Student Loans: Federal Direct Loan Program

The William D. Ford Federal Direct Loan program is a federal student loan program that allows students to borrow money for college from the U.S. Department of Education rather than from a private bank or commercial lender. If you’re eligible for a federal direct loan:

  • Your school will administer your loan
  • Your loan money will come from the U.S. Treasury via the Department of Education
  • You’ll handle your loan repayment through one point of contact, the Direct Loan Servicing Center

Supporters of the direct loan program firmly believe that it offers students a more reliable, less complicated, and less expensive loan option. Reliability and the availability of loans became an issue in 2008 when the credit crisis caused many private banks and financial institutions to stop offering student loans. And the subsidies that would otherwise go to financial institutions in the bank-based Federal Family Education Loan Program (FFELP) could be used instead to pay for more and larger Pell Grants. The Direct Loan program also helps to cut down on corruption in the student loan industry, proponents say.

FFELP supporters are not convinced that the subsidy savings outweighs the customer service that private banks and commercial lenders provide. Still, the U.S. Treasury had money for student loans when many private banks didn’t, and that’s a tough point for supporters of the bank-based FFELP to get around.

Not all schools participate in the Direct Loan program. In general, all qualifying schools that participate in the federal financial aid program sign up for either the Direct Loan program or the FFELP, and until recently, a large majority chose the FFELP.

But between the 2006-2007 student loan scandal, the 2008 credit collapse, and the proposal by the Obama administration to shut down the FFEL program and finance all federal student loans through the Direct Loan program, dozens of schools have been switching over in the last year. Ask your school which program it belongs to (and maybe recommend the Direct Loan Program, if they’re not already on the ball on that).

Direct Loan Program Advantages

  • Reliable source of funding
  • No middleman
  • Lower interest rates and fees
  • Choice of repayment plans
  • Website,, where you check on your loan account 24 hours a day, 7 days a week

You must be in school at least half-time to get a federal Direct Loan.

Federal Direct Loan Amounts

The loan amount you can apply for depends on several factors, including:

  • whether you’re an undergrad or graduate student
  • what year of school you’re in
  • whether you are still claimed as a dependent on your parents’ taxes
  • whether your parents tried to get a Parent PLUS loan

Based on these factors and financial need, the amount of your Direct Loan can range from $5,500 (undergraduate freshman) to $20,500 (graduate or professional student per year), in a combination of subsidized and subsidized loans.

Federal Direct Loan Interest Rates

Interest rates for new Direct Loans (first paid out between July 1, 2009 and June 30, 2010):

  • Subsidized Stafford Loans for Undergraduates: fixed at 5.6%
  • Subsidized Stafford Loans for Graduate students: fixed at 6.8%
  • Unsubsidized Stafford Loans for ALL students: fixed at 6.8%
  • PLUS loans for Grads and parents: 7.9%

How to Apply for a Federal Direct Loan

  1. File a FAFSA, the Free Application for Federal Student Aid
  2. Complete a Master Promissory Note

Don’t assume you won’t qualify for a direct loan program student loan. It turns out that nearly half the number of college students who would have qualified for federal student loans didn’t even apply, losing out on thousands of dollars in financial aid.

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