- Direct Loans may help you cover the cost of college after gift aid is exhausted.
- You can get four types of Direct Loans: subsidized, unsubsidized, PLUS, and consolidation loans.
- You need to complete the Free Application for Federal Student Aid to qualify for Direct Loans.
- Read more of Insider’s student loan coverage here.
Free financial aid, such as grants and scholarships, are the best option to cover the cost of college. But if you still need funds to cover the cost of college, federal Direct Loans may help you bridge the gap. A federal Direct Loan is a loan offered from the Department of Education.
- Direct Subsidized Loans: The government pays interest on these loans while you’re in college. It also covers interest during a six-month grace period after you graduate, before you must begin repaying your student loans. You’ll have to demonstrate financial need to qualify for these loans. Only undergraduate students are eligible.
- Direct Unsubsidized Loans: Interest will accrue on unsubsidized loans while you’re in school and during your grace period. If you’re able, you should try and pay off that interest each month to prevent it from capitalizing – or being added to your loan balance – once you start repaying the loans. These loans aren’t based on financial need. Undergraduate, graduate, and professional students are eligible.
- Direct PLUS Loans: You can’t get a Direct PLUS Loan as an undergraduate student, but your parent may take it out for you. Graduate and professional students can take out Direct PLUS Loans, though. 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 aid you or your child receive.
- Direct Consolidation Loans: With this type of loan, you’ll combine all of your eligible federal student loans into a single loan with one loan servicer. There is no charge for this process, and you’ll get a fixed interest rate based on the average of the interest rates on the loans you consolidate.
How do I get Direct Loans?
You’ll need to complete the Free Application for Federal Student Aid, or FAFSA, to be eligible for Direct Loans. The FAFSA will require you to submit various types of financial information, such as previous tax returns and a bank statement. Your school will determine your financial aid package based on the information you provide.
Remember, just because you’re approved for a certain loan amount doesn’t mean you have to take all of it. You’ll have to pay back whatever you borrow plus interest, so taking out 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 come with more borrower protections and more repayment plans. For example, federal student loans are eligible for multiple loan forgiveness programs, including Public Service Loan Forgiveness. PSLF forgives the debt of graduates working in the public sector after 120 months of qualifying payments.
Additionally, federal student loans are currently in forbearance until , and interest is not accruing on them. You’ll have to contact your private lender to request forbearance, and even then, interest will like still accrue during your period of non-payment.
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. Make sure you consider term length, repayment options, and borrower protections, as well.
While you should always seek out aid you don’t have to repay before considering student loans, federal Direct Loans are a solid option to help afford the cost of college.