What is the Federal Direct Loan Program?
The Federal Direct Loan Program offers low-interest student loans for post-secondary students (undergraduates, graduate students) as well as their parents. The U.S. Department of Education issues and manages the William D. Ford Federal Direct Loan Program. It is the only federally-backed student loan program in America.
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How the Federal Direct Loan Program works
There are many types of loans available through the program, including unsubsidized and subsidized direct loan, direct PLUS loans, direct consolidation loans, and direct PLUS loans. The federal government’s only student loan that is based on financial need is the sub-subsidized direct loan. While the student is in school, the U.S. Department of Education pays interest.
The Federal Direct Loan Program has maximum loan amounts. Each year there is an increase in the maximum amount. To apply for funding, students must first complete the Free Application for Federal Student Aid.
There are many types of federal student loans
- Direct Subsidized Loans
Direct subsidized loans can be used by undergraduate students who are eligible to financial aid because of their economic circumstances. These loans can be used to pay for tuition and fees at a college or university, as well as professional school costs. For undergraduates, qualified individuals can borrow as much as $12,500 per annum in direct subsidized loans.
- Direct Unsubsidized Loans
Federal loans are available to all eligible undergraduate, graduate, or professional students. They are not dependent on financial need. Graduate and professional students may borrow up to $20,000.50 per year.
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- Direct PLUS Loans
The loans are available to parents of undergraduate and graduate students as well as professional students. They can be used to offset costs not covered by financial aid. You will not be eligible if you have a poor credit rating. However, your eligibility is not determined by financial need. Borrowers with less-than-stellar credit may still be eligible for these loans but they will need to meet additional criteria.
- Consolidated Direct Loans
This loan allows a student to combine all federal student loans with one loan from a single provider. It makes it simple to pay all your bills in one place. You can also access additional loan repayment programs through direct consolidation loans.
How to get a Federal Direct Loan?
FAFSA is required to determine if you are eligible for any federal direct loan, subsidized or unsubsidized. After you have completed your FAFSA you will need to open an account at the U.S. Federal Student Aid Office. This will give you an ID that you can use on the site.
Your college will send you a letter detailing the financial aid available to you. This letter includes information about loans and federal direct loans. You should apply for subsidized loans first, as they have lower interest rates. You can also get unsubsidized direct loans. PLUS loans, which have higher interest rates and fees, are also available.
The Federal Direct Student Loan Program: Pro and Cons
Federal direct student loans can be used to help pay for college or university. There are both advantages and disadvantages. Federal direct student loans are more affordable than private loans due to the fixed interest rates and low interest. Except for PLUS loans, federal loans do not require a strong credit history. The government pays the interest on the subsidized federal student loan while you are in school. Federal student loans can be repaid via federal repayment or loan forgiveness.
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Federal direct loans have some drawbacks. Graduate students are limited to unsubsidized loans, which are subject to higher interest rates than those who are undergraduates. Those who default on these loans are not able to declare bankruptcy.
Pros
- Fixed interest rates and low interest loans
- When it is time to repay them, federal repayment programs are available
- To get them, you don’t need to have good credit
- Grace period for repayments after graduation
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Cons
- Graduate students are not eligible for unsubsidized loans.
- Parents who apply for PLUS loans have to pay fees
- Federal student loans cannot be declared in bankruptcy
- Each year, you can only borrow a certain amount
- Only those who meet the required criteria can apply for subsidized student loans.