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Direct Student Loans

Last updated 29th Nov 2022
Direct student loans are one of the Federal Student Aid, or FSA, programs available through the Department of Education. Direct student loans provide students with a way to borrow money to pay for their costs of higher education.

Applying for a Direct Loan

To apply for a Direct student loan, also known as a William D. Ford Federal Direct Loan, or FDLP loan, the student or borrower is required to fill out the Free Application for Federal Student Aid or FAFSA. This application only needs to be completed once. It is not necessary to fill out an application for each program, or when seeking aid from different lending institutions, such as a bank. In fact, with Direct student loans, the student is not borrowing from a bank. The loan is made through the federal government, which raises money through the sales of Treasury bills. With Direct Loans, repayment is made to the federal government, not a private lender. Since the lender is the federal government, the student borrower does not have to worry about the loan being sold to another financial institution, which is commonplace with other loan types such as mortgages. With Direct student loans, payments are made to the Department of Education for the life of the loan.

Current Interest Rates

The interest rate that applies to Unsubsidized and Subsidized Direct Loans disbursed between July 1, 2020 and June 30, 2021 is 2.75% for undergraduate students, while an interest rate of 4.30% applies to Unsubsidized Direct Loans for graduate students. Direct PLUS Loans, which are made to parents of students, issued in the 2020 / 2021 timeframe, charge a rate of interest of 5.30%.

Direct Loan Repayment Plans

Under the Direct Loan program, there are four repayment plans. Each plan offers different repayment schedules, with the hope of meeting the needs of the student borrower community:
repayment plan options
  • Standard Repayment Plans
  • Extended Repayment Plans
  • Graduated Repayment Plans
  • Income Contingent Repayment Plans
The features of each plan are discussed in the following paragraphs. Later on, we provide additional information on paying back, or servicing, these Direct Loans.

Standard Repayment Plan

Under the Standard repayment plan, the borrower pays a fixed amount each month, $50 minimum, for up to ten years. Since this plan has the shortest repayment period, the total interest payments are the lowest.

Extended Repayment Plan

With the Extended repayment plan, the student pays back the Direct Loan based on a fixed amount, $50 minimum, for 12 to 30 years. The total lifetime, or term, of the loan will depend on the total amount borrowed. The Extended repayment plan results in the lowest monthly payment, but since the loan can be for as long as 30 years, it results in higher total interest paid.

Graduated Repayment Plan

The Graduated repayment plan lets the student borrower repay the loan with low monthly payments, no minimum. Under this plan, the student repays the loan over a term of 12 to 30 years, and the payment amount increases every two years. This allows the borrower to start out slowly, and let their payments grow as their earnings increase over time.

Income Contingent Repayment

Perhaps the most flexible of payment plans offered under the Direct student loan program, the student borrower's payment schedule under the income contingent plan is adjusted based on annual income and family size. After 25 years, any remaining balance on the original loan will be forgiven. Under this plan, the student borrower must allow the Internal Revenue Service to report their income levels to the Department of Education.

Direct Loan Servicing

Former students that have a Direct Loan can pay back, or service, that loan online. The Direct Loan Servicing website allows former students to view account balances, change billing options, as well as check payment history. In addition to making payments online, and tracking account balances, it's also possible to apply for student loan consolidation. A Social Security number and a PIN issued by the Department of Education is all that is needed to enroll in and access this website.

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Moneyzine Editor