Types of loans:
Federal Direct Loans are low interest loans to students and parents to help pay for the cost of a student’s education after high school. The lender is the U.S. Department of Education. There are no banks or lending institutions. There are two types of Direct Loans: Subsidized loans and unsubsidized loans.
- Subsidized loans are awarded on the basis of financial need. You won't be charged any interest until you graduate or drop below six units because the federal government subsidizes the interest during the time you are enrolled. Effective July 2012, the government will no longer subsidize the interest during the six month grace period.
- Unsubsidized loans charge interest from the time the money is first disbursed until it is paid in full. The interest is capitalized when you enter repayment, meaning that you pay interest on any interest that has already accrued. One way to minimize how much interest accrues is to pay the interest as it accumulates. If you still have several years until you receive your degree, this can become very expensive – NOT RECOMMENDED.
Attention First Time Loan Borrowers
A first time borrower is someone who has no outstanding balance of principal or interest on a Direct Loan or FFELP Loan on July 1, 2013 or on the date the borrower obtains a Direct Loan after July 1, 2013.
Effective July 1, 2013, subsidized Stafford loans will be limited to 150% of a student’s program. This means that if a student is pursuing a two-year program at a community college, students will be limited to three (3) years of subsidized Stafford loan.