How to Utilize the Federal Direct Loan

Sage Crary
Sage Crary
Director of Financial Aid and Scholarships, pursuing an MS in Ethics and Religion

It seems that every other week when you turn on the news, someone is talking about how “scary” student loans are. But did you know that the vast majority of student loan debt is not held by those who have completed their degree, but instead by those who dropped out of school? Or did you know that the “student loan debt” often being referred to is NOT the result of Federal Direct Loans, but is the result of private loans with higher interest rates? Or did you know that Federal Direct student loans are considered one of the two “good” types of debt by personal financial planners and wealth managers (the other kind of ‘good’ debt is a mortgage)?

With so many half truths and rumors swirling around, it may seem difficult to know what the “right” decision is to make when it comes to student loans. So here are some things you should know to make the best decision for you and your future.

Types of Student Loans

There are many types of “student loans,” and just like all the different types of credit cards, some are better than others when it comes to interest rates, repayment and overall costs. The absolute BEST student loan option out there for graduate school today is called a Federal Direct Unsubsidized Loan (followed closely by the Federal Direct Graduate PLUS Loan). These are federally backed loans which also have the lowest interest rates, best repayment options, and are the ones that qualify for Federal Loan Forgiveness programs. There are also no income or credit requirements for a Federal Direct Unsubsidized loan, so no matter how much money you make or what your current credit scenario is, you will be able to qualify. Learn more about the Federal Loan programs.

How to Apply for the Federal Direct Loan

Applying for Federal Loans is easy, just complete the FAFSA (which stands for Free Application for Federal Student Aid) application. The financial aid office at your school will receive it automatically in approximately one week and be able to review it and determine your eligibility.  In most cases, students will qualify for up to $20,500 a year (or the cost of attendance for the program, whichever is less). You can also borrow additional funds through the Direct Loan program above what your tuition and program costs are, and receive a “refund” (money back) each semester. You can use this money for books, gas, transportation, or to supplement your living costs each month while you are in school. Each semester your Federal Direct Loan funds will be sent to the school directly on your behalf, which makes the process seamless for you as a student.

The other benefit is that Federal Direct Unsubsidized loans qualify for Federal Loan Forgiveness (meaning if you qualify, all or a portion of your federal loan balances may be eliminated). They also have the most flexible repayment plans (with payments starting as low as $50 a month in some cases), and do not require any payments while you are enrolled at least half time in your program. Learn more about current repayment plan options.

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