Direct Loans 101

Direct Loans are federal education loans with competitive 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.

What is a Direct Loan?

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

How Is Eligibility Determined?

In order to apply for a Direct Loan, you must first complete the Free Application for Federal Student Aid (FAFSA). The resulting Institutional Student Information Report (ISIR) is sent to your school and determines your aid eligibility. This sets the stage for how much you can borrow. Whether you apply electronically, or complete a hard copy loan application, the financial aid office must certify your eligibility for the loan before the application can 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 of the loan, if you have the funds to do so, you might want to consider paying on the interest as it accrues.

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.

What this means is 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 school sets their COA, based upon tuition and fees, books and supplies, room and board, and other required miscellaneous expenses. Setting a budget for yourself, using the school’s cost of attendance, can help you determine how much you will need to borrow.

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

If you need additional aid, contact your financial aid office to learn about other federal loan options or institutional aid that may be available. You may also want to search for additional scholarship and grant opportunities. 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 

Financial Information, Resources, Services, and Tools (FIRST)

MedLoans® Organizer and Calculator (MLOC)

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The MedLoans® Organizer and Calculator was developed to assist medical students and residents with managing their education debt.


Get practical information on budgeting, money management, credit, debt management, scholarship searches, and more.

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