Student Loans without a Middleman

Direct student loans are basically federal student loans that are distributed to the student’s college without an external lender being involved. The U.S. Department of Education is responsible for the maintenance of their Direct Loan Program, which offers both the Federal Stafford Loan and the Federal PLUS Loan. In order to understand direct student loans, we’ll need to discuss the specifics of the program and their unique application features.

How Students Benefit from Direct Student Loans

Getting a direct student loan is extremely beneficial. Short of a federal grant, which you never have to repay, a federal loan has the lowest interest rates of any loan, anywhere, low or no fees and some of the most flexible repayment plans around. In fact, there are four different repayment plans available so you are bound to find one that suits your needs.

There is the Standard plan that requires a payment of at least $50 each month for up to 10 years. The Extended plan also requires a minimum payment of $50 each month but you can repay for up to 30 years. The Graduated plan just requires that you pay more every two years on your loan. This is helpful if you have a sizable debt but do not make a lot of money right away. Finally, the Income Contingent plan is based on your income each year. Your monthly payments are calculated based on your adjusted gross income each year. Generally this repayment plan lasts between 12 and 25 years.

Regardless of what repayment plan you choose, however, you are sure to feel the benefits of direct student loans in every way. Your monthly payments will be lower, the interest rate will be lower and you won’t have to deal with any of those variable interest rates that cause so many people problems.

You can view more about the Direct Loan Program at http://www.ed.gov/offices/OSFAP/DirectLoan/index.html.

 

Applying for Program

In order to gain access to federal funds for your education, you will need to fill out the be all and end all of financial aid applications—the FAFSA. You need to have this form completed and submitted by the March 2 that occurs before you begin college. In a few weeks you’ll receive your Student Aid Report or SAR, which shows how much money you are expected to contribute to your education. Lastly, you’ll receive an award letter, which will detail how much and in what form you can or will receive federal financial aid.

If you decide to take out a federal loan, you will need to apply for this separately. This is called a master promissory note or MPN and will need to be submitted directly to your school of choice. Then, your funds will be sent to your school and your tuition balance will be updated.

Are you Eligibile for this Loan?

The requirements for direct student loans are the same as other federal student loans. In order to qualify for these loans you must:

  • Be a U.S. citizen, eligible non-citizen or resident.
  • Be enrolled in a college or university half-time or more.
  • Fall within in the qualifying income bracket determined by the government and your school.
  • Have never defaulted on a student loan before.

If you meet these requirements you should definitely pursue a direct student loan. And even if you feel as though you may not fit the requirements, fill out the FAFSA anyway. You never know what you might qualify for. And you certainly wouldn’t want to miss out on any funding for your college education, now would you?

So, What Makes Direct Student Loans “Direct”?

Direct student loans are “direct” because there are no outside lenders involved. The loans are never bought or sold. Rather, you will always make payments directly to the Department of Education throughout the life of your entire loan.

You will never have to deal with any other lender other than the government. It keeps things simple and easy to keep track of, that’s for sure.