Direct loans are loans that come with low interest rates and may be availed by parents and students for paying for the education of the student after high school. The lender of direct loans is strictly the U.S. Department of Education and not banks or any other financial institutions.
Direct loans can be used on educational expenses such as various fees, tuition fee, room and board, as well as indirect expenses which may include school supplies, transportation, equipment, computer rental or purchase and child care expenses.
As a borrowers of direct loans, you directly borrow from the federal government and keep in contact with one loan servicer for all things is association with loan repayment even in the event that you applied for direct loans in different schools. Your account information pertaining to direct loans can also be accessed through your servicer’s website.
In addition, you can also select from various loan repayment plans created to satisfy the needs of all borrower types. Likewise, you have the option of changing your chosen loan repayment plan as you see fit and at any time.
Different Kinds of Direct Loans
The following kinds of direct loans are administered by the U.S. Department of Education and are made possible via the
Federal Direct Loan Program:
Direct Subsidized Loans – available for students with proven financial needs as verified by the program’s regulations. With this direct loan type, interest will not be charged when the student is at school (half-time minimum), and while in the deferment and grace periods.
Direct Unsubsidized Loans – the opposite of direct subsidized loans. These will not be based on financial requirements and interest will be charged accordingly at all periods, even in deferment and grace periods.
Direct PLUS Loans – these are unsubsidized direct loans for the dependent student’s parents, as well as for professional or graduate students. Interest will be charged in all periods. These loans aid in education expenditures up to the student’s cost of attendance minus what the student gets from other financial aid, loans or grants.
Direct Consolidation Loans – qualified student loans that are allowed to be combined or consolidated into a single Direct Consolidation loan.
How to Apply for Direct Loans
Like all student aids offered by the federal government, you can apply for direct loans by completing the FAFSA (Free Application for Federal Student Aid) form. The information you specified in the form will be sent to schools you shortlisted in your application. In turn, the schools will be able to determine your status as an applicant for financial aid.
With the exception of parent borrowers of direct PLUS loans, if you have not been granted a loan before, you are required to undergo entrance counseling prior to your school paying out the first disbursement of your direct loan. The entrance counseling was designed to aid students in fully understanding their responsibilities as borrowers of direct loans. Depending on the school, they may provide the actual counseling or suggest you to look elsewhere or online.
Likewise, for first time borrowers of direct loans, you are required to submit and compete accordingly a MPN or Master Promissory Note which will be supplied to you by the U.S. Department of Education, the school or you can find it online. The Master Promissory Note is a legally binding contract that states your promise or intention with regards to loan repayment, as well as accumulated fees and interest to the U.S. Department of Education. It also includes explanations regarding all the terms and conditions of your direct loan.
In order to complete a Master Promissory Note online, you have to utilize your PIN that will be issued by the U.S. Department of Education. To request for a PIN, you can go to their official PIN website. For Direct PLUS loans, parents are likewise required to use a PIN to complete their PLUS Master Promissory Note.
Direct Loans Award Package and Loan Limit
Direct loans are usually granted as a component of a larger student ‘award package’ typically tailor-fitted to each student borrower, and can include other aid and grant privileges awarded to you for helping you pay for your college costs or career school costs. Students will not be required to start repaying their loans considering they meet half-time attendance. If they fail to do so, then they are required to start repaying their direct loans.
The maximum loan limit students can borrow annually in both direct unsubsidized loans and direct subsidized loans will ultimately be based on the student’s grade level and whether the student is an independent or dependent student. The school will also be the one responsible for determining the loan limit.
How are Direct Loans paid Out?
Typically, direct loans can cover an entire school year. The student’s school will make 2 payouts or disbursements minimum, such as at the start of a quarter or semester or at the start and middle of the student’s school year.
In general, the school will pay out the loan by crediting the money to the school account of the student to compensate for the tuition fee, board, room and other fees. If the disbursement or payout amount is higher than what the school charges, the school will directly pay you back the remaining balance via check or by some other means. With direct PLUS loans, the school, with the parent’s permission may directly pay out some of the money to the student.
Whenever the school pay outs or disburses some of the money, you will be notified accordingly. Information will likewise be provided to you should you wish to cancel your direct loan at any time. As a general rule, you should make a record, as well as copies of all correspondences related to your direct loan.