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Federal Direct Loan Program: Meaning and Types

File Photo: Federal Direct Loan Program: Meaning and Types
File Photo: Federal Direct Loan Program: Meaning and Types File Photo: Federal Direct Loan Program: Meaning and Types

What Is the Federal Direct Loan Program

Undergraduate and graduate students and their parents can borrow low-interest Federal Direct Loans. The U.S. Department of Education manages the sole government-backed student loan program, the William D. Ford Federal Direct Loan Program.

How Does the Federal Direct Loan Program Work?

The Federal Direct Debt Program offers subsidized, unsubsidized, direct PLUS, and direct consolidation loans for student debt refinancing.

The only federal student loans based on financial need are subsidized direct loans. The U.S. Department of Education covers loan interest while the student is in school.

Loan Quantities

All Federal Direct Loan Program loans have yearly and aggregate limits. The annual borrowing limit increases each year. Students must complete the FAFSA to apply for assistance.

Dependency status and year of education determine undergraduate borrowing limits of $5,500 to $12,500. These amounts include direct, unsubsidized, and subsidized loans.

Direct unsubsidized loans for professionals and graduate students are $20,500, and direct PLUS loans for undergraduate parents are available.

Loan forgiveness

Private student debts are not eligible for President Joe Biden’s student loan forgiveness. The U.S. Supreme Court declared Biden’s student loan forgiveness scheme unlawful on June 30, 2023, but the government launched the SAVE payback program the same day.

Federal Direct Student Loan Types

Directly subsidized loans

Direct subsidized loans are for undergraduates who need financial aid due to their or their family’s financial situation.

These loans pay professional career, school, college, and university fees. Direct subsidized loans are available to qualified undergraduates up to $12,500 annually and $57,000 overall.

Unsubsidized direct loans

These government loans are for undergraduate, graduate, and professional students. They are not based on financial necessity. Undergraduates can borrow $12,500 per year and $57,000 total. Graduate and professional students can borrow $20,500 annually and $138,500 total.

Direct PLUS loans

Parents of undergraduate and graduate/professional students can use these loans to cover school expenditures not covered by other financial aid. Financial necessity does not determine eligibility.

These loans are available to low-credit borrowers who fulfill other requirements.

Direct Consolidation Loans

These loans let students and families consolidate all qualifying federal student loans into one loan with one service provider and payment. Direct consolidation loans provide extra debt payback plans.

How to Apply for a Direct Federal Loan

  • For any federal direct loan (subsidized or unsubsidized), you must complete the FAFSA to determine eligibility.
  • The form requires you to register with the U.S. Federal Student Aid Office to receive a site ID.
  • Your institution will give you a student financial assistance letter, including federal direct loans, once you submit your FAFSA.
  • Consider subsidized direct loans first since they offer lower interest rates. Direct, unsubsidized loans are available. Fees and higher interest rates make PLUS the most expensive federal direct loan.
  • After choosing federal direct loans, contact your school’s financial assistance office to proceed.
  • The school will receive tuition, lodging, RD, and other expenses. Do you have any leftover money? All funds must be returned.

Federal Direct Student Loan Pros and Cons

The federal direct student loan program has pros and cons.


  • Low-interest fixed rates distinguish government direct student loans from private loans.
  • Federal loans (excluding PLUS loans) don’t require good credit.
  • The government pays the interest on subsidized federal student loans while you study.
  • Federal repayment and debt forgiveness schemes offer many alternatives to repaying direct student loans.


  • Only unsubsidized loans are offered to graduates.
  • These students pay higher interest rates than undergraduates.
  • In some situations, bankruptcy can discharge federal student loans, but you must file a separate court action.
  • Undergraduates listed as dependents on their parent’s income taxes have reduced federal direct loan limitations.
  • Students must apply annually for direct loans.

Federal Direct vs. Private Loans

Some private lenders provide student loans that can replace or supplement government loans. Student loan applicants should consider all possibilities.

Note these differences:

Loan consolidation, forgiveness, and lower interest rates are standard under the government program.

Federal direct student loans are capped. Private loan businesses seldom restrict lending amounts.

Private loans may have higher interest rates but more use options. In general, personal student loans cost more than government ones.

While federal direct student loans are delayed until graduation, not all private loans are.

Private student loans may not be eligible for forgiveness and repayment programs, while direct loans can.

What Are the Federal Student Loan Interest Rates?

Undergraduate direct subsidized and unsubsidized loans disbursed after July 1, 2023, and before July 1, 2024, have a 5.50% interest rate. Unsubsidized graduate student loans cost 7.05%. Direct PLUS loans for parents and graduate students have the highest federal student loan interest rate, 8.05%.

Are student loans forgiven?

Student loans may be forgiven after a specific period, depending on your repayment arrangement.

How Often Are Federal Direct Loan Applications Made?

Every year, you require college financing, and you must file an FAFSA.

Bottom Line

Low and set interest rates are benefits of the Federal Direct Student Loan program, but there are drawbacks. Example: You can only borrow so much each year. Before choosing a student loan, consider all your financial choices.


  • Besides PLUS and consolidation loans, the Federal Direct Loan Program offers subsidized and unsubsidized direct loans.
  • Federally subsidized student loans have the lowest rates.
  • Parent PLUS loans frequently have the highest interest rates of all federal student loans.
  • Annual maximums for all loans are set, with each year enabling an increase.
  • Private loans usually have higher interest rates than federal direct loans.



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