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Part of the Series Paying for College GuideSaving for College
Scholarships and Grants: Free Money
Types of Student Loans
What Loans Cost
Decoding Student Aid Offers
Best Student Loans
The Federal Direct Loan Program provides low-interest student loans to post-secondary students (undergraduates and graduate students) and their parents.
The William D. Ford Federal Direct Loan Program, managed by the U.S. Department of Education, is the only government-backed student loan program in the U.S.
The Federal Direct Loan Program offers several types of loans, including subsidized direct loans, unsubsidized direct loans, direct PLUS loans, and direct consolidation loans for refinancing student loans.
Subsidized direct loans are the only student loans made by the federal government that are based on financial need. The U.S. Department of Education pays the interest on these loans while the student is in school.
All loans granted through the Federal Direct Loan Program have maximum annual amounts and set aggregate amounts. Each successive year allows for an increase in the total maximum yearly loan amount. Students who wish to apply for funding must first submit the Free Application for Federal Student Aid (FAFSA).
Undergraduate students can borrow $5,500 to $12,500 per year, depending on their year in school and their dependency status. These amounts are for both direct subsidized loans and direct unsubsidized loans.
Professional and graduate students may borrow $20,500 each year in direct unsubsidized loans, and parents of undergraduate students can borrow using a direct PLUS loan.
Loans from the Federal Direct Loans Program are eligible for the student loan forgiveness proposed by President Joe Biden, but private loans are not. (Biden's student loan forgiveness program was deemed unconstitutional by the U.S. Supreme Court on June 30, 2023 but the administration announced the new SAVE repayment program on the same day.)
Your college or university determines the amount of money in federal loans that you can borrow.
Direct subsidized loans are for undergraduate students who are eligible for financial assistance due to their or their families' economic circumstances.
These loans help to cover the costs of a professional career school, college, or university. Qualified individuals can borrow up to $12,500 per year in direct subsidized loans and $57,000 in total during their undergraduate years.
These federal loans are available to eligible undergraduate, graduate, and professional students. They are not based on financial need. Undergraduate borrowers can take out $12,500 per year and up to $57,000 in total. Graduate and professional students can borrow up to $20,500 per year and $138,500 in total.
These loans are offered to parents of undergraduate students and graduate or professional students to help offset the costs of education not covered by other financial aid. Eligibility is not based on financial need.
Borrowers with less than stellar credit may access these loans, but they will have to meet additional criteria.
These loans allow a student or family to combine all eligible federal student loans into one loan with a single service provider and loan payment. Direct consolidation loans also provide access to additional loan repayment programs.
No minimum credit score is required for parents to take out a PLUS loan, but they cannot have adverse credit.
On June 30, 2023, after the Supreme Court decision that invalidated the administration’s original student loan forgiveness plan, President Biden announced a new income-driven repayment (IDR) plan called Saving on a Valuable Eduction (SAVE). It offers student loan borrowers new and improved benefits, such as forgiving a student loan with an original principal amount of $12,000 or less after 10 years of payment (rather than the previous 20 to 25 years).
SAVE will replace the existing REPAYE plan. Those already enrolled in REPAYE will be enrolled in SAVE automatically. While three significant program features will launch during the summer of 2023, the full slate of SAVE regulations goes into effect on July 1, 2024. For more information about SAVE, see the Department of Education’s fact sheet.
The federal direct student loan program has its advantages and disadvantages.
Private lenders also provide student loans that can be used instead of—or in addition to—federal loans. Those seeking student loans should carefully investigate all available options.
Consider the following differences:
The federal program often has more favorable interest rates and other attractive provisions, such as loan consolidation and forgiveness programs.
Federal direct student loans have a cap on loan amounts. Private loan companies do not often impose a cap on how much they will lend.
Interest rates may be higher, but private loans may offer flexibility in how the money can be used. All in all, though, private student loans usually end up being more expensive than federal student loans.
Federal direct student loan payments are deferred until you graduate, but not all private loan payments offer the same option.
In addition, while direct loans may be eligible for student loan forgiveness and repayment plans, private loans may not be eligible.
Direct subsidized loans and direct unsubsidized loans for undergraduates disbursed after July 1, 2023 and before July 1, 2024 have an interest rate of 5.50%. Unsubsidized student loans for graduate students have a 7.05% interest rate. Direct PLUS loans for parents and graduate students have an interest rate of 8.05%, the highest interest rate of all the federal student loans.
Depending on the type of repayment plan you have, your student loan may be forgiven after a certain amount of time.
You must apply with a FAFSA every year that you need funding for higher education (undergraduate and graduate).
The Federal Direct Student Loan program offers a number of advantages, including low interest rates and fixed interest rates, but there are downsides as well. For example, you can only borrow a certain amount each year. Consider all of your financing options before deciding which type of student loan is best for you.