Direct Loans 101

November 9, 2022

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Direct Loans are federal education loans with fixed interest rates and flexible repayment terms. Borrowers should consider maximizing Direct Loan options before borrowing other loans with higher interest rates and/or possibly more stringent terms and conditions.

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What is a Direct Loan?

Direct Loans are available to student borrowers through the federal government. Students enrolled at least half-time may borrow a Direct Loan to pay for their education expenses. Before borrowing a loan, the student must first apply and be eligible to receive financial aid.

How Is Eligibility Determined?

To be eligible for federal student aid, you must first complete the Free Application for Federal Student Aid (FAFSA). The schools you list on the application will receive your financial information and then prepare an aid offer based upon the type of aid you qualify for at their individual school. Many times, the aid offer will include a Direct Loan.

To accept and apply for a Direct Loan, you will be required to complete entrance counseling, and sign a Master Promissory Note (MPN). Financial aid staff will certify your eligibility for the loan and your application will be processed.

Direct Unsubsidized Loans

There are two types of Direct Loans – subsidized and unsubsidized. Medical students and other graduate/professional students are only eligible for unsubsidized loans. Direct Unsubsidized Loans accrue interest from the date the loan is disbursed until the loan is paid in full. You are not required to make payments on your federal loan(s) while enrolled at least half-time. However, if you can pay on the interest as it accrues, you will save some money over time.

Interest Rates

Interest rates are set by the federal government. Federal law dictates that loans disbursed after July 1, 2013, will have a variable/fixed interest rate.

This means that interest rates on Direct Loans adjust annually on July 1st.  Any loan disbursed within the academic year, will have the current interest rate assigned for that year, and the rate will be fixed for the life of the loan. Therefore, if a borrower takes out a loan for each year of medical school, the loans will likely have different interest rates.

To view current and historical federal loan interest rates, visit the Federal Student Aid website.

How Much Can You Borrow?

Students can borrow up to the school’s cost of attendance (COA). The COA is set by the school and based upon tuition and fees, books and supplies, room and board, and other required expenses.

Setting a budget for yourself and keeping the school’s COA in mind, can help you determine how much to borrow. A loan fee is charged for federal loans. This fee is charged prior to loan disbursement. Current fees can be viewed on the Federal Student Aid website.

What if a Direct Loan Doesn’t Cover All Your Expenses?

If your Direct Unsubsidized Loan doesn’t cover all your costs, contact your financial aid office to learn about other federal loan options, such as a Direct PLUS Loanor perhaps institutional aid that may be available. You may also want to search for additional scholarships and grants. (See additional resources below.)

The financial aid administrator at your school should be your first resource when you have questions about student loans or other financial aid concerns.

Additional Resources 

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