Another name for federal direct loans – Forbes Advisor
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Stafford loans are the primary source of federal financial assistance for students pursuing post-secondary education. According to the US Department of Education, more than $ 100 billion in new loans will be issued under the program in 2020 alone.
If you are planning to attend college or graduate school, Stafford loans should be the first loans you turn to as they generally have lower interest rates and more favorable repayment terms and protections than others. student loans. Here is how they work.
What is a Stafford Direct Loan?
With respect to federal student loans, there is only one active loan program currently: direct loans. However, some people refer to direct loans as Direct Stafford Loans or Stafford Loans, which may make you think that there are more than one loan program.
Stafford Direct Loans are part of the federal William D. Ford Direct Loan Program, which provides low-interest loans to students who need help with the cost of their education. Founded in 1994, loans under the Direct Loan program are available to undergraduate and graduate students attending four-year colleges, community colleges or trade schools.
There are four different types of direct loans:
- Subsidized direct loans. For undergraduates with exceptional financial needs
- Direct unsubsidized loans. For graduate and undergraduate students, regardless of their financial situation
- PLUS loans. For parents of undergraduates who wish to borrow money to pay for their education; also available for graduate students
- Direct consolidation loans. For parents and students who want consolidate their loans
What is the difference between a subsidized and unsubsidized direct loan?
For undergraduates, there are two main options: subsidized and non-subsidized loans. But what is the difference? Depending on which loan you qualify for, you could save money during your repayment period.
Direct subsidized loans
Subsidized loans are only available to undergraduate students with financial need. The US Department of Education covers interest that accrues on loans while you are in school at least part-time, during your post-graduation grace period, and during adjournment periods. . Because the government pays a portion of your interest charges, subsidized loans are less expensive than direct non-subsidized loans.
Direct unsubsidized loans
Direct unsubsidized loans are available to all undergraduate and graduate students, regardless of their financial needs. While you don’t have to make any payments while you’re in school, interest will start accruing immediately and you are responsible for paying all interest charges.
Direct loan eligibility
To benefit from a direct loan, you must:
- Enroll at least part-time in a school that participates in the direct loan program
- Submit the Free application for federal student aid, or FAFSA
- Be a U.S. citizen or eligible non-citizen (including U.S. nationals and permanent residents)
- Have a valid social security number
- Register for Selective Service (if you are a man)
- Maintain satisfactory academic progress, which means you progress towards your degree
- Have a high school diploma or GED – or have a high school diploma equivalent to home schooling
Stafford loan rates and fees
[Note: As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal direct loan payments are suspended until Dec. 31, 2020, and the interest rates are set at 0%]
Direct loans tend to have lower interest rates than other forms of student loans. For loans issued between July 1, 2020 and June 30, 2021, the following interest rates apply:
- Directly subsidized: 2.75%
- Direct unsubsidized: 2.75% for undergraduate borrowers, 4.30% for graduate borrowers
- Direct PLUS: 5.30%
- Direct consolidation: Based on the weighted average of your existing loans
Stafford loan origination fees
Most federal loans charge a disbursement fee that is a percentage of your loan amount. The fees are deducted from each loan you take out, which means you will receive less money overall.
For loans issued between July 1, 2020 and June 30, 2021, the following disbursement fees apply:
- Directly subsidized and not subsidized: 1.057%
- Direct PLUS: 4.228%
Let’s say you have withdrawn a direct relative of $ 10,000 More ready. Before the loan is disbursed, the US Department of Education would deduct 4.228% of the loan amount – $ 422.80 – and you would receive $ 9,577.20 to cover your education costs.
Stafford borrowing limits
With most federal loans, there are limits on how much you can borrow each year. The borrowing limits vary depending on your educational level and addiction status. Typically, you are considered self-employed if you are over 24, married, a graduate or professional student, a veteran, or in the military.
Undergraduate borrowing limits
Graduate borrowing limits
Parents’ borrowing limits
With Parent PLUS loans, applicant parents can borrow up to 100% of the total attendance fees at the school chosen by their child.
Benefits of the Stafford loan
If you need money to pay for your education, Federal Stafford Loans are a good place to start. Not only do they have lower interest rates than most private student loans, but they have other benefits that can make managing your debt easier.
Income-based repayment plans
Stafford Direct Loans are the only federal loans eligible for income-based reimbursement (IDR) plans. If you sign up for an IDR plan, your loan manager sets your monthly loan payment as a percentage of your discretionary income and extends your repayment term. Depending on your income and the size of your family, you may be eligible for a much lower monthly payment than you currently have.
Public service loan remission
If you have Federal Direct Loans and work for a nonprofit or government agency, you may be eligible for Public Service Loan Discount (PSLF). With PSLF, you can benefit from a loan discharge after working for an eligible employer for 10 years while making 120 monthly payments. Only Stafford loan borrowers are eligible for the PSLF.
Tolerance and postponement
With direct loans, you can temporarily defer your payments, without becoming past due or entering student loan default– if you are federal eligible abstention Where adjournment. Depending on your situation, you can withhold payments for up to 12 months at a time, giving you time to recover from financial problems or medical emergencies.
Other financing options
Although Stafford loans are less expensive than other student loans, they have annual and overall borrowing limits. If you are reaching the loan limit and still need extra money to pay for your education, private student loans can be a useful option. Check best private student loan lenders to see what loans are available.