Direct Loans 101

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.

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 determine your eligibility and how much you can borrow based upon the ISIR and then an award letter will be sent to you notifying you of your financial aid award, which will likely include a Direct Loan. To get the loan, you will need to complete a Master Promissory Note (MPN) and then the financial aid staff will certify your eligibility for the loan and then your loan 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 they are 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, you might want to consider paying 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.

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 school sets their COA, based upon tuition and fees, books and supplies, room and board, and other required expenses. Setting a budget for yourself and 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 your Direct Unsubsidized Loan doesn’t cover all your costs, 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 scholarships and grants.

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 

Search Financial Aid Resources

Find a complete list of all financial aid resources, services, and tools. 

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This comprehensive financial guide helps professionals at all levels of the medical education continuum navigate the complexities of financing medical school by borrowing wisely and repaying student loan debt responsibly.

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