Is a Federal Direct Loan Right For You?

More and more students are using loans to fill the gap between savings and tuition costs. But short credit histories and lack of income disqualify them for conventional loans. Federal Direct Loans are awarded based on need and not credit or income. As a result, through the Federal Direct Loan Program and the Federal Family Education Loan Program, the federal government is the largest provider of student loans for undergraduate students in the country.

Is a Federal Direct Loan Right For Me?

With their low rates, deferment options and flexible repayment plans, federal Direct Loans should be one of the first options considered for student financial aid after all options for grants, scholarships and work study programs have been exhausted.

What Federal Direct Loan Programs are Available?

The federal government disburses student loans in two avenues; the Federal Direct Loan Program and the Federal Family Education Loan Program.

The Federal Direct Loan Program is funded directly by the federal Department of Education. The Department of Education disburses loans directly to the student through his school.

Through the Federal Family Education Loan Program, commercial banks and credit unions disburse loans to the student's school. Students can choose any participating bank or credit union. The Federal Family Education Loan Program loans are guaranteed by the federal government.

What Kinds of Loans Are Administered by Each Program?

Both the Federal Direct Loan Program and the Federal Family Education Loan Program offer the same types of loans:

  • Subsidized and unsubsidized direct student loans (also called Stafford Loans).
  • Loans for parents and graduate students (also called PLUS loans).

Borrowers have access to all of these loans no matter which program they are using.

How Do I Apply For Federal Direct Loans or Federal Family Education Loan Program Loans?

Application for both Federal Direct Loans and Federal Family Education Loans starts with the Free Application for Federal Student Aid (FAFSA). Students and their families fill out this form each year. The Department of Education determines the student's eligibility for all federal student aid, including all need-based grants and loans. This information is shared with the student's school, which may award additional aid based on the information in the FAFSA. You can complete the FAFSA online at http://www.fafsa.ed.gov.

How Do I Decide Whether to Use the Federal Direct Loan Program or the Federal Family Education Loan Program?

Most colleges participate in either the Federal Direct Loan Program or the Federal Family Education Loan Program. If a school uses both programs, then the more convenient program may be chosen. Your choice of program does not affect the amount you can borrow, your interest rate, or the availability of subsidized Stafford Loans.

What Repayment Options Do I Have With Federal Direct Loans?

The flexible repayment options allowed by federal Direct Loans are extremely generous. Students can choose from several repayment options:

  • Standard monthly repayment plans with level monthly payments,
  • Graduated repayment plans where payments start low and rise periodically,
  • Extended repayment plans which allow loan repayments to stretch out over 25 years,
  • Income-contingent plans where smaller amounts can be repaid based on low income status.

Students planning to use the Federal Family Education Loan program should check for slight repayment plan variations with their specific lender.


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