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 determine eligibility for a loan, you must first complete the Free Application for Federal Student Aid (FAFSA). After completing the FAFSA, the schools listed on the application will receive an Institutional Student Information Report (ISIR). Financial aid staff will determine your eligibility and how much you can borrow based upon the ISIR and then an aid offer will be sent to you notifying you of your financial aid eligibility, which will likely include a Direct Loan. To get the loan, you will need 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 the loan while in school; however, to cut down on the total cost, you may want to pay some of the interest as it accrues.
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 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 Loan or 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.
- The Financial Aid Application Process
- Direct PLUS Loans for Graduate/Professional Students
- Debt Management Relies on Good Record Keeping
- MedLoans® Organizer and Calculator (MLOC)
- Consumer and Federal Financial Aid Resources (see Grants, Fellowships and Scholarships)
- Top 10 Questions Premeds Should Ask Medical School Financial Aid Officers
- Transitioning to Medical School: Financial Tips
- Budgeting Basics: Managing Your Money During the Lean Years