Direct Loans

By Julie Gross

Students that submit a FAFSA will be awarded Direct loans as part of their financial aid package.  You may see two Direct loans. One is a subsidized loan, meaning there is no interest as long as the student attends college at least half-time, until they graduate. The subsidized loan will be $3,500 the freshman year of college, $4,500 for the sophomore year, and $5,500 for the junior and senior years of college.  The other is an unsubsidized Direct loan of $2,000 with a current interest rate of 5.05% accruing from day one. The unsubsidized loan of $2,000 will be offered every year along with the subsidized loan and does not increase. Wealthier families may not qualify for the subsidized loan in which case, both Direct loans would be unsubsidized. Direct loans are the only student loans available in the student’s name without the requirement of a co-signer. If your student accepts all of the Direct loans offered over four years, they will graduate college with $27,000 in loans.

Once you have made the final decision of where your student will be attending college, you have the choice to either accept or decline your Direct loans.  You have the option to accept or decline both loans or you can choose to only accept the subsidized loan and decline the unsubsidized loan. The first step to accept Direct loans is through the college, usually through the college student portal.  The next step is for your student to log into www.studentloans.gov using their FSA ID to complete a process called Entrance Counseling and sign a Master Promissory Note (MPN).  The Entrance Counseling is a short tutorial that explains what the loan is and provides all of the necessary terms you and your student will need to be aware of.  We accept Direct loans in May or June. Your college will be notified when this process is complete and the funds will be directly distributed to your school, half for the fall semester and half for the spring semester.  Direct loans are distributed via your loan servicer.  Your loan servicer is who you will be paying back and also who you will be contacting regarding any changes in school attendance, change of address, etc. Your loan servicer will be listed when you log into studentloans.gov after you have completed the required steps to accept your loans.