Direct Loans

An Elaboration on Direct Loans

What are Direct Loans?

Direct Loans are government-issued low-interest loans for students and/or their parents to help pay for the student’s education post high school. The U.S. Department of Education performs as the lender, and all the Direct Loans issued to one student can be consolidated, regardless of how many government loans the student receives, thus making reimbursing them easier.

The government determines the student’s eligibility based on their FAFSA (Free Application for Student Aid), which includes their parents’ tax information. Upon looking at a student’s FAFSA, the government then establishes the student’s EFC (Expected Family Contribution). Next, the U.S. Department of Education uses the EFC to ascertain the amount of money they should lend to the student.

What are the regulations to getting one?

The student must be enrolled into a college or institution to receive post high school education at least half-time, and the school also must be a participant of the Direct Loan Program.

There are several different kinds of Direct Loans available, and they are:

Subsidized Stafford Loans: They apply to students who demonstrate a need of financial aid judging from their FAFSA. Those loans do not charge interest the whole time the student is in school at least half-time, during their grace period (at least six months after they graduate in order to give them time to acquire employment and money), and during deferment periods.¬

Unsubsidized Stafford Loans: Those are for students who are not in serious financial situations, and they charge a maximum of 8.25% of interest during their enrollment, grace period, and deferment periods.

PLUS Loans: Parents use these loans if they are in dire need of money in order to help dependent students pay for college. PLUS Loans go directly to the parents, not the students.

Consolidation Loans: They are very efficient, as they allow parents and/or students to combine all the loans the student is eligible for into one balance.

Interest rates change every year on July first, but due to regulations, they never exceed 8.25%.

The U.S. Department of Education provides four different payment plans, and the student is free to switch between them at any time. First, there is the Standard Repayment plan, which gives the student fixed monthly payments for up to ten years. The Extended Standard Repayment Plan mimics the Standard Repayment Plan, but allows the student twelve to thirty years to pay their debt. The plan that generates payments that start off lower and constantly increases every two years until the whole balance is paid off is called the Graduated Repayment Plan. What has been proved as the safest payment plan, the Income Contingent Repayment Plan is based on the student’s income and adjusts itself whenever the student’s family size or income increase or decrease.