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Direct Loans For Students
Loan & Credit FactsDirect loans for full and part time students are an alternative loan option that typical Stafford or Perkins loans that are done through private loan companies by the federal government.
Direct loans differ from these loans because the funds are provided directly from the Department of Education to the student, without the use of a loan company or agency. Direct loans are very similar to the typical Stafford or Perkins loans and can be either subsidized or unsubsidized, depending on the financial ability of the student and what type of loan they will qualify.
Students applying for either federal government student loans or direct loans have to complete the same process, which starts with completing an online FAFSA or Free Application for Federal Student Aid. This form will identify the student as either dependent, or requiring information and signatures of the parents, or independent, not requiring this information.
It will also provide information on the schools you are considering as well as the amounts of loans that you can qualify for based on all other types of grants, scholarships and other funding sources. Once you have received your SAR or student aid report and your school also receives the same information you are then able to decide if direct loans are the best option.
One difference between direct loans for students and traditional federal government loans is that all students are required to sign a Master Promissory Note or MPN.
This note basically is a contract stating that you will pay back the loan to the Department of Education as per the terms of the loan agreement. There is no option to modify these conditions once the MPN has been signed and submitted, so it is very important to ensure that you understand all terms and conditions contained in the terms of the loan.
All direct loans are capped at a specific amount per year, depending on whether or not the student is categorized as dependent or independent. Independent students receive a higher loan amount per year, although only a portion of that amount can be subsidized. Subsidized loans do not get charged interest while the student is in school as well as during grace and deferment periods of the loan. Dependent students may or may not be subsidized up to the total amount of the loan per year.
Direct loans have a set interest rate, plus they also have a loan fee that will be up to four percent of the total amount of the loan. This loan fee is used to help keep the program functioning plus it will also help to balance out any differences in the fixed interest rate of the loan over the variable interest rate of the market.
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