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Direct Loan Servicing

Direct Loan Consolidation

This page provides the answers to common questions. If you don't see the answer to your particular question, contact Direct Loan staff by e-mail or phone. We want to help.

1  How can Direct Loans help me go to college or a career school?
2  What kinds of Direct Loans are available?
3  What are the eligibility requirements?
4  How do I apply?
5  How much can I borrow?
6  What is the interest rate?
7  Is there a charge for this loan?
8  How will I receive my loan money?
9  When do I have to begin repaying my loan?
10  How much time will I have to repay my loan, and how much will I have to pay each month?
11  Can I ever postpone making loan payments?
12  What happens if I don't repay my Direct Loan?
13  Can my loan ever be discharged or forgiven?
14  Can I have my loan payments automatically paid from my account?

1  How can Direct Loans help me go to college or a career school?

Direct Loans are low-interest loans for students and parents to help pay for the cost of your education after high school. The lender is the U.S. Department of Education (the Department) rather than a bank or other financial institution. Direct Loans are:

• Simple - You borrow directly from the federal government and have a single contact-the Direct Loan Servicing Center-for everything related to the repayment of your loans, even if you receive Direct Loans at different schools.



• Convenient - You'll have online access to your Direct Loan account information 24 hours a day, 7 days a week.



• Flexible - You can choose from several repayment plans that are designed to meet the needs of almost any borrower, and you can switch repayment plans if your needs change.

2  What kinds of Direct Loans are available?

• Subsidized Stafford Loans are for students with financial need as determined by federal regulations. No interest is charged while you are in school at least half-time, during your grace period, and during deferment periods.



• Unsubsidized Stafford Loans are for students and are not based on financial need. Interest is charged during all periods.



• PLUS Loans are low-interest loans for graduate/professional students and for parents to help their children who are dependent students meet college costs.



• Consolidation Loans allow students or parents to combine different eligible federal student loans into one loan.

3  What are the eligibility requirements?

You must be enrolled at least half-time at a school that participates in the Direct Loan Program, and you must meet general eligibility requirements for the Federal Student Aid (FSA) programs. You can find more information about these requirements in Funding Education Beyond High School: The Guide to Federal Student Aid or by contacting your school's financial aid office.

4  How do I apply?

Students apply for a Direct Stafford or PLUS Loan by completing a Free Application for Federal Student Aid (FAFSA), the same application used for the Department's other FSA programs. Before receiving your first Direct Loan, you must sign a Master Promissory Note (MPN) that you'll get from your school or from the Department. You may be able to complete the application and MPN online; check with your school's financial aid office. The MPN explains the terms and conditions of your loan and is your legally binding agreement to repay your loan to the Department.

5  How much can I borrow?

The amount students can borrow each year for subsidized and unsubsidized Stafford loans depends on their grade level and on whether they are dependent students or independent students.

1This includes dependent students whose parents are unable to borrow a PLUS loan.
2The first number is the base amount, which may be any combination of subsidized and unsubsidized loan funds. The second number is the amount of additional unsubsidized loan funds available. Prior to July 1, 2008, there was no additional amount for dependent students, while for independent undergraduate students the amount was $2,000 less than the above numbers (the amount for graduate students is unchanged).

The amount a student can borrow is also limited by the student's school costs, other financial aid the student may receive, and (in the case of subsidized loans) the student's expected family contribution.

These are the aggregate (total) limits for all subsidized and unsubsidized Stafford loans, whether solely from the Direct Loan Program or in combination with FFEL Stafford loans:

• $31,000 for a dependent undergraduate student (no more than $23,000 may be subsidized)
• $57,500 for an independent undergraduate student1 (no more than $23,000 may be subsidized)
• $138,500 for a graduate or professional student (no more than $65,000 may be subsidized; includes loans for undergraduate study)

With a PLUS loan, a graduate/professional student or the parent of a dependent student can borrow up to the cost of the student's education minus other financial aid the student receives.

6  What is the interest rate?

The interest rate for loans disbursed between July 1, 1998, and June 30, 2006, will continue to be adjusted each year on July 1, though for Stafford loans it will never be higher than 8.25%. However, Stafford loans disbursed on or after July 1, 2006, have a fixed interest rate of 6.8%, with the exception that subsidized loans disbursed on or after July 1, 2008, to undergraduate students will have an interest rate of 6.00%. Direct PLUS Loans have a fixed rate of 7.9%. You can find out more by going to the calculator page.

7  Is there a charge for this loan?

Yes. In addition to interest, you pay a loan fee of 2% of the principal amount of each Direct Subsidized or Unsubsidized Stafford Loan that you borrow. The loan fee for PLUS loans is 4%. This fee helps reduce the cost of making these low-interest loans. We deduct the fee before you receive any loan money, so the loan amount you actually receive will be less than the amount you have to repay.

8  How will I receive my loan money?

Your school will generally disburse your loan money by crediting it to your school account, but may also give some of it to you directly. Your loan money will usually be disbursed in at least two installments.

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9  When do I have to begin repaying my loan?

Direct Subsidized and Direct Unsubsidized Stafford Loans have a 6-month grace period that starts the day after you graduate, leave school, or drop below half-time enrollment. You don't have to begin making payments until your grace period ends.

10  How much time will I have to repay my loan, and how much will I have to pay each month?

Generally, you'll have from 10 to 25 years to repay your loan, depending on the repayment plan that you choose. Your monthly payment amount will be based on how much you borrowed and how long you take to repay. You may choose one of four repayment plans:

• Standard Repayment Plan - Fixed monthly payments for up to 10 years.



• Extended Repayment Plan - Monthly payments for up to 25 years, depending on the total amount of your Direct Loans. There are fixed and graduated (gradually increasing) payment options.



• Graduated Repayment Plan - Payments that start off lower and then gradually increase, usually every two years. You'll repay your loan in full within 10 years, depending on the total amount of your Direct Loans.



• Income Contingent Repayment Plan - Your monthly payment is adjusted each year based on your annual income (and your spouse's income, if you're married), your family size, and the total amount of your Direct Loans. After 25 years, any unpaid loan amount will be forgiven.

You can change plans at any time. There's no penalty if you make payments before they are due or pay more than the amount due each month. For more information about these plans see the repayment plan page.

11  Can I ever postpone making loan payments?

Yes, under some conditions you may receive a deferment or forbearance that allows you to temporarily stop making payments. For example, you may qualify for a deferment if you return to school at least half-time, are unemployed, or are experiencing an economic hardship as defined in federal regulations. If you don't qualify for a deferment but are temporarily unable to make loan payments for reasons such as illness or financial hardship, we may grant you a forbearance.

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12  What happens if I don't repay my Direct Loan?

If you fail to make a payment on time, you're considered delinquent on your Direct Loan. If you do not make payments for 270 days, you are considered to be in default. Default has severe and long-lasting consequences, including the following:

• The Department of Education can immediately demand repayment of the total amount due on the loan.



• The Department will attempt to collect the debt and may charge you for the costs of collecting.



• The default will be reported to national credit bureaus. Your credit rating will be damaged, which will make it difficult for you to make purchases such as a car or house.



• You are ineligible for Title IV student aid.



• You are ineligible for deferments.



• The Internal Revenue Service can withhold your federal income tax refund.



• Your wages may be garnished.

13  Can my loan ever be discharged or forgiven?

You must repay your loan even if you don't complete or can't find a job related to your program of study, or are unhappy with the education you paid for with your loan. However, we will discharge (forgive) your loan if you have your loan discharged in bankruptcy, if you become totally and permanently disabled (additional conditions apply), or if you die.

We may discharge some or all of your loan if your school closed before you completed the program, if the school forged your signature or falsely certified that you were eligible for aid, or if you dropped out of school and the school did not pay a refund of your loan money that it was required to pay under federal regulations. Check the school's informational materials to see how refund policies apply to federal aid at that school. You may also qualify for forgiveness of some of your loans if you teach full time for five years in certain low-income schools and meet other requirements.

14  Can I have my loan payments automatically paid from my account?

Yes, and you'll save time and money doing that! We offer the option of having your loan payments automatically taken out of your bank account. This saves you the trouble of writing a check each month, and ensures that your payment will always be made on time. Plus, we'll reduce your interest rate by a quarter point (.25%) during all periods when your payments are being made under this option.