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Direct Loans are a major form of self-help aid for students. Under direct loans, the funds for your loan are lent to you from the Department of Education.
What kinds of Direct Loans are available?
Direct Loans are either subsidized or unsubsidized. You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.
A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment (see below). The federal government "subsidizes" the interest during these periods.
An unsubsidized loan is not awarded on the basis of need. You'll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accumulate while you are in school or during other periods of nonpayment, it will be capitalized-that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount.
NOTE: If your interest is capitalized, it will increase the amount you have to repay. If you choose to pay the interest as it accumulates, you'll repay less in the long run.
Who can get a Direct Loan?
If you're a regular student enrolled in an eligible program at least half time, you may receive a Direct Loan. You must also meet other general eligibility requirements.
How will I receive my Direct Loan?
The loan funds will be sent to your school. In most cases, your loan will be disbursed in at least two installments, and no installment will be greater than half the amount of your loan.
Your loan money must first be used to pay for your tuition, fees, and room and board. If loan money remains, you'll receive the funds by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.
If you're a first-year undergraduate student and a first-time borrower, your first disbursement cannot be made until 30 days after the first day of your enrollment period. This way, you won't have to repay the loan if you withdraw during the first 30 days of classes. However, you might owe money to the school for a portion of tuition or other fees.
Will I have an opportunity to cancel my loan after I sign the promissory note?
Yes. Your school must notify you in writing whenever it credits your account with your Stafford Loan funds. This notification must be sent to you no earlier than 30 days before and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan if you inform your school that you wish to do so within 14 days after the date that your school sends you this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you receive Stafford Loan funds directly by check, you may refuse the funds by returning the check.
What's the interest rate charged on these loans?
For loans first disbursed on or after July 1, 2014, the rate is based upon the index rate of the 10-year Treasury Note, plus a statutorily defined "add-on" of 2.05%. The interest rate on the loan will then be fixed for the life of the loan. Subsidized loans with a first disbursement between July 1, 2014 and June 30, 2015 have an interest rate of 4.66%. Subsidized loans with a first disbursement between July 1, 2014 and June 30, 2016 will have an interest rate of 4.29%.
When do I pay back these loans?
After you graduate, leave school, or drop below half time enrollment, you have six months before you begin repayment. This is called a "grace period."
During the grace period on a subsidized loan, you don't have to pay any principal, and no interest will be charged. During the grace period on an unsubsidized loan, you don't have to pay any principal, but interest will be charged. You can either pay the interest or it will be capitalized.
After you leave school or drop below half time enrollment, your lender will send you information about repayment and you will be notified of the date repayment begins. However, you are responsible for beginning repayment on time, even if you don't receive this information. Failing to make payments on your loan may have a negative effect on your credit rating.
Is it ever possible to postpone repayment of my loan?
Yes. Under certain conditions, you can receive a deferment or forbearance on your loan. A deferment allows you to temporarily postpone payments on your loan. If you have a subsidized loan, you will not be charged interest during the deferment. If your loan is unsubsidized, you will be responsible for the interest on the loan during the deferment. If you don't pay the interest as it accrues, it will be capitalized and increase the amount you will have to pay.
Parents of dependent undergraduate students attending an eligible college or university may take out a PLUS loan to fund their child's entire cost of attendance, minus any other financial aid. Parents with satisfactory credit may qualify for a PLUS loan regardless of their income level or financial assets. PLUS loan proceeds may be used to pay all authorized education expenses. PLUS loans are offered by both the federal government and private lenders. Your PLUS loan is administered by a commercial lender.
Am I eligible for this loan?
To be eligible, a parent must apply and pass a credit check. If unable to qualify, they still might be able to receive a loan if a relative or friend who can pass the credit check agrees to endorse the loan, promising to repay if the parent fails to do so.
How much can I borrow with this loan program?
The yearly limit for the PLUS loan is equal to the cost of attendance minus any other financial aid your child receives. For example, if your child's cost of attendance is $8,000 and your child receives $3,000 in financial aid, you can borrow up to $5,000 with a PLUS loan.
How can I get this loan?
The parent who plans on borrowing the loan should submit a completed PLUS application (available from your school, lender, or guaranty agency) to the financial aid office at the child's school.
When will I get my money?
In most cases, your loan will be disbursed in two installments. Money will be used first to pay your child's tuition and fees. If any loan money remains, the borrowing parent receives that amount, unless he or she has authorized it to be released to the child's account. Schools must notify parents when funds are credited. Lenders send funds directly to the school.
Can I cancel the loan?
Yes. Your school must notify you in writing when it credits your account with your loan proceeds. This notification must be sent to you no earlier than 30 days before and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan if you inform your school within 14 days after the date that your school sends you this notice or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period.
What is the interest rate of this loan?
The interest rate can change each July but by law it will never be more than 9 percent.