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 Direct Student Loans are one of the Federal Student Aid or FSA programs that are available through the Department of Education. Direct Student Loans provide students with a way to borrow money to pay for their costs of higher education.
Applying for a Direct Loan
To apply for direct student loans, also known as William D. Ford Federal Direct Loans, or FDLP loans, the student or borrower is required to fill out the Free Application for Federal Student Aid or FAFSA. You only need to fill out this application once when applying for student loans. It is not necessary to fill out an application for each program or when seeking aid from different lending institutions such as a bank.
In fact, with Direct Student Loans, the student is not borrowing from a bank. The loan is made through the federal government that raises the money through the sales of Treasury bills. So with Direct Loans, repayment is made back to the federal government - not a private lender.
And since the lender is the federal government, the student borrower does not have to worry that the loan will be sold to another financial institution. Selling loans is commonplace with other loan types such as mortgages. With Direct Student Loans, payments are made to the Department of Education for the life of the loan.
Current Direct Loan Interest Rates
The Direct Loan interest rates for loans taken, or disbursed, on or after July 1, 2007 currently carry a 6.80% fixed rate of interest. Direct PLUS loans - which are made to parents of students - issued in that same timeframe charge a rate of interest of 7.90% for 2007 / 2008.
Direct Loan Repayment Plans
Under the Direct Loan program, there are four repayment plans. Each plan offers different repayment schedules in the attempt to be flexible in meeting the needs of the student borrowing community:
- Standard Repayment Plans
- Extended Repayment Plans
- Graduated Repayment Plans
- Income Contingent Repayment Plans
We discuss the features you'll find for each of these plans in the following paragraphs. Later on, we're going to provide you with some additional information on paying back, or servicing, these Direct Loans.
Standard Repayment Plan
Under the Standard repayment plan the borrower pays a fixed amount - $50 minimum - for up to ten years. Since this plan has the shortest repayment period, the total interest payments are the lowest.
Extended Repayment Plan
With the Extended repayment plan, the student pays back the Direct Loan based on a fixed amount - $50 minimum - for 12 to 30 years. The total lifetime or term of the loan will depend on the total amount borrowed. The Extended repayment plan results in the lowest monthly payment, but since the loan can be for as long as 30 years, it results in the higher total interest payments.
Graduated Repayment Plan
The Graduated repayment plan lets the student borrower repay the loan with low monthly payments - no minimum. Under this plan, the student repays the loan over a term of 12 to 30 years and the payment amount increases every two years. This allows the borrower to start out easy and let their payments grow as their earnings increase over time.
Income Contingent Repayment
This is perhaps the most flexible of payment plans offered under the Direct Student Loans program. With the income contingent plan, the student borrower's payment schedule is adjusted based on annual income and family size. After 25 years, any remaining balance on the original loan will be forgiven. Under this plan, the student borrower must allow the Internal Revenue Service to report their income levels to the Department of Education.
Direct Loan Servicing
If you're a former student that already has a Direct Loan you can pay back, or service, that loan online. The Direct Loan Servicing website allows you to view account balances, change your billing options as well as check your payment history.
In addition to making payments online and tracking your account balances, you can also apply for student loan consolidation. All you need to do to access this website is to enroll / open an account by supplying your Social Security number and a PIN issued by the Department of Education.
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