Direct Loans are low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education (the Department) rather than a bank or other financial institution. With Direct Loans, you
Types of Direct Loans The following Direct Loans are made through the William D. Ford Federal Direct Loan (Direct Loan) Program, which is administered by the U.S. Department of Education:
Direct Subsidized Loans
Are for students with demonstrated financial need, as determined by federal regulations. No interest is charged while a student is in school at least half-time, during the grace period and during deferment periods.
Direct Unsubsidized Loans
Are not based on financial need; interest is charged during all periods, even during the time a student is in school and during grace and deferment periods.
Direct PLUS Loans
Are unsubsidized loans for the parents of dependent students and for graduate/professional students. PLUS loans help pay for education expenses up to the cost of attendance minus all other financial assistance. Interest is charged during all periods.
Direct Consolidation Loans
Eligible federal student loans can be combined into one Direct Consolidation Loan.
Parent eligibility requirements for a Direct PLUS Loan
You must be the student's biological or adoptive parent or the student's stepparent, if the biological or adoptive parent has remarried at the time of application. You must be a dependent student who is enrolled at least half-time at a school that participates in the Direct Loan Program. For financial aid purposes, a student is considered "dependent" if he or she is under 24, unmarried, and has no legal dependents at the time the Free Application for Federal Student Aid is submitted. (Exceptions are made for veterans, wards of court, and other special circumstances.) If a student is considered dependent, then the income and the assets of the parent have to be reported on the FAFSA.
Additional requirements to receive a PLUS loan
Parent PLUS loan borrowers cannot have an adverse credit history (a credit check will be done). In addition, parents and their dependent child must be U.S. citizens or eligible noncitizens, must not be in default on any federal education loans or owe an overpayment on a federal education grant, and must meet other general eligibility requirements for the Federal Student Aid programs. You can find more information about these requirements in Funding Education Beyond High School: The Guide to Federal Student Aid available at: www.studentaid.ed.gov.
Applying for a PLUS Loan and the Master Promissory Note (MPN)
To take out a Direct Loan for the first time, you must complete a PLUS Application and master promissory note (MPN). The MPN is a legal document in which you promise to repay your loan(s) and any accrued interest and fees to the Department. It also explains the terms and conditions of your loan(s). The MPN will be provided either by your school or the Department. If your school offers the option of completing the MPN electronically, you can do so online at the Direct Loans e-MPN website. If you are borrowing Direct PLUS Loans for more than one student, you'll need to complete a separate MPN for each one. To complete an MPN online, you will be required to use your Department of Education-issued PIN. If you do not have a PIN, you may request one from the official PIN site.
In most cases, once you've submitted the MPN and it's been accepted, you won't have to fill out a new MPN for future loans you receive to pay for the educational expenses of the same student. Unless your school does not allow more than one loan to be made under the same MPN, you can borrow additional Direct Loans on a single MPN for up to 10 years. You'll receive a disclosure statement that gives you specific information about any loan that the school plans to disburse under your MPN, including the loan amount and loan fees, and the expected loan disbursement dates and amounts.
Credit check & endorser alternative
When you apply for a Direct PLUS Loan, the Department will check your credit history. To be eligible for a PLUS Loan, you must not have an adverse credit history. If you are found to have an adverse credit history, you may still borrow a PLUS Loan if you get an endorser who does not have an adverse credit history. An endorser is someone who agrees to repay the Direct PLUS Loan if you do not repay the loan. The endorser may not be the student on whose behalf a parent obtains a Direct PLUS Loan. In some cases, you may also be able to obtain a Direct PLUS Loan if you document to our satisfaction that there are extenuating circumstances related to your adverse credit history.
Loan limits, interest rate, and loan charges
There are no set limits for Direct PLUS Loans, but you may not borrow more than the cost of your education minus any other financial aid received, such as a Direct Subsidized or Unsubsidized Loan. The school will determine the actual amount you may borrow.
The interest rate for Direct PLUS Loans is a fixed rate of 7.9%. Interest is charged on Direct PLUS Loans during all periods, beginning on the date of your loan's first disbursement. To find out more information on interest rates for Direct PLUS Loans, contact the Direct Loan Servicing Center.
In addition to interest, you pay a loan origination fee that is a percentage of the principal amount of each Direct PLUS Loan that you receive. This fee helps reduce the cost of making these low-interest loans. The fee is deducted before you receive any loan money, so the loan amount you actually receive will be less than the amount you have to repay.
Dependent students whose parents have applied for but were unable to get a PLUS Loan are eligible to receive additional Direct Unsubsidized Loan funds.
How a loan is disbursed (paid out)
Generally, your loan will cover a full academic year and your school will make at least two disbursements to you, for example, at the beginning of each semester or quarter or at the beginning and midpoint of your academic year.
In most cases your school will disburse your loan money by crediting it to your school account to pay tuition, fees, room, board, and other authorized charges. If the loan disbursement amount exceeds your school charges, the school will pay you the remaining balance of the disbursement directly by check or other means. In some cases, with your permission, the school may disburse some of the PLUS loan money directly to the student. Your school will notify you in writing each time they disburse part of your loan money and will provide information about how to cancel all or part of your disbursement if you find you no longer need the money. You will also receive a notice from us confirming the disbursement. You should read and keep all correspondence received concerning your loan.
Using the loan for education expenses: You may use the loan money you receive only to pay for your education expenses at the school that is giving you the loan. Education expenses include school charges such as tuition, room and board, fees, and indirect expenses such as books, supplies, equipment, dependent child care expenses, transportation, and rental or purchase of a personal computer.
Federal Perkins Loans
A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school's financial aid office. Your school is your lender, and the loan is made with government funds. You must repay this loan to your school.
Your school will either pay you directly (usually by check) or apply your loan to your school charges. You'll receive the loan in at least two payments during the academic year.
How much can I borrow?
You can borrow up to $5,500 for each year of undergraduate study (the total you can borrow as an undergraduate is $27,500). For graduate studies, you can borrow up to $8,000 per year (the total you can borrow as a graduate is $60,000 which includes amounts borrowed as an undergraduate). The amount you receive depends on when you apply, your financial need, and the funding level at the school.
Other than interest, is there a charge for this loan?
No, there are no other charges. However, if you skip a payment, if it's late, or if you make less than a full payment, you might have to pay a late charge plus any collection costs.
When do I pay it back?
If you're attending school at least half time, you have nine months after you graduate, leave school, or drop below half-time status before you must begin repayment. This is called "grace period." If you're attending less than half time, check with your college or career school to find out how long your grace period will be
