Understanding Direct Student Loans

This is a new federal program designed to help students and their parents receive direct student loans from federal funding through the school they wish to attend without the hassles of bank financing. The school becomes like the lending company and can control the funds of the loan.

There are four different types of direct student loans available they include:
Federal Direct Stafford/Ford Loans:

The student will fill out an application with the school that they wish to attend. The school will then determine if the student is in need of financial assistance. With this type of loan the Federal Government pays the interest in certain situations, like if the student is in school, or during the time they are in school if on a part-time enrollment.

Federal Direct Unsubsidized Stafford/Ford Loans:
This type of direct student loan is for any student with no concern of financial need. But, the student will have to pay all interests on this loan.

Federal Direct PLUS Loans:
This is a direct student loan parents can get to pay for their children’s education. The parents will have to pay all interests on these loans.

Federal Direct Consolidation Loans:
This type of direct student loan combines all federal loans into one monthly payment.

How much you can borrow on a direct student loan depends on whether you are a dependent or independent student. An independent student is defined as “at least 24 years old, married, a graduate or professional student, a veteran, an orphan, a ward of the court, or someone with legal dependents other than a spouse.” A dependent student is defined as “any student who doesn’t meet the definition of an independent student is dependent. The parents’ income is included in calculations of need.”

For a dependent student you will be able to borrow as stated on the list below:
First year undergraduate………………… $2,625
Second year undergraduate……………... $3,500
Third and Fourth year undergraduate…… $5,500
Graduate/Professional…………………… N/A

For an independent student you will be able to borrow as stated on the list below:
First year undergraduate………………… $6,625
Second year undergraduate……………... $7,500
Third and Fourth year undergraduate….. $10,500
Graduate/Professional………………….. $18,500

Direct Student Loans have different ways in which to repay the loans. For Direct Subsidized Loans or Direct Unsubsidized Loans there are four different ways you can repay these loans. For Direct PLUS Loans you may not use the last option below. Here is a list of options you have available to repay your direct loans.

Repayment Plan (Standard)
This plan has monthly payments that can not be changed; the lowest payment would be $50 per month. It also is set for a certain amount of time up to 10 years. Since this plan is usually paid in a shorter amount of time than other direct student loans you will usually pay less total interest.

Repayment Plan (Extended)
This type of direct student loan will allow you to start out with low monthly payments that will increase gradually every two years. The repayment period is the same as the plan above depending on the amount of money you borrow. Again the interest will probably be higher since the loan is for a longer period of time.

Repayment Plan (Income Contingent)
This plan is based on the amount of your direct student loan and your monthly income. If your income decreases the monthly loan payment will also decrease, the same with increases, if your income increases so will your monthly loan payments. You will have up to 25 years to pay the loan, any money left owed after that time will be released. You may still have to pay taxes on the money that was released.