What is a direct student loan and how do you qualify for it?
- Direct loans can help you cover tuition costs after the gift aid has run out.
- You can get four types of direct loans: subsidized, unsubsidized, PLUS and consolidation loans.
- You must complete the Free Federal Student Aid Application to be eligible for direct loans.
- Learn more about Insider’s student loan coverage here.
Free financial aid, like grants and scholarships, is the best option to cover tuition costs. But if you still need funds to cover tuition costs, federal direct loans can help you close the gap. A federal direct loan is a loan offered by the Department of Education.
What types of direct loans can I get?
There are four types of direct loans:
- Direct subsidized loans: The government pays interest on these loans while you are in college. It also covers interest for a six-month grace period after you graduate, before you have to start paying off your student loans. You will have to demonstrate financial need to be eligible for these loans. Only undergraduate students are eligible.
- Direct unsubsidized loans: Interest will accrue on unsubsidized loans while you are in school and during your grace period. If you are able, you should try to pay off this interest each month to prevent it from being capitalized or added to your loan balance once you start paying off the loans. These loans are not based on financial need. Undergraduate, graduate and professional students are eligible.
- Direct PLUS loans: You cannot get a Direct PLUS loan as an undergraduate student, but your parents can take it out for you. Graduate and professional students can, however, take out Direct PLUS loans. You’ll need to pass a credit check to qualify, and the maximum loan amount you can receive is determined by the cost of attendance minus any other financial assistance you or your child receives.
- Direct consolidation loans: With this type of loan, you will combine all of your eligible federal student loans into one loan with one loan manager. This process is free and you will get a fixed interest rate based on the average of the interest rates on the loans you consolidate.
How to get direct loans?
You will need to complete the Free Federal Student Aid Application, or FAFSA, to be eligible for direct loans. The FAFSA will require you to submit various types of financial information, such as past income tax returns and a bank statement. Your school will determine your financial aid program based on the information you provide.
Remember, just because you’re approved for a certain loan amount doesn’t mean you have to take everything. You will have to pay back whatever you borrow plus the interest, so withdrawing more than you need could be costly in the long run.
How are direct loans different from private student loans?
Federal student loans are almost always a better option than private student loans because they offer more protections for borrowers and more repayment plans. For example, federal student loans are eligible for several loan forgiveness programs, including public service loan forgiveness. The PSLF cancels the debt of graduates working in the public sector after 120 months of qualifying payments.
Additionally, federal student loans are currently on hold until January 31, 2022, and interest does not accrue on them. You will need to contact your private lender to request a forbearance, and even then, interest will continue to accrue during your non-payment period.
For borrowers with excellent credit, private student loans may offer lower rates than direct loans, but don’t just look at the interest rate when deciding between loan options. Also, be sure to consider term length, repayment options, and borrower protections.
While you should always seek out non-repayable aid before considering student loans, federal direct loans are a solid option to help pay for the cost of a college education.