What is a direct student loan and how do you qualify?
- Direct loans can help you cover college costs after the gift aid runs out.
- You can get four types of direct loans: Subsidized, Unsubsidized, PLUS and Consolidation Loans.
- To qualify for a direct loan, you must complete the Free State Student Aid Application.
- Read more about Insider Loans for Student Loans here.
Free financial aid like scholarships and grants are the best option to help cover college expenses. However, if you still need funds to cover college costs, federal direct loans can help fill the void. A federal direct loan is a loan offered by the Ministry of Education.
What types of direct loans can I get?
There are four types of direct loans:
- Directly Funded Loans: The government pays interest on these loans while you are in college. It also covers interest during a six-month grace period after you graduate before you need to start repaying your student loan. You must demonstrate a financial need to qualify for these loans. Only Bachelor students are eligible.
- Direct unsubsidized loans: During school and during the grace period, interest is charged on unsubsidized loans. If you are able, you should try paying off this interest every month to keep it from capitalizing – or being added to your loan balance – once you start paying back the loans. These loans are not based on financial need. Students, graduates and professionals are eligible.
- Direct PLUS loan: As an undergraduate student, you cannot get a Direct PLUS loan, but your parents can take it out for you. However, graduates and professionals can take out Direct PLUS loans. You must pass a credit check to qualify and the maximum amount of credit you can get is determined by the cost of participation minus any other financial aid that you or your child will receive.
- Direct Consolidation Loans: In this type of loan, you combine all of your eligible federal student loans into a single loan with a single loan service provider. There are no fees for this operation and you get a fixed rate based on the average of the interest rates on the loans you have consolidated.
How do I get direct loans?
You must complete the Free Federal Student Aid (FAFSA) Application to be eligible for direct loans. The FAFSA requires you to provide various types of financial information, such as previous tax returns and a bank statement. Your school will determine your financial support package based on the information you provide.
Recall, Just because you have been approved for a particular loan amount does not mean you have to take all of it. You have to pay back everything you borrow plus interest so borrowing more than you need can be costly in the long run.
How do direct loans differ from private student loans?
Federal student loans are almost always a better option than private student loans because they come with more borrower protection and more repayment plans. For example, federal student loans are eligible for several loan origination programs, including public sector lending. PSLF exempts public sector graduates from debt after 120 months of qualifying payments.
In addition, the federal student loans are currently suspended until January 31, 2022 and do not earn interest. You need to reach out to your private lender to seek forbearance, and even then, the interest will happily accrue during your non-payment period.
For borrowers with great credit, private student loans may offer lower interest rates than direct loans – but don’t just look at the interest rate when deciding between loan options. Also consider the term, repayment options and borrower protection.
While you should always be looking for help that you don’t have to pay back before considering a student loan, federal direct loans are a solid option to help pay for college fees.