Federal Direct Loans

Federal direct loans are educational loans offered by the American Federal government to all US students in the country. The procedure to obtain the loan begins by filling the Free Application for Federal Student Aid. The loan process ends after completion of degree and complete repayment of principal amount owed along with interest.

Features of Federal Direct Loans

  • Federal direct loans are offered directly by the Federal government. The PLUS option is offered by private banks with the government acting as the intermediary. Merely meeting the eligibility grounds laid down by the government and proving financial need is enough to qualify for the Federal direct loans. The PLUS option requires a credit check and is treated as formal loan.
  • Interest payment becomes due from the moment money is disbursed. Money offered under the Federal direct loans is directed towards the school authorities. Any excess money after deducting fees and other charges is handed over to the student. The student has the option of canceling the excess amount to reduce the amount owed.
  • Payment of interest on Federal direct loans can be deferred until completion of degree. An individual gets an additional six months grace period after ceasing to study in school for half a day at a stretch. The idea is to provide funds for student to gain skills and another six months to help the student get a job, before imposing obligation of making regular payments.
  • The deferred interest payment on the Federal direct loans will be capitalized or added to the overall debt amount. The interest payment will be higher when it starts. However, student will gain flexibility and higher payment is merely the price for the same.
  • Different types of Federal direct loans are available. Students can also opt for federal and state grants. Grants need not be repaid while loans must be repaid with interest.

Important Points to Note

  • Federal direct loans are never sold. It is a governments sponsored venture and there is no scope for private intervention. Any online or offline agency offering to speed up the process for a fee is best avoided.
  • Students can go in for more than one Federal direct loan. The student can continue borrowing until the cost of education is met. One should assess repayment costs and borrow money accordingly. Multiple borrowings are convenient in reducing the burden on completing education.