Federal Direct Loan Program

Federal Direct Loan Program

What it is

The Federal Direct Loan Program (William D. Ford Federal Direct Loan Program) is the U.S. Department of Education’s primary federal student loan program. It provides low-interest loans to eligible undergraduate, graduate/professional students and to parents of dependent undergraduates.

How it works

• You must file the Free Application for Federal Student Aid (FAFSA) to be considered.
• Your school determines how much you can borrow within federal annual and aggregate limits and issues a financial aid offer.
• Loan funds are disbursed to the school for tuition, fees, room and board; any remaining funds are given to the student.
• Available loan types include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Loan types and typical limits

• Direct Subsidized Loans
• For eligible undergraduate students with demonstrated financial need.
• The government pays interest while the student is in school at least half-time and during certain deferment periods.
• Annual and aggregate limits apply (subsidized borrowing contributes toward undergraduate aggregate limits).
• Direct Unsubsidized Loans
• Available to undergraduate, graduate and professional students; not based on financial need.
• Interest accrues while in school; borrowers may pay interest or let it capitalize.
• Undergraduates: annual limits typically range from about $5,500 to $12,500 depending on year and dependency status; undergraduate aggregate limit around $57,500 (including subsidized amounts).
• Graduate/professional students: up to $20,500 per year; higher aggregate limits (total federal borrowing limits for graduate/professional study are larger and include prior undergraduate borrowing—commonly cited aggregate up to about $138,500 in combined federal debt for some borrowers).
• Direct PLUS Loans
• Available to parents of dependent undergraduates and to graduate/professional students.
• Not based on financial need; credit review applies (adverse credit history can bar eligibility unless additional steps are taken).
• Typically carry higher interest rates and fees than subsidized/unsubsidized loans.
• Direct Consolidation Loans
• Combine multiple federal student loans into a single loan and payment.
• Can provide access to additional repayment plans or simplify repayment.

Note: Your college or university ultimately sets the amount you are offered within these federal limits.

How to get a federal direct loan

1. Complete the FAFSA each year you need aid.
2. Review your school’s financial aid offer and accept the loan(s) you want through your school’s financial aid office.
3. Complete any required entrance counseling and promissory note (for first-time borrowers).
4. Loan funds are sent to the school; you are responsible for repaying all borrowed amounts.

Interest rates (example period)

• Direct Subsidized and Direct Unsubsidized loans for undergraduates: 6.53% (for loans disbursed in the 12‑month period the program specifies).
• Unsubsidized loans for graduate students: 8.08%.
• Direct PLUS loans (parents and graduate/professional students): 9.08%.

Rates are fixed for the life of each loan but can vary by disbursement period; check current federal disclosures for up-to-date rates.

Repayment, forgiveness, and other considerations

• Federal direct loans offer multiple repayment plans (standard, graduated, income-driven) and may be eligible for loan forgiveness programs depending on the plan and qualifying service (e.g., Public Service Loan Forgiveness).
• Subsidized loans provide the benefit of the government paying interest while you’re in school; unsubsidized loans do not.
• Federal loans generally have borrower protections not available with private loans, such as deferment, forbearance, and income-driven repayment options.
• Discharge in bankruptcy is possible only in limited circumstances and typically requires a separate legal action.

Pros and cons

Pros
– Generally lower, fixed interest rates than private loans.
– Borrowing does not usually require strong credit (except PLUS loans).
– Subsidized loans reduce borrower interest costs while enrolled.
– Multiple repayment and forgiveness options.

Cons
– Annual and aggregate borrowing limits can restrict how much you receive.
– PLUS loans have higher rates and fees and require a credit check.
– Graduate students are not eligible for subsidized loans.
– You must reapply each year via FAFSA.

Federal loans vs. private student loans

• Federal loans typically offer better borrower protections (deferment, income-driven repayment, forgiveness eligibility) and often lower effective cost.
• Private loans may offer larger loan amounts or different collateral/credit-based terms but generally have fewer protections and may cost more.
• Evaluate federal options first before considering private loans.

Key takeaways

• The Federal Direct Loan Program is the primary federal source of student loans and includes subsidized, unsubsidized, PLUS, and consolidation loans.
• File the FAFSA annually to determine eligibility and loan amounts.
• Subsidized loans and federal repayment programs provide important borrower protections and cost savings versus most private alternatives.
• Compare options carefully and borrow only what you need.