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Federal Direct Loan Program | Eligibility, Amount, Interest Rates & Application

Federal Direct Loan Program


What is Federal Direct Loan Program (FDLP) ?


The Federal Direct Loan Program (FDLP) is managed and issued by the Department of Education. This program is the only government-backed student loan program in the United States. The William D. Ford Federal Direct Loan Program provides low-interest student loans to undergraduate, graduate students (secondary students) and their parents. Due to the added benefits and low interest rates, these are the best starting point if you are considering taking a loan for school. 

The Federal Direct Loan Program has accumulated a very large outstanding loan portfolio of approximately $1.5 trillion, and this number will continue to grow with the percentage of defaults. For many, this is the first financial obligation, which leaves them with debt to pay off over a period of time, maybe a decade or so. 

Eligible students and parents under the FDLP borrow directly from the US Department of Education at participating schools. Four types of direct loans are given under this program, Direct Unsubsidized Loan, Direct Subsidized Loan, Direct Consolidation Loan and Direct Plus Loan.

Federal direct student loans are funded directly through the federal government. The student loans offered through this program are guaranteed. All students are eligible for direct loan consideration who haven't reached the total loan limit, have defaulted on previous loans or haven't paid repayment for federal grants, and who meet the general eligibility requirements for federal student aid.

How Federal Direct Loan Program Works ?


FDLP offers several types of loans, including unsubsidized direct loans, subsidized direct loans, direct PLUS loans and direct consolidation loans. Subsidized direct loans based on financial need are the only student loans from the federal government. The U.S. Department of Education pays interest on these loans. All loans granted through an FDLP have a fixed maximum amount each year, with an increase in the maximum annual amount allowed in each successive year with a fixed total amount. Students who wish to apply under the program must submit the Free Application for Federal Student Aid (FAFSA).

Undergraduate students can borrow from $5,500 to $12,500 per year, but this depends on the student's dependency status and the year the student is in school. These amounts are for both direct unsubsidized loans and direct subsidized loans. Graduate and professional students can borrow up to $20,500 per year in direct unsubsidized loans. Parents of undergraduate students can borrow by using Direct PLUS Loans.

Note : Your university or college decides how much you can borrow in federal loans.


Features of Federal Direct Loan Program


  • The William D. Ford Federal Direct Loan Program (FDLP, FDSLP and Direct Loan Program) issues direct loans.
  • These federal loans are available to graduate students, undergraduate students, parents of graduate students, and professional students.
  • There are four types of federal direct loans under the program, each with its own interest rate.
  • FDLP offers direct loans which are PLUS loans, consolidation loans, subsidized and non-subsidised.
  • Subsidized loans offer the lowest interest rates.
  • Compared to private loans, federal direct loans tend to have more favorable interest rates.
  • Loans have maximum amounts that are set annually, with a specified increase allowed in each successive year.

Types of Federal Direct Loan Program


The FDLP is the federal direct loan program of the US Department of Education. Following are the four types of direct loans available under this program :

1) Direct Subsidized Loans :
There are direct subsidized loans for undergraduate students who are eligible for financial assistance due to the economic circumstances of his or her family. It provides the biggest benefit for student borrowers, as the interest is subsidized by the federal government over a certain time period. Direct subsidized loans help cover the cost of a professional career school, college or university. Eligible individuals can borrow up to $12,500 per year in these loans and up to $57,000 in total during their undergraduate years.

2) Direct Unsubsidized Loans :
Direct unsubsidized loans are available for eligible professional students, undergraduates and graduates. These loans are not based on financial need. Undergraduate borrowers can take up to $12,500 per year or a total of $57,000. Graduate and professional students can borrow up to $20,500 per year and up to $138,500 in total. Direct unsubsidized loans do not provide interest subsidy. Instead, interest accrues, and students are responsible for any interest as the funds are disbursed.

3) Direct PLUS Loans :
Direct PLUS loans are offered to both graduate or professional students and parents of undergraduate students to help offset the cost of education not covered by other financial aid. Depending on the borrower, it is commonly referred to as a Parent Plus Loan or Grade Plus Loan. You will need good credit to qualify without meeting the additional requirements in the eligibility criteria. Borrowers with less than stellar credit can also access these loans.

4) Direct Consolidation Loans :
Direct consolidation loans allow a family or student to combine all eligible federal student loans into a single loan with a single service provider. Which makes it easy to make all your payments in one place. These loans allow you to have access to additional loan repayment programs. Lenders taking out many federal student loans can simplify their repayment experience through these. This loan combines all of your eligible outstanding federal loans into one loan with a fixed interest rate and one monthly payment. To consolidate your loans, you need to make repayments in advance.

Federal Direct Loan Program Eligibility


Borrowers under the Federal Direct Loan Program must meet the following eligibility criteria :
  • Must be a US citizen or eligible non-citizen.
  • Must be a student enrolled at least half-time in an eligible program of study.
  • Must have completed the Free Application for Federal Student Aid (FAFSA).
  • Must not be in default on any federal educational loan.
  • Must not have already borrowed more than the total federal direct loan limit for your program.

Federal Direct Loan Amounts


The amount available in Federal Direct Loan funding varies from student to student. The amount and type of each loan is determined by the SUNY ESF Financial Aid Office based on class level, financial need, and the sum of past borrowings.

Undergraduate Loan Amounts - Dependent Students

Class Year

Base Loan Amount

Additional Unsubsidized Loan

Total

First Year

$3,500

$2,000

$5,500

Second Year

$4,500

$2,000

$6,500

Third Year

$5,500

$2,000

$7,500

Fourth Year

$5,500

$2,000

$7,500

Subsidized Loans

Total Loans

Aggregate Totals

$23,000

$31,000


Undergraduate Loan Amounts - Independent Students OR
Students Whose Parents are Unable to Borrow Through the Direct PLUS Program

Class Year

Base Loan Amount

Additional Unsubsidized Loan

Total

First Year

$3,500

$6,000

$9,500

Second Year

$4,500

$6,000

$10,500

Third Year

$5,500

$7,000

$12,500

Fourth Year

$5,500

$7,000

$12,500

Subsidized Loans

Total Loans

Aggregate Totals

$23,000

$57,500


Graduate Loan Amount

Class Year

Unsubsidized Loan

Total

All Years

$20,500***

$20,500

Total Loans

Aggregate Totals

$138,500


  • These amounts reflect the federal maximum. Personal student loans are based on the student's expected cost, level of need, other financial aid, and additional factors.
  • Students graduating as of July 1, 2012 are not eligible for subsidized student loans.
  • Based on denial of direct PLUS loan application or pre-approval. The new loan amount will be offered automatically on receipt of the rejection document.

Federal Direct Loan Program Interest Rates


Interest rates on federal student loans are determined by federal law. If you get a federal student loan, you must pay off that loan with interest. Federal student loans tend to have lower interest rates and fees than private student loans.

Disbursed direct student loans have a fixed interest rate. The rate offered on new loans (Current Federal Interest Rates) will change every 1st of July as per the following chart :

Interest Rates for Direct Loans for July 1, 2022 to July 1, 2023

Loan Type

Borrower Type

Fixed Interest Rate

Direct Subsidized Loans and Direct Unsubsidized Loans

Undergraduate

4.99%

Direct Unsubsidized Loans

Graduate or Professional

6.54%

Direct PLUS Loans

Parents and Graduate or Professional Students

7.54%


To be eligible for a Federal Direct Unsubsidized Loan, students must enroll at least 6 credits per term in a degree-granting program. The fixed interest rate for the academic year 2022-2023 loan is 6.543% and the interest rate for the 2023-2024 academic year will be set in July 2023. 

Loans with first disbursement date prior to October 1, 2023 have a principal charge of 1.057%. The US Department of Education deducts the basic fee from the total loan amount disbursed to the school.

Federal Direct Loan Fees


Fees are set to change each fall due to federal budget forfeiture. Federal student loans have loan fees, which are a percentage of the total loan amount. The loan fee comes out of the amount that is disbursed to you while you are in school.

The chart below shows the disbursed loan charges for direct non-subsidised loans, direct subsidized loans, and direct PLUS loans.

Loan Fees for Direct Unsubsidized Loans and Direct Subsidized Loans

First Disbursement Date

Loan Fee

10/1/20 to 10/1/23

1.057%

10/1/19 to 10/1/20

1.059%


 Loan Fees for Direct PLUS Loans

First Disbursement Date

Loan Fee

10/1/20 to 10/1/23

4.228%

10/1/19 to 10/1/20

4.236%


Advantages and Disadvantages of the Federal Direct Student Loan Program


One benefit of taking out federal direct student loans are the fixed rates and low interest offered with federal loans. Strong credit is not required for federal loans. The interest on federal student loans subsidized by the government is paid for while you are enrolled in school. Federal direct student loans have several avenues of repayment, including through federal repayment and loan forgiveness plans.

Disadvantages to federal direct loans include that, Only non-subsidized loans are available for graduate students, which also charge a higher rate of interest than undergraduates. Loans have lower loan limits for undergraduates claimed as dependents on the income taxes of their parents or guardians. Students have to apply afresh each year for the direct loan.

Advantages :
  • Fixed interest, low interest rate loans
  • Repayment grace period after graduation
  • Federal repayment programs available (when it's time to pay back)
  • You don't need good credit to get

Disadvantages :
  • Only unsubsidized direct loans are offered to graduate students.
  • Parents taking Direct PLUS Loans will have to pay a fee.
  • One can borrow only a specific amount each year.
  • Federal student loans cannot be declared in bankruptcy.
  • You can take a subsidized direct student loan, when you meet the required criteria.

How to Get Federal Direct Loan ?


Direct loans are the best option for many student loan borrowers. Follow these steps :

1) Complete the FAFSA :
The FAFSA uses pay stubs, tax returns and other official documents to determine what financial aid you qualify for and your expected family contribution. When you fill out the FAFSA, you will need to create an account with the Federal Student Aid Office, which will issue you an ID to use the site.

2) Eliminate Requirements for Approval :
Getting a loan requires admission counseling, so you'll need to complete it before you can get your loan.

3) Take Only What You Need :
The loan will eventually have to be repaid with interest, so only borrow what you need for school.

4) Sign the Master Promissory Note :
You cannot get the loan without signing the master promissory note which is essentially your lender agreement. Your master promissory note outlines your obligations to repay the loan.

5) The School Receives Funds :
When you complete the paperwork, the Department of Education will distribute the funds directly to your school. If anything is left, it will go to you.

How to Apply for Federal Direct Loan Program ?


For federal student loans, you must apply for Federal Student Aid (FAFSA). FAFSA submission is completely free. The FAFSA determines whether you are eligible for a loan and whether you may qualify for grants and other federal student aid such as work-study. To receive federal student aid, you must submit a FAFSA every year you are enrolled in college.

The easiest and fastest way to file a FAFSA is online, whereby your application will be processed within 3-5 days. You can also mail in a paper application, but it can take around 7-10 days to process.

William D. Ford Federal Direct Loan Program Application


To apply for federal direct student loans, students must complete the following steps :
  • You must first submit and complete a Free Application for Federal Student Aid (FAFSA) form.
  • The college or career school will send you a financial aid offer, which may include federal student loans, based on the results of your FAFSA form. Your school will tell you how to accept the loan.

Students accepting a Federal Direct Student Loan should complete the following steps at https://studentaid.gov/ :


Contact the financial aid office of the school you plan to attend to get information about the process at the school.

William D. Ford Federal Direct Loan Program Repayment

 
Repayment starts six months after you graduate or goes below half-time enrollment and extends over a period of 10 years. If you experience financial hardship, become unemployed, enroll in graduate school at least half-time or meet other accepted criteria, you can apply for a temporary deferment of payment. There are various repayment plans for federal loans, you can choose the one that suits your circumstances.

You can estimate the monthly payment amount by using the student loan calculator.

Note : Your loans will be reported to the National Student Loan Data System (NSLDS). The information in the NSLDS is available to schools and loan servicers for specific purposes authorized by the Department of Education.

Additional details about the William D. Ford Federal Direct Loan Program can be found at studentloans.gov.

What Happens After Submit FAFSA ?


After you submit the Free Application for Federal Student Aid, the government sends you a Student Aid Report (SAR), giving you information about your eligibility for Federal Student Aid. The colleges or universities that you include in your FAFSA have access to this information, which is used to determine grants, federal student loans and work-study amounts.

The college to which you have been accepted will send you an offer of financial aid, detailing the financial aid you will receive, including grants, federal student loans and work-study. The amount of federal aid that each college or school receives can vary, as does the cost of attending each school.

Availability of Federal Student Loans Program


There's a college search tool to find out if the school or college you're interested in participates in federal student aid programs, hosted by the National Center for Education Statistics.

How Much Money Can I Borrow in a Federal Direct Loan ?


It depends on whether you are a graduate student, undergraduate or professional student, or a parent. Federal Direct Loans lending limits vary based on student status and loan type.
  • Dependent undergraduate students can borrow up to a total of $31,000, of which $23,000 can be subsidized.
  • Independent undergraduate students can borrow up to a total of 57,500, of which $23,000 can be subsidized.
  • Professional students or independent graduates can borrow up to $138,500 in Direct Unsubsidized Loans.
  • You can borrow up to the total cost of attendance with the Grade PLUS loan.
Note : You should only borrow what you need. You can borrow less than the school offers and request a higher loan amount later if needed.

Why Should I Take Out Federal Student Loan ?


Federal student loans are an investment in your future. You need to be smart about federal student loans. Compared to other options you can consider when paying for college, federal student loans offer several benefits :
  • The interest rate on federal student loans is low and fixed as compared to private loans.
  •  A cosigner or credit check is not required to get federal student loans.
  • You don't have to start paying off your federal student loans until you leave college or are under half-time.
  • If you demonstrate financial need, the government pays interest on certain types of loans. (while you are in school or during certain periods after school)
  • If you're having trouble making payments, federal student loans offer flexible repayment plans and options for deferring your loan payments.
  • If you work in jobs, you may be eligible to have a portion of your loan forgiven if certain conditions are met.

What Should I Consider When Taking Out Federal Student Loans?

  • Be a responsible borrower. Before taking out a federal student loan, understand that the loan is a legal obligation and makes you responsible for repaying the borrowed amount along with interest.
  • Think about how the amount of your loan will affect your future finances, and how much you can repay. Your student loan payments should be only a small percentage of your salary after you graduate.
  • For starting salaries for recent graduates in your field of study, ask your school how much you can earn after graduation.
  • Understand the terms of the loan and keep copies of loan documents.
  • You must pay on time even if you do not receive bills, repayment notices or reminders. You have to pay the full amount required for the repayment plan.
  • Get in touch with your loan servicer. Notify your loan servicer upon graduation. If you are having trouble making the scheduled loan payments, you should also contact your service provider.

William D. Ford Federal Direct Loan Program Contact Information


For additional information about Direct Loan Resolution, see the attached question and answer document. If you have any questions, please contact through the following means :
  • COD Contact School Relations Center : 1-800-848-0978
  • Email : CODSupport@ed.gov

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