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Federal Direct Student Loans Review 2023

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There are four types of federal direct student loans available:

  • Direct subsidized loans. Available to undergraduate students who demonstrate financial need.
  • Direct unsubsidized loans. Available to undergraduate, graduate and professional students. Eligibility is not based on financial need.
  • Direct PLUS loans. Available to graduate or professional students and parents of dependent undergraduate students to pay for costs that can’t be covered by other financial aid. Eligibility is not based on financial need, but a credit check is required and borrowers who don’t meet credit qualifications need to meet additional eligibility requirements.
  • Direct consolidation loans. Allow borrowers to combine all eligible federal student loans into a single loan with a single loan servicer.

How Do Federal Direct Student Loans Work?

To apply for any type of federal student loan, you must complete and submit a Free Application for Federal Student Aid form. If you’re a first-time borrower, you must complete entrance counseling before you can access your loan money – however, this does not apply to parents with PLUS loans.

Interest rates on federal student loans are set by federal law. For loans disbursed after July 1, 2022, and before July 1, 2023, federal rates are as follows:

  • The interest rate is 4.99% for undergraduates with direct subsidized and unsubsidized loans.
  • The interest rate is 6.54% for graduates or professionals with direct unsubsidized loans.
  • The interest rate is 7.54% for parents, graduate or professional students with PLUS loans.

For direct subsidized and unsubsidized loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2023, the origination fee is 1.057%. For direct PLUS loans, the origination fee is 4.228%.

Under the Standard Repayment Plan, borrowers have 10 years to pay off their loans. However, other payment plans with extended terms are available. Borrowers can change repayment plans at any time for free as long as they qualify.

What Discounts Are Available for Federal Direct Student Loans?

If you sign up for direct debit, the Department of Education offers a 0.25-point interest rate reduction.

In order to be eligible for a direct loan, you must meet a few requirements:

  • Be enrolled at least half time at a school that accepts direct loans.
  • Be enrolled in a program that leads to a degree or certificate.
  • In the case of subsidized loans, demonstrate financial need. 

Your school will review the information in your FAFSA and send a financial aid offer, which may include federal student loans. Your school decides what loan types you qualify for and how much you can borrow for the academic year.

There are limits on the amount of financing you can receive each year as well as on the total amounts you’re allowed to borrow for undergraduate and graduate study.

  • Undergraduate students may borrow a maximum of $5,500 to $12,500 per year in direct subsidized loans and direct unsubsidized loans, depending on a few factors.
  • Graduate or professional students may borrow up to $20,500 each year in direct unsubsidized loans. Graduate PLUS loans can also be used to pay for the rest of your college costs that aren’t covered by other financial aid.
  • Parents can receive Parent PLUS loans for the remainder of their child’s college costs that aren’t covered by other financial aid.

What Credit Score Do You Need?

There is no credit check required to borrow direct subsidized or unsubsidized loans. For PLUS loans, a credit check is required to determine eligibility, but there is no specific credit score requirement.

Where are Federal Direct Student Loans Available?

Federal loans are available to U.S. citizens in all 50 states, as well as certain U.S. territories. Some noncitizens who meet certain conditions may also qualify.

Are Federal Direct Student Loans Reputable?

Federal loans are not directly managed by the Department of Education, but instead assigned to a company that will service the loan on its behalf.

How Is Customer Service for Federal Direct Student Loans?

Though federal direct student loans are issued by the Department of Education, they are managed by third-party student loan servicers that handle billing, repayment program enrollment and any other tasks related to your federal student loans. The customer service for each servicer varies.

What Are Some Online Features of Federal Direct Student Loans?

The Department of Education offers a federal student aid website where borrowers can create an account and manage their student loans – including reviewing aid amounts, managing payments and updating personal information. The site also offers help with completing the FAFSA and a wealth of related information.

Borrowers who struggle to repay their federal student loans can request either a loan deferment or forbearance. Loan deferment allows borrowers to temporarily stop making payments, while forbearance allows borrowers to pause payments or reduce payments for up to 12 months.

Note that all federal student loans are in an automatic forbearance period, during which interest accrual is also paused, tentatively ending June 30, 2023.

There are many programs that offer targeted loan cancellation to federal student loan borrowers, including Closed School Discharge, Total and Permanent Disability Discharge, Borrower Defense to Repayment and more. Borrowers should reach out to their loan servicers to find out what discharge options might apply to their situation.

  • Undergraduate students with a limited credit history.
  • Students who want to borrow money for college without a co-signer.
  • Borrowers who want a fixed interest rate, flexible repayment options and federal loan protections.
  • Parents who plan to borrow money to help their children pay for college.

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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