Federal Direct Loans

December 21, 2023

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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, fees and/or possibly more stringent terms and conditions. Direct Loans are available to student borrowers through the federal government.

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How is Eligibility Determined?

To be eligible for federal student aid, borrowers must first complete the Free Application for Federal Student Aid (FAFSA). The schools listed on the application will receive the applicant’s financial information, and then the financial aid staff will prepare an aid offer based upon the type of aid the applicant qualifies for at each individual school. If a student qualifies, the aid offer will likely include a Direct Loan. Students must be enrolled at least half-time to borrow a Direct Loan.

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

Types of Federal Direct Loans for Medical Students

Direct Unsubsidized Loan – a loan for graduate and professional students which accrues interest from the date the loan is disbursed until the date the loan is paid in full.   

Direct PLUS Loan – another type of unsubsidized loan for graduate and professional students which also accrues interest from the date the loan is disbursed until the loan is paid in full. To qualify for a Direct PLUS Loan, a credit check is required for the borrower.

Interest Rates and Loan Fees

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 academic year, and the rate will be fixed for the life of the loan. 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.

In addition to interest charged on Direct Unsubsidized and Direct PLUS Loans, there are also loan fees. A loan fee is charged prior to loan disbursement; this means that the fee is deducted before the loan funds are disbursed to the school. Current loan fees can be viewed on the Federal Student Aid website. Please note that the loan fee for a Direct Unsubsidized Loan is lower than the loan fee for a Direct PLUS Loan.

How Much Can You Borrow?

Students can borrow up to the school’s cost of attendance (COA) in a combination of the Direct Unsubsidized Loan and Direct PLUS Loan. 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 and keeping the school’s COA in mind can help students determine how much to borrow.

Repayment of Federal Direct Loans

No payments are required for Direct Unsubsidized or Direct PLUS Loans while the student is enrolled on at least a half-time basis. After graduation, Direct Unsubsidized Loans enter a 6-month grace period where no payment is due, but interest continues to accrue. Direct PLUS Loans enter a post-enrollment deferment for 6 months, and during that time, no payments are required, but interest also continues to accrue. After the grace period or post-enrollment deferment expires, the borrower will enter repayment or choose to postpone payments.

Benefits of Direct Loans

Direct Loans are federally guaranteed loans and are tied to regulatory protections. They offer deferment and forbearance options if a borrower has difficulty repaying, plus various repayment plans that make monthly payments manageable - even when salaries are lower during residency.  In the event of death or disability, federal loans can be forgiven.

Direct Loans can be consolidated into a Direct Consolidation Loan after graduation, if desired.  Sometimes, this can simplify repayment by combining all federal loans into one new loan, with a fixed interest weight, based on the weighted average of all loans consolidated, but it is not always necessary. A Direct Consolidation Loan may extend the repayment term or possibly lower the monthly payment amount; however, the longer it takes to repay a loan, the more it will cost overall.

Direct Loans are eligible for forgiveness through Income-Driven Repayment (IDR) plans, and they also qualify as eligible loans for the federal Public Service Loan Forgiveness (PSLF) program.

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