Student Aid Reference Desk | Direct Loans

Direct Loans

The Direct Loan Program makes long-term loans available to students at all levels of study, and to parents on behalf of dependent students. The federal government subsidizes interest during defined periods for undergraduate students who show need under the federal need analysis methodology, but only for a limited amount of time based on the length of the student’s program. Various repayment plans are available, as well as deferments, cancellations, and discharges.

Related terms: Loan Counseling; Cohort default rate

Statutory Authority

U.S. Code, Title 20—Education Chapter 28—Higher Education Resources and Student Assistance Subchapter IV—Student Assistance > Part D—William D. Ford Federal Direct Loan Program §§ 1087a – 1087j [HEA §§ 451 - 460]

Regulation

34 CFR Part 685

ED References

2020-21 FSA Handbook, Vol. 1

2020-21 FSA Handbook, Vol. 3

2020-21 FSA Handbook, Vol. 2

2020-21 FSA Handbook, Vol. 4

Publications, Articles & Other Resources

A Case Study of Undergraduate Debt, Repayment Plans, and Postbaccalaureate Decision-Making Among Black Students at HBCUs (Journal of Student Financial Aid)

A Primer on Higher Education, Student Aid, and the Federal Budget Process (Journal of Student Financial Aid)

Borrowers Discuss the Challenges of Student Loan Repayment (The Pew Charitable Trusts)

Changes in HBCU Financial Aid and Student Enrollment After the Tightening of PLUS Credit Standards (Journal of Student Financial Aid)

College Student Debt and Anticipated Repayment Difficulty (Journal of Student Financial Aid)

Comparison of Sub and Unsub for Undergrads, 2020-21 (National Association of Student Financial Aid Administrators)

Debt Profiles of Model Students: The Projected Debt of Highly Productive Students and Its Economic Impact (Journal of Student Financial Aid)

PLUS Borrowing in Texas: Repayment Expectations, Experience, and Hindsight by Minority-Serving Institution Status (Trellis Company)

Direct Loans AskRegs Knowledgebase Q&As (National Association of Student Financial Aid Administrators)

Direct Loans Self-Study Guide (National Association of Student Financial Aid Administrators)

Do Promise Programs Reduce Student Loans? Evidence from Tennessee Promise (The Journal of Higher Education)

Education Tax Credits: A Different Trajectory for Federal Funding of Higher Education and Remediation for Effectual Policymaking (Journal of Student Financial Aid)

Exploring IDR: A Comparison of Financial Situations and Behaviors Between Those in Traditional Student Loan Repayment and Those in Income-Driven Repayment (Journal of Student Financial Aid)

Graduate and Professional Reference Sheet, 2020-21 (National Association of Student Financial Aid Administrators)

Parent Borrowing and College Completion (Journal of Student Financial Aid)

Policymakers Should Consider Impact of Growing Student Loan Balances on Borrowers and Taxpayers (The Pew Charitable Trusts)

Social Dimensions of Student Debt: A Data Mining Analysis (Journal of Student Financial Aid)

Student Aid Reference Sheet, 2020-21 (National Association of Student Financial Aid Administrators)

Student Loans, Financial Stress, and College Student Retention (Journal of Student Financial Aid)

Student Loan System Presents Repayment Challenges (The Pew Charitable Trusts)

The Influence of Stafford Loan Debt Load on Persistence Among Historically Underserved Populations at a Hispanic Serving Institution (Journal of Student Financial Aid)

Understanding Loan Use and Debt Burden Among Low-income and Minority Students at a Large Urban Community College (Journal of Student Financial Aid)

Subtopics

Acceleration

See De faulted loans

Adverse credit

See Borrower eligibility

Aggregate loan limits

Graduate/Professional

Direct Subsidized Loans

Limits

Loss of subsidized eligibility on/after 7/1/12

Prior to 7/1/12

Direct Unsubsidized Loans

PLUS

NSLDS information

General

2020-21 FSA Handbook, Vol. 3, Ch. 5

Calculating unsubsidized aggregate loan amounts

2020-21 FSA Handbook, Vol. 3, Ch. 5

PLUS

Summary chart

2020-21 FSA Handbook, Vol. 3, Ch. 5

Student Aid Reference Sheet, 2020-21 (National Association of Student Financial Administrators)

Treatment of consolidation loans

2020-21 FSA Handbook, Vol. 3, Ch. 5

Treatment of converted TEACH Grants

Undergraduate

Direct Subsidized Loans

Direct Unsubsidized Loans

Dependent student whose parent cannot borrow PLUS

2020-21 FSA Handbook, Vol. 3, Ch. 5

Dependent undergraduate student

Independent undergraduate student

Annual loan limits

Grade level progression

General information

2020-21 FSA Handbook, Vol. 3, Ch. 5

Grade level changes during academic year

2020-21 FSA Handbook, Vol. 3, Ch. 5

New annual amount for same grade level

2020-21 FSA Handbook, Vol. 3, Ch. 5

Remedial work

2020-21 FSA Handbook, Vol. 3, Ch. 5

Transfer student’s grade level classification

2020-21 FSA Handbook, Vol. 3, Ch. 5

Graduate/Professional students

Direct Subsidized Loans

Limits

Loss of subsidized eligibility on/after 7/1/12

Prior to 7/1/12

Direct Unsubsidized Loans

685.203(b)(2)(iii)

685.203(c)(1)(i)

685.203(c)(2)(v)

PLUS

Health professions students

2020-21 FSA Handbook, Vol. 3, Ch. 5

Loan limit period (period to which loan limit applies)

Loan limit progression [Scheduled Academic Year (SAY) and Borrower Based Academic Year (BBAY)]

2020-21 FSA Handbook, Vol. 3, Ch. 5

Maximum loan amount (need limitation)

PLUS

Preparatory coursework

Direct Subsidized Loans

Direct Unsubsidized Loans

685.203(c)(2)(vi)

Students returning for same or lower credential

2020-21 FSA Handbook, Vol. 3, Ch. 5

Summary chart

2020-21 FSA Handbook, Vol. 3, Ch. 5

Student Aid Reference Sheet, 2020-21 (National Association of Student Financial Administrators)

Teacher certification (postbaccalaureate)

Direct Subsidized Loans

Direct Unsubsidized Loans

685.203(c)(2)(vii)

Transfer student

2020-21 FSA Handbook, Vol. 3, Ch. 5

Treatment of converted TEACH Grants

Undergraduate students

First year

Direct Subsidized Loans

685.203(a)(9)(i)

Direct Unsubsidized Loans

Dependent student

Dependent student whose parent cannot borrow PLUS

685.203(c)(2)(i)

685.203(c)(2)(viii)

685.203(c)(2)(ix)(A)

Independent undergraduate student

685.203(c)(2)(i)

685.203(c)(2)(viii)

685.203(c)(2)(ix)(A)

Second year

Direct Subsidized Loans

685.203(a)(9)(ii)

Direct Unsubsidized Loans

Dependent student

Dependent student whose parent cannot borrow PLUS

685.203(c)(2)(ii)

685.203(c)(2)(ix)(B)

Independent undergraduate student

685.203(c)(1)(i)

685.203(c)(2)(ii)

685.203(c)(2)(ix)(B)

Third year through end of undergraduate program (including upper division programs, i.e., programs requiring an associate or baccalaureate for admission)

Direct Subsidized Loans

Direct Unsubsidized Loans

Dependent student

Dependent student whose parent cannot borrow PLUS

685.203(c)(2)(iii)

685.203(c)(2)(iv)

Independent undergraduate student

685.203(c)(1)(i)

685.203(c)(2)(iii)

685.203(c)(2)(iv)

Application of payments

Application of prepayments

Application of refunds and returns of Title IV funds from schools

Order of application for scheduled payments

Order of application under income-based repayment

Order of application under PAYE repayment

Order of application under REPAYE repayment

Prepayment without penalty

Attendance at multiple schools during same period

2020-21 FSA Handbook, Vol. 3, Ch. 5

Authority to pay refund or return of funds to ED on behalf of borrower

Borrower defenses against collection of a loan and school liability

Federal Register, 12/11/20, p. 79862

Electronic Announcement, 3/15/19

Borrower eligibility

Parent borrower of PLUS loans

Adverse credit history

General rules

685.200(c)(1)(vii)

Federal Register, 1/14/15, pp. 1848 to 1849

Federal Register, 10/23/14, pp. 63319 to 33321

Electronic Announcement, 1/27/15

2020-21 FSA Handbook, Vol. 1, Ch. 6

Definition of endorser

Borrowing on behalf of an eligible dependent undergraduate student

Citizenship/residency

685.200(c)(1)(iii)

Default on Title IV loans

Student Loan Default Has Serious Financial Consequences (The Pew Charitable Trusts)

General rules

685.200(c)(2)(iv)

Definition of satisfactory repayment arrangement

Disability cancellation of previous loan

685.200(a)(1)(iv)

685.200(c)(1)(vi)

Fraudulently obtained Title IV funds

685.200(c)(2)(vii)

Overpayment of Title IV funds

685.200(c)(2)(iv)

Parent (definition and qualification to borrow)

2020-21 FSA Handbook, Vol. 1, Ch. 6

Social Security number

685.200(c)(2)(ii)

Statement of Educational Purpose

685.200(c)(2)(v)

Student borrower

See top list entry for Student Eligibility

Code of conduct

2020-21 FSA Handbook, Vol. 2, Ch. 3

Collection charges

Consolidation

General rules

Interest rate

Federal Register, 8/10/20, pp. 48229 to 48231

Loans eligible for consolidation

Defaulted loans

Acceleration

Collection actions

Eligibility for deferment

Failure to repay in response to immediate demand letter

Satisfactory repayment arrangements

Deferment

See also In-school status of student

Additional deferments for borrowers with loans made prior to 7/1/93

Borrower’s responsibility to request and document deferment

Cancer Treatment

Electronic Announcement, 8/22/19

Economic hardship

Graduate fellowship

General rules

Medical internship or residency

685.204(d)(2)(i)(C)

In-school deferment

General rules

Medical internship or residency

685.204(b)(1)(ii)

Methods for identifying or conveying deferment status

Military service

See also Post active duty deferment

General rules

Borrower’s representative

685.204(a)(4)(ii)

National Guard

685.204(h)(5)(ii)

Payment of interest during deferment of Direct Unsubsidized or PLUS loans

Post active duty deferment

Rehabilitation training

Unemployment

Denial or reduction of Direct Loans

See top list entry for Professional Judgment

Dependent student whose parents cannot borrow PLUS: qualifying circumstances

See also Annual loan limits

685.203(c)(1)(ii), (iii)

2020-21 FSA Handbook, Vol. 3, Ch. 5

Determination of Direct Unsubsidized Loan eligibility for Grad PLUS applicants and notification of eligibility

Disbursement

See top list entries for Cash Management and Disbursement

Discharge, cancellation, forgiveness

Bankruptcy

Closed schools

Electronic Announcement, 12/13/18

Death

2020-21 FSA Handbook, Appendix C

Disposition of payments received after discharge approval

False certification and unauthorized disbursement

Public Service Loan Forgiveness

Electronic Announcement, 10/28/20

September 11 survivors discharge

Teacher loan forgiveness

Total and permanent disability (TPD)

Electronic Announcement, 4/17/18

2020-21 FSA Handbook, Vol. 1, Ch. 3

FSA TPD Resource Center webpage

Physician certification

TPD Discharge form

Unpaid refunds

Enrollment reporting

2020-21 FSA Handbook, Vol. 2, Ch. 3

NSLDS Enrollment Reporting Guide (November 2020)

Entrance counseling

See top list entry for Loan Counseling

Exit counseling

See top list entry for Loan Counseling

FAFSA requirement

Grad PLUS

Parent PLUS

Subsidized and unsubsidized Direct Loans

Failure to begin attendance

Federal Register, 12/11/20, p. 79862

2020-21 FSA Handbook, Vol. 4, Ch. 3

Forbearance

General conditions and process

Administrative

Length of forbearance period

Grace period

Active duty military exclusion

685.207(b)(2)(ii)

685.207(c)(2)(ii)

Correspondence programs

Definition

Grad PLUS

Parent PLUS

685.204(c)(2)(ii)

Subsidized loan

Ineligible borrower (due to borrower or student action)

General rules

Immediate demand letter

In-school status of student

Parent PLUS

685.204(c)(2)(i)

Subsidized loan

Unsubsidized loan

Interest capitalization

Interest rate

As calculated

2021-22

Electronic Announcement, 5/19/21, Interest Rates for Direct Loans First Disbursed Between July 1, 2021 and June 30, 2022 (LOANS-21-06)

2020-21

Electronic Announcement, 5/15/20

Interest Rates for Direct Loans First Disbursed Between July 1, 2020 and June 30, 2021

Fixed interest rate

On or after 7/1/2013 (Direct Consolidation Loans)

Federal Register, 8/10/20, pp. 48229 to 48231

On or after 7/1/1999 and before 7/1/2013 (Direct Consolidation Loans)

Federal Register, 8/10/20, pp. 48229 to 48231

On or after 7/1/2020 and before 7/1/2021 (Direct Loans)

Federal Register, 8/10/20, pp. 48229 to 48231

On or after 7/1/2013 and before 7/1/2020 (Direct Loans)

Federal Register, 8/10/20, pp. 48229 to 48231

On or after 7/1/2006 and before 7/1/2013 (Direct Loans)

Federal Register, 8/10/20, pp. 48229 to 48231

Formulas used to calculate

7/1/2013 and later, Undergraduate Direct Subsidized and Unsubsidized Loans

Electronic Announcement, 8/9/13, Attachment

7/1/2013 and later, Grad/professional Direct Unsubsidized Loans

Electronic Announcement, 8/9/13, Attachment

7/1/2006 – 6/30/2013, Undergraduate Direct Subsidized Loans

7/1/2006 – 6/30/2013, Direct Unsubsidized Loans

7/1/2006 – 6/30/2012, Grad/professional Direct Subsidized Loans

7/1/1998 – 6/30/2006, Direct Subsidized and Direct Unsubsidized Loans

Consolidation loans

Electronic Announcement, 8/9/13, Attachment

PLUS Loans

Servicemembers Civil Relief Act (SCRA)

Electronic Announcement, 1/10/20

U.S. Department of Justice website

Variable Interest Rate Calculations

7/1/20 to 6/30/21

Electronic Announcement, 6/12/20

Prior to 7/1/10

Federal Register, 8/10/20, pp. 48229 to 48231

Late charge

Loan fees

Electronic Announcement, 5/17/21 (GEN-21-31)

Electronic Announcement, 6/23/20

Loan period

COD Reporting

Electronic Announcement, 5/13/16

Electronic Announcement, 4/20/15

Electronic Announcement, 11/21/14

Maximum loan period

685.301(a)(10)(iv)

2020-21 FSA Handbook, Vol. 3, Ch. 5

Minimum loan period

685.301(a)(10)(i)

2020-21 FSA Handbook, Vol. 3, Ch. 5

New program

685.301(a)(10)(iii)

Transfer student

685.301(a)(10)(ii)

2020-21 FSA Handbook, Vol. 3, Ch. 3

Minimum Direct Subsidized Loan amount

National emergency

Electronic Announcement, 4/3/20

Obligation to repay interest not subsidized

Federal Register, 12/11/20, p. 79862

Origination rules, general

See Professional Judgment

COD origination fee guidance

Electronic Announcement, 6/29/20

Refusal to originate

685.301(a)(8)(i),(ii)

2020-21 FSA Handbook, Vol. 3, Ch. 5

Program participation choices for school

Program year closeout

See Cash Management

Promissory note

Annual Student Loan Acknowledgement

Electronic Announcement 3/8/21 (DL-21-02)

Electronic Announcement, 4/21/20

Electronic Announcement, 3/27/20

Electronic Announcement, 11/21/19

Completion prior to disbursement

Handling

Master Promissory Note (Revised)

Electronic Announcement, 4/24/20

Proration of loans for remaining periods and programs of less than an academic year in length

Prorated limits

See also Annual Loan Limits for Undergraduate students

2020-21 FSA Handbook, Vol. 3, Ch. 5

Recalculation for change in credits

685.301(a)(5)(ii)

Reconciliation

Electronic Announcement, 12/17/19

Electronic Announcement, 12/18/20

Electronic Announcement, 11/18/20

Electronic Announcement, 11/19/19

Electronic Announcement, 12/21/17

Electronic Announcement, 12/17/15

Rehabilitation of defaulted loans

Repayment incentive

Repayment period, beginning of

See also Repayment plans

Americans Support Federal Action To Make Student Loan Repayment Easier (The Pew Charitable Trusts)

Consolidation loan

Exclusion of deferments and forbearances from repayment period

First payment due date

PLUS loan

Subsidized loan

Unsubsidized loan

Repayment plans

Alternative repayment plan

Applicability of selected plan to all Direct Loans of borrower

Changing repayment plans

Choice of plan

Defaulted loans

685.211(d)(3)(ii)

Extended repayment plan

Graduated repayment plan

Income-based repayment plan

General rules

Eligibility documentation, verification, and notifications

Federal Register, 12/11/20, pp. 79856 to 79863

Federal Register, 9/29/17, pp. 45465 to 45471

Interest forgiveness

Loan forgiveness after designated years of repayment

Monthly payment limit

Partial financial hardship

Income-contingent repayment plan

General rules

Eligibility documentation

685.209(b)(3)(i)

685.209(b)(3)(vi)

Federal Register, 12/11/20, pp. 79856 to 79863

Federal Register, 9/29/17, pp. 45465 to 45471

Interest capitalization limitation

685.209(b)(3)(iv)

Federal Register, 12/11/20, pp. 79856 to 79863

Loan forgiveness after designated years of repayment

685.209(b)(3)(iii)(D)

Monthly repayment

Repayment amount calculation

Repayment period

685.209(b)(3)(iii)

Minimum payment of accrued interest

685.208(a)(2)(v)

Pay as you earn (PAYE) repayment plan

General rules

Eligibility documentation, verification, and notifications

Federal Register, 9/29/17, pp. 45465 to 45471

Interest forgiveness

685.209(a)(2)(iii)

Loan forgiveness after designated years of repayment

Monthly payment limit

685.209(a)(2)(i)

Partial financial hardship

685.209(a)(1)(v)

Repayment period

685.209(a)(2)(vi)

Plans available to Direct Subsidized or Unsubsidized Loan borrowers who enter repayment before 7/1/2006

685.208(a)(1)(i)

Plans available to Direct PLUS borrowers who enter repayment before 7/1/2006

685.208(a)(1)(ii)

Plans available to Direct Subsidized, Unsubsidized, or Grad PLUS borrowers who enter repayment on or after 7/1/2006

685.208(a)(2)(i)

Plans available to parent PLUS borrowers who enter repayment on or after 7/1/2006

685.208(a)(2)(ii)

Plans available to Direct Consolidation Loan borrowers who enter repayment on or after 7/1/2006

685.208(a)(2)(iii), (iv)

Revised Pay As You Earn (REPAYE) repayment plan

General rules

Eligibility documentation, verification, and notifications

Federal Register, 9/29/17, pp. 45465 to 45471

Electronic Announcement, 12/17/15

Interest forgiveness

685.209(c)(2)(iii)

Loan forgiveness after designated years of repayment

Monthly payment limit

Repayment period

685.209(c)(2)(ii)

Spousal information for income-based, income-contingent, and pay as you earn plans

Standard repayment plan

685.208(b), (c)

Replacement of EFC with loan proceeds

Replacement of subsidized loan with unsubsidized loan

2020-21 FSA Handbook, Vol. 4, Ch. 3

Subsidy

Counseling information

685.304(a)(6)(xiii)(C)

685.304(b)(4)(xii)(C)(2)

Limitation on eligibility for subsidy (150% limit)

Federal Register, 1/17/14, Preamble to the Final Rule

150% Direct Subsidized Loan Limit: Electronic Announcement #25 – Guidance and Operational Information for the Repeal of 150% Subsidized Usage Limit (DL-21-04)

150% Direct Subsidized Loan Limit: Electronic Announcement, #20

150% Direct Subsidized Loan Limit: Electronic Announcement #11

150% Direct Subsidized Loan Limit - Frequently Asked Questions

2020-21 FSA Handbook, Vol. 3, Ch. 5

Periods subsidized

685.102(b), Federal Direct Consolidation Loan Program (2)

685.102(b), Federal Direct Stafford/Ford Loan Program

Reporting

Electronic Announcement, 4/20/17

150% Direct Subsidized Loan Limit: Electronic Announcement #22

150% Direct Subsidized Loan Limit: Electronic Announcement, #19

Unenforceable loans due to school action

Withdrawal date