Dr. Megan Hanna is a finance writer with more than 20 years of experience in finance, accounting, and banking. She spent 13 years in commercial banking in roles of increasing responsibility related to lending. She also teaches college classes about finance and accounting.
Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance
Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families.
The federal Direct Loan program, with outstanding commitments of more than $1.7 trillion, is the best option for those who want to take out flexible, low-interest student loans. The Direct Loan program offers federal student loans to undergraduate students, graduate students, and parents of college students.
This financial aid helps students cover the costs of attending college. Plus, the basic eligibility criteria make it easy for most people to qualify. In this guide, we’ll explore the types of Direct Loans, when a private student loan is right, and more.
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| Type of loan | Aggregate limits | Term lengths |
| Direct Subsidized Loans | $23,000 for undergrads & $65,500 for grad or professional students | 10 – 25 years |
| Direct Unsubsidized Loans | $57,500 for undergrads & $138,500 for grad or professional students | 10 – 25 years |
| Direct Parent PLUS Loans | 100% of the cost of attendance (as certified by the school) | 10 – 25 years |
| Direct Graduate PLUS Loans | 100% of the cost of attendance (as certified by the school) | 10 – 25 years |
| Direct Consolidation Loan | Current federal loan amount | 10 – 30 years |
The federal student loan program offers five types of Direct Loans. These loans are available for undergraduate students, graduate students, and parents. Let’s look at each of the five types of Direct Loans below.
Direct Subsidized Loans, a type of Stafford Loan, are available to undergraduates based on financial need. The main difference between Direct Subsidized and Direct Unsubsidized Loans is that the government pays interest on Subsidized Loans while the student is in school and during periods of deferment.
The school you attend will determine the amount you’re eligible for. The government will pay the interest on the loan while you’re enrolled in school and for six months after graduation.
Here is a brief overview of the terms and conditions for Direct Subsidized Loans:
Direct Unsubsidized Loans, another type of Stafford Loan, are available to all undergraduates, and eligibility isn’t based on financial need.
The total cost of attendance and other financial aid offers determine the amount of funding you can receive. You’re responsible for paying any interest that accrues over the life of the loan.
Here is a brief overview of the terms and conditions for Direct Unsubsidized Loans:
It’s not just students who can take out federal loans to pay for college. Parents can get a Direct PLUS Loan through the Department of Education to help fund their children’s schooling instead of relying solely on private student loans.
Here is a brief overview of the terms and conditions for Direct Parent PLUS Loans:
Graduate PLUS loans are a way for graduate students to pay for school. Students must undergo a credit check to be eligible for this type of federal student aid, so if you have a poor credit history, you may be required to find an endorser, which is similar to a cosigner.
Here is a brief overview of the terms and conditions for Direct Graduate PLUS Loans:
A Direct Consolidation Loan allows you to consolidate multiple federal loans into one loan. So, instead of making multiple payments every month, you’ll have one single monthly loan payment.
Here is a brief overview of the terms and conditions for Direct Consolidation Loans:
Here’s how federal student loans differ from private loans.
| Federal student loans | Private student loans |
| Provided by the federal government | Provided by banks, credit unions, and other lenders |
| Fixed interest rates | Fixed or variable interest rates |
| No credit check, except for PLUS loans | Credit check required |
| Income-driven repayment plans are available | No income-driven repayment plans |
| Loan forgiveness programs are available | Loan forgiveness isn’t an option |
| Lower interest rates | Potentially higher interest rates |
Some students will take out a combination of federal student loans and private student loans to help pay for college. While the federal government provides Direct Loans, private loans are provided by banks, credit unions, or other lenders.
Many borrowers prefer federal loans because they are more flexible, provide more repayment options, and have a lower interest rate. In most cases, a credit check isn’t required for federal student loans. In contrast, you can expect private lenders to check your credit.
Another benefit of federal loans is the ability to enroll in an income-driven repayment plan that limits the borrower’s monthly repayments to a percentage of their total income. Private lenders don’t offer this feature. However, there is a limit to how much students can borrow in federal loans.
If federal loans don’t cover the full cost of college, private loans can help cover the gap. You’ll apply for the loan online with a private lender. To get the best rate possible, shop around with multiple lenders and consider applying with a creditworthy cosigner to get a lower interest rate. See our list of the best private student loans if you need a place to start.
Repaying a federal Direct Loan begins after you leave school and a grace period ends. This is typically six months after you graduate or stop attending college at least half-time. The goal of a grace period is to give students time to find steady employment they have to begin making payments.
You can also choose from several repayment plans:
With federal student loans, you can make extra payments without penalty, allowing you to repay the loan faster and reducing the overall interest costs.
Unlike private student loans, there’s an opportunity for your loan balance to be forgiven. For instance, if you work in public service, you may qualify for loan forgiveness after making 10 years of regular payments.
Remember, each repayment plan has its own terms, so compare which is best for you.
To apply for a Direct Loan, you’ll start by completing the FAFSA. Once this is done, your school will let you know how much financial aid you can get. After you accept the offer, you’ll receive counseling to ensure you understand the loan and sign a master promissory note outlining the terms.
The steps you’ll need to complete to apply for a Direct Loan are:
As you prepare for college, do your best to apply for a federal Direct Loan as soon as possible. Applying early ensures you have your financial aid ready before the semester starts.
The four types of federal student loans offered by the government are all Direct Loans. These include Direct Subsidized Loans, Unsubsidized Loans, PLUS Loans, and Consolidation Loans. Older programs, such as the HEAL and Federal Perkins Loan programs, were discontinued many years ago.
However, in addition to student loans, you might be eligible for other types of federal financial aid, such as grants and work-study programs:
Although Direct Loans can make up a large part of a student’s financial aid package, they’re not the only funding option. Grants and work-study programs can also be an effective way to cover the costs of college without needing to take on additional debt.
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