How to get a federal Direct Loan

How to get a federal Direct Loan

Direct Unsubsidized Loan

Eligible undergraduate, graduate and professional students have access to Direct Unsubsidized Loans. Direct Unsubsidized Loans are like Direct Subsidized Loans, but they don’t subsidize interest.

Instead, interest accrues, and students are responsible for any interest as soon as funds are disbursed. However, while a student is enrolled at least half time in school, or in deferment or forbearance, they can choose to not make interest payments. This will cause the accrued interest to capitalize – in other words, be added to the total loan balance.

The interest rate on Direct Unsubsidized Loans is 3.73 percent for undergraduate borrowers and 5.28 percent for graduate and professional borrowers. An origination fee applies prior to loan disbursal.

Direct PLUS Loan

A Direct PLUS Loan is available to eligible graduate or professional students or eligible parents of an undergraduate student. Depending on the borrower, it’s commonly referred to as either a “grad PLUS loan” or a “parent PLUS loan.”

Direct PLUS Loans are not need-baed. They require a credit check, and you must meet the Department of Education’s borrower requirements to be approved. next However, applicants who don’t have strong credit might still be awarded funding if they can provide an endorser for the loan. An endorser is similar to a co-signer, since they guarantee that they’ll repay the loan if you can’t. You might also be awarded a PLUS Loan despite poor credit history if you have proof of an extenuating circumstance that led to your adverse credit.

The interest rate on grad PLUS and parent PLUS loans is currently 6.28 percent, and an origination fee will be deducted from the total loan amount.

Direct Consolidation Loan

Borrowers who’ve taken out multiple federal student loans can simplify their repayment experience through a Direct Consolidation Loan. This type of loan combines all of your eligible outstanding federal loans into one loan, with one monthly payment and one fixed interest rate. To consolidate your loans, you’ll need to be in repayment already.

It’s free to apply for a Direct Consolidation Loan, and you have the option of extending your loan term up to 30 years. This reduces your monthly payment, but it also means that it’ll take you longer to pay off your loans, meaning you’ll pay more in interest over the total life of the loan.

There are other downsides to a Direct Consolidation Loan. Your fixed interest rate is determined based on the weighted average of all loans being consolidated, so you won’t necessarily save on interest costs using this method. Consolidation also adds any outstanding interest on your original loans to the new principal balance.

Finally, if you’re working toward Public Service Loan Forgiveness, taking out a Direct Consolidation Loan will erase any credit you’ve made toward the 120 payments required for forgiveness. You’ll need to start the process over again.

  1. Complete the FAFSA. The FAFSA uses tax returns, pay stubs and other official documents to determine your expected family contribution and what financial aid you qualify for.
  2. Finish requirements for acceptance. Since taking out a loan requires entrance counseling, you’ll need to finish this before you receive your loans.
  3. Take only what you need. Just because you could get approved for the full loan amount doesn’t mean you should take it. Only borrow what you need for school, since you’ll eventually have to pay it back with interest.
  4. Sign your Master Promissory Note. Your Master Promissory Note is essentially your lender agreement; it outlines your obligations to repay the loans and the consequences should you fail to do so. You can’t get your loan without signing this.

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