How to Handle Direct Loan Servicing

Direct Loan servicing involves the repayment of federally-backed student loans once valid payment status kicks in. payment amounts and schedules can depend a great deal on the specific type of loan in question. Once the loan type is determined, repayment follows a basic process.

Why Direct Loan Program Type Matters

The best route to take in regard to Direct Loan servicing does depend on the loan type in question. The basic types students will be offered in federally backed loans are:

  • Subsidized - When students fund their education using this Direct Loan program the federal government does not charge interest immediately on borrowed funds. Interest kicks in after a six-month grace period following graduation.
  • Unsubsidized - Direct Loan servicing on this type of loan is a matter of choice initially. Since student loans of this nature begin accruing interest immediately, it is often advised to start making payments as quickly as possible. Required payments however, will not kick in until the post-graduation period.
Once loan type is understood, students will follow the same basic process for Direct Loan servicing.

Step 1 - Budget for Direct Loan Servicing

Long before the first payments are technically due, the Direct Loan program will notify students of the anticipated monthly minimum payment. Once the number is known, it is imperative for students to begin budgeting for the expense.

Step 2 - Set Payment Options

Direct Loan servicing can take place in a number of different ways. Graduates most typically make payments online where they can set payments in advance up to six months. It is also feasible to make payments via standard mail using personal checking accounts.

Step 3 - Watch Out for Pitfalls

Direct Loan servicing is a process that can span many years and involve ups and downs in personal life. While it is always best to pay off student loans as quickly as possible, sometimes this is not possible. If financial hardships to crop up, students can protect their credit using one of three different tools that might be available to them:

  • Loan consolidation - This option for Direct Loan servicing will roll multiple loans into a single instrument. This can result in lower payments and even interest.
  • Forbearance - This option will put payments of student loans on hold, but will result in the continued accrual of interest rates, which must be paid.
  • Deferment - This choice will freeze student loans in place during a period of hardship. This means interest accrual and payments will both stop.
When Direct Loan servicing is handled correctly, graduates can get out from under their student loans as quickly as possible. 

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