Direct Student Loans

The U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Student Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as Stafford Loans (for students) and PLUS Loans (for parents).

Schools generally participate in either the FFEL or Direct Student Loan program but sometimes participate in both. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.

For either type of loan, you must fill out a FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your loan eligibility. You also will have to sign a promissory note, a binding legal document that lists the conditions under which you are borrowing and the terms under which you agree to repay your loan.

You will need to choose a lender if you obtain a FFEL Stafford Loan. Schools that participate in the FFEL Program will usually have a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer (for example, a credit union). Here are a few things to think about when selecting a FFEL lender.

The amount in which you can borrow depends on your year in school and whether you have a subsidized or unsubsidized Direct Student Loan or FFEL Stafford Loan. A subsidized loan is awarded based on financial need. If you are eligible for a subsidized loan, the government will pay (subsidize) the interest on your loan while you are in school, for the first six months after you leave school, and if you qualify to have your payments deferred. Depending on your financial need, you may borrow subsidized money for an amount up to the annual loan-borrowing limit for your level of study.

You might be able to borrow loan funds beyond your subsidized loan amount even if you have not demonstrated financial need. In that case, you would receive an unsubsidized loan. Your school will subtract the total amount of your other financial aid from your cost of attendance to determine whether you are eligible for an unsubsidized loan. Unlike a subsidized loan, you are responsible for the interest from the time the unsubsidized loan is disbursed until it is paid in full. You can choose to pay the interest or allow it to accrue and be capitalized. Capitalizing the interest will increase the amount you have to repay.

You can receive a subsidized loan and an unsubsidized loan for the same enrollment period as long as you do not exceed the annual loan limits.

If you are a dependent undergraduate student, each year you can borrow up to $3,500 if you are a first-year student enrolled in a program of study that is at least a full academic year. Alternatively, $4,500 if you have completed your first year of study and the remainder of your program is at least a full academic year. Alternatively, $5,500 if you have completed two years of study and the remainder of your program is at least a full academic year.

If you are an independent undergraduate student or a dependent student whose parents have applied for but were unable to get a PLUS Loan, each year you can borrow up to $7,500 if you are a first-year student enrolled in a program of study that is at least a full academic year. No more than $3,500 of this amount may be in subsidized loans. Alternatively, $8,500 if you have completed your first year of study and the remainder of your program is at least a full academic year. No more than $4,500 of this amount may be in subsidized loans. Alternatively, $10,500 if you have completed two years of study and the remainder of your program is at least a full academic year. No more than $5,500 of this amount may be in subsidized loans.

If you are a graduate or professional degree student, each year you can borrow up to $20,500 for the 2007-08 academic year. No more than $8,500 of this amount may be in subsidized loans.

When you graduate with a graduate or professional degree, the maximum total debt allowed from Stafford Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans. This maximum total graduate debt limit includes Stafford Loans received for undergraduate study.

These amounts are the maximum yearly amounts you can borrow in both subsidized and unsubsidized FFELs or Direct Loans, individually or in combination. Because you cannot borrow more than your cost of attendance minus the amount of any Federal Pell Grant you are eligible for and minus any other financial aid you will get, you may receive less than the annual maximum amounts.