Your Practical Guide to Federal Direct Loans for College

 May 27, 2020
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Along with grants, student loans are an important form of federal student aid that can help you pay for college. But before borrowing, it’s important to understand the types of federal student loans available, and how you can use them to fund your education.

This guide will explore the types of federal loans, along with tips on how to get a loan, so you can pay for your degree while avoiding taking on too much debt.

What are federal direct loans?
Types of federal student loans
How to get a federal direct loan in college
Can you get a federal direct loan without filing a FAFSA?
How do federal direct loans compare to private loans?

What are federal direct loans?

Federal direct loans are government-funded student loans offered through the William D. Ford Federal Direct Loan Program, also known as the Direct Loan Program.

Through this program, Federal Student Aid offers funding to undergraduate students, parents of undergraduate students and students in graduate or professional programs. These loans help students cover costs while they are enrolled in college or graduate school.

Federal direct loans commonly mean subsidized and unsubsidized loans for undergraduates. These types of direct loans also might be referred to as Stafford Loans.

Types of federal student loans

The Direct Loan Program is the most common way for students in the U.S. to borrow for college. The total outstanding balance of all federal direct loans is $1.24 trillion, according to Student Loan Hero’s student loan debt statistics.

What’s more, two other federal student loan programs — Perkins loans and Federal Family Education Loan (FFEL) loans — are no longer available. That means all new federal student loans are made under the Direct Loan Program.

Here’s an overview of the five types of federal direct loans and their basic features:

Type of direct loan Who can use it Interest rate (2019-20) One-time loan fee Annual loan limit
Subsidized Undergraduate students with a demonstrated financial need 5.05% 1.062% Up to $5,500 per school year
Unsubsidized Undergraduate students 5.05% 1.062% Up to $7,500 per school year for dependent students and up to $12,500 per school year for independent students
Unsubsidized (for graduate students) Students working toward a graduate or professional degree 6.6% 1.062% Up to $20,500 per school year
PLUS Graduate students and parents of undergraduate students 7.08% 4.236% Cost of attendance after all student aid is applied
Consolidation Student loan borrowers in repayment Weighted average of interest rates on loans being consolidated rounded up to the nearest one-eighth of one percent

Direct subsidized loans provide borrowers with an interest subsidy that lowers the interest they repay. The loans are deferred while the student is enrolled in college, and interest charges don’t apply. Instead, the interest is paid by the Department of Education during deferment.

However, direct subsidized loans are the only form of need-based aid offered through the Direct Loan Program. Students must have a demonstrated financial need, which is calculated based on the information they provide in the Free Application for Federal Student Aid (FAFSA).

The Direct Loan Program also provides an option for borrowers who are in active repayment to modify their student loans. Direct consolidation loans combine different federal student loans into one and give borrowers a chance to simplify, and even lower, their monthly payments.

How to get a federal direct loan in college

Students who plan to take advantage of the Direct Loan Program will need to take some steps to be eligible for and receive a direct loan. Here are five things to take care of:

1. Meet federal aid eligibility requirements
2. Create your FSA ID
3. Complete and submit your FAFSA
4. Review your financial aid award
5. Claim your direct loans

1. Meet federal aid eligibility requirements

The laws and policies that set up the Direct Loan Program and other federal student aid require that students meet certain guidelines to participate. So, to find out if you’re eligible, ensure you meet federal student aid requirements.

2. Create your FSA ID

As a general rule, you’ll need to submit a FAFSA to access federal direct loans.

To file a FAFSA, you’ll need to create an account with the Federal Student Aid (FSA) Office. When you do, you’ll also create an FSA ID, which you’ll use to log in to your account and submit your FAFSA.

3. Complete and submit your FAFSA

Visit to start a new FAFSA, which takes about an hour or less to complete. If you’re a dependent student (most unmarried college students under age 24 are), your parents also will need to complete forms to submit with your FAFSA.

4. Review your financial aid award

After you submit your FAFSA, the college you’re enrolled in or accepted to will use the information to evaluate you for student aid. The college will send you a financial aid award letter that will outline all the student aid that can be extended to you, including direct loans.

You’ll then need to evaluate your college costs and figure out how much you’ll need to borrow to cover them. From there, you can choose which direct loans to use.

Typically, you’ll want to use direct loans for which you qualify in this order:

  • Subsidized direct loans, as they include an interest subsidy
  • Unsubsidized direct loans, which are available to both undergraduates and graduate students (note that unsubsidized loans for graduate students have a higher interest rate)
  • PLUS loans, as they carry the highest interest rates and fees

5. Claim your direct loans

Next, you’ll claim the direct loans you want to use and the amounts you intend to borrow through your college’s financial aid office. You’ll have to sign a promissory note, which is your agreement to repay and honor the terms of your direct loans.

From there, your student loans will be disbursed to your college, which will apply the funds to any outstanding charges, such as tuition or on-campus living costs. The remaining funds will then be disbursed to you. If you have a large amount left over, you might consider returning the loan money so you’ll owe less later down the road.

Can you get a federal direct loan without filing a FAFSA?

Submitting a FAFSA is the fastest and simplest way to get federal direct loans.

However, the parents of some dependent students might refuse to submit a FAFSA. Or you might encounter other obstacles to submitting a FAFSA and getting subsidized or unsubsidized loans. Without a parent’s FAFSA, however, these students can’t be evaluated for or awarded federal student aid.

There might be a workaround if you talk to your college’s financial aid office. These financial aid administrators might be able to authorize students to borrow unsubsidized direct loans without a complete FAFSA from a parent. Depending on your situation, they might also be able to connect you with other forms of aid.

How do federal direct loans compare to private loans?

Private student loans, which are offered by banks or other private lenders instead of the federal government, can be an alternative for some students or parents. Here’s a comparison of some key differences between federal direct loans and private student loans:

Direct Loans Private Student Loans
Qualifying for the loan Easy to get. You won’t need an income, good credit or a cosigner to qualify. PLUS loans are an exception and will require a non-adverse credit history. However, it’s easier to get PLUS loans than private student loans. Borrowers must qualify, so you’ll need a decent income and job history, as well as good credit. These requirements will be hard for many students to meet, and most who take out private student loans will have a cosigner.
Student loan rates Interest rates are fixed and determined by law. All borrowers receive the same rate regardless of their personal circumstances. Interest rates can be variable or fixed, and each borrower will pay a rate based on their creditworthiness. Well-qualified borrowers receive lower private student loan rates, which could be lower than direct loan rates.
Loan protections Federal student loans come with many ways to pause or adjust payments: deferment and forbearance, including automatic deferment while enrolled in college; income-driven repayment plans; student loan forgiveness, in some cases; subsidized direct loan interest paid during any period of deferment. Private student loans have fewer protections than federal student loans. Each private lender sets its own rules for forbearance and deferment, but private lenders rarely offer options as robust as those available for federal student loans.

Private student loans can be worth considering for some students and their parents. For example, those facing the high interest rates of PLUS loans might find a private student loan that offers savings with a lower rate.

As a general rule, though, federal direct loans are the better choice for most students. These student loans are accessible for most students in college, and they offer expansive protections during repayment.

Other students might hit their federal student loan limits and still have costs to cover; private student loans could help with this funding gap.

Carefully compare the types of federal student loans, along with their private loan counterparts, to make sure you understand how each choice could affect you both during college and when you enter repayment. If you’re pursuing any private loans, make sure to shop around for private student loans that suit your needs.

Rebecca Safier and Andrew Pentis contributed to this report.


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LenderVariable APREligibility 
2.49% – 13.85%1Undergraduate

Visit College Ave

2.55% – 11.44%2Undergraduate

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3.25% – 13.59%3Undergraduate

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0.00% – 23.00%4Undergraduate

Visit Edly

3.25% – 9.69%6Undergraduate



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* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
  2. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
  3. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.80% APR to 11.69% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

3 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
    • After which, $270 Monthly payment for 12 months.
    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.

5 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
  • Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
  • Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.


    Undergraduate Rate Disclosure: Variable interest rates range from 3.25%-10.35% (3.25% – 9.69% APR). Fixed interest rates range from 4.24% – 10.59% (4.24% – 9.93% APR). 

    Graduate Rate Disclosure: Variable interest rates range from 3.75%-9.90% (3.75% – 9.68% APR). Fixed interest rates range from  5.22% – 10.14% (5.22% – 9.91% APR). 

    Business/Law Rate Disclosure: Variable interest rates range from 3.75%-9.35% (3.75% – 9.16% APR). Fixed interest rates range from 5.20% – 9.59% (5.20% – 9.39% APR).

    Medical/Dental Rate Disclosure: Variable interest rates range from 3.75%-9.02% (3.75% -8.98% APR). Fixed interest rates range from 5.18% – 9.26% (5.18% – 9.22% APR). 

    Parent Loan Rate Disclosure: Variable interest rates range from 3.25%-9.21% (3.25% – 9.21% APR). Fixed interest rates range from 3.96%-9.50% (3.96%-9.50% APR).

    Bar Study Rate Disclosure: Variable interest rates range from 6.58%-11.72% (6.58% – 11.62% APR). Fixed interest rates range from 7.39% – 12.94% (7.40% – 12.82% APR). 

    Medical Residency Rate Disclosure: Variable interest rates range from 5.67%-9.17% (5.67% – 8.76% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.08% APR).

6 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.