and guarantee agencies.

How do I apply?

You apply for a Direct Subsidized and Direct Unsubsidized Loan by completing the Free Application for Federal Student Aid (FAFSA), the same initial application used for all other federal aid programs. Your school will notify you of your eligibility for a Direct Loan.

Before you receive your first Direct Loan, you must sign a Master Promissory Note (MPN) that you'll obtain from your school or from the U.S. Department of Education. You may be able to complete the MPN on the Web, using the same PIN you used to sign your FAFSA. Your school will disburse your loan money by crediting it to your school account.

How much can I borrow?

The loan limits for Direct Loans are the same as for FFEL Program loans.

What are the interest rates?

Beginning with loans disbursed after July 1, 2006, both Federal Stafford and Federal Direct loans have a fixed interest rate of 6.8%.

Is there a fee charged for these loans?

The U.S. Department of Education subtracts 3 percent from your loan's principal balance to reduce the cost of making these low-interest loans.

When do I have to start repaying my loan?

Generally, you'll have from 10 to 30 years to repay your loan, depending on the repayment plan that you choose. Your monthly payment amount will be based on how much you borrowed and how long you take to repay. You may choose one of four repayment plans:

  • Standard Repayment Plan: Fixed monthly payments for up to 10 years.

  • Graduated Repayment Plan: Payments that start off lower, and then gradually increase. You'll repay your loan in full within 10 years.

  • Extended Repayment Plan: Fixed annual or graduated repayment amount paid over a period up to 25 years (only for new borrowers on or after October 7, 1998, with $30,000 in outstanding loans accumulated on or after that date).

  • Income Contingent Repayment Plan: Your monthly payment is adjusted each year based on your annual income (and your spouse's income, if you're married), your family size, and the total amount of your Direct Loans. After year 25, any unpaid loan amount will be forgiven.

You can change repayment plans at any time, and there's no penalty if you make payments before they are due or pay more than the amount due each month. You can find more information about these plans by contacting the Direct Loan Servicing Center or by visiting
Direct Loans on the Web.

Can my loan be cancelled or forgiven (discharged)?

You must repay your loan even if you don't complete your education, can't find a job related to your program of study, or are unhappy with the education you paid for with your loan. However, the U.S. Department of Education will forgive (discharge) your loan if you have your loan discharged in bankruptcy, if you become totally and permanently disabled (additional conditions apply), or if you die. You may also qualify for forgiveness of some of your loans if you teach full-time for five years in certain low-income schools and meet other requirements.

There are other, less common circumstances under which some or all of your loans may be forgiven, such as if your school closes before you completed the program, if the school forged your signature or falsely certified that you were eligible for aid, or if you dropped out of school and the school did not pay a refund of your loan money that it was required to pay under federal regulations.