The costs of tuition fees continue to rise much faster than inflation. Students and their families are increasingly forced to focus on student loans to finance education.

Benefits of Federal Direct Loans

Benefits of Federal Direct Loans


Federal Direct Loans have proved to be the most popular choice for American students for many reasons. A list of the most important benefits they offer includes:

  • Tax-deductible interest – As with any other type of student loan , borrowers with adjusted adjusted gross income below the threshold imposed by the IRS can take an above-the-line deduction for up to $ 2, 500 of the interest paid on these loans per year. This means that the taxpayer does not have to specify to take this deduction.

  • Flexible repayment terms – Unlike other types of loans, such as Perkins loans, Federal Direct Loans offer a choice of four different repayment plans. The right choice depends on the current and expected future income of the borrower and the amount of the loan. The standard repayment plan uses fixed payments during the term of the loan, while the agreed repayment plan starts with smaller payments that rise slowly every month until the loan is repaid. Payments will rise and fall in line with changes in the borrower’s income under the income-based repayment plan. Borrowers who owe at least $ 30,000 to their Federal Direct Loans can also opt for the extended repayment plan, which can extend the term of the loan to 25 years.

  • Competitive interest rates – As with other types of federal loans, Federal Direct Loans charge a lower rate than loans from private lenders. For 2015-2016, Federal Direct Loans charge 4. 29% per annum for both subsidized and non-subsidized undergraduate loans and 5. 84% for graduated loans. Rates are recalculated every year; recent legislation now links them to the course of the 10-year treasury. Click here to view the current rates.

  • Qualification Level – Students who want to achieve a Federal Direct Loan may only meet a few basic criteria. The borrower must be a US citizen or permanent resident (or a non-citizen who meets certain criteria) and must follow a lot of courses that classify the student as at least one half-time student. The student must also make sufficient academic progress towards an accredited degree or other certificate of completion and cannot be in default with any other federal student loan or have a drug offense. (And males 18 to 25 must have registered with the selective service.) As long as these conditions are met, the student can receive a federal direct loan by completing the FAFSA and submitting a promissory note. There is no credit check for this type of loan and applicants only need to be able to demonstrate real need for funds as a financial condition for approval.

  • Flexible deadlines – Federal Direct Loans do not have a federally required application deadline . Each educational institution has its own rules, so get the information from the office for financial assistance from your school.

  • Federal grants available for undergraduate loans – Students who are eligible for and receive a direct subsidized loan do not have to pay the interest that belongs to their loans while they are still in school. The federal government pays this amount for the student until the final exam as long as the student achieves sufficient study progress. See Federal Direct Loans: Subsidized vs. Unsubsidized .

  • Liberal definition of education costs – Federal Direct Loans can be used to finance almost all types of education costs, such as tuition, costs and accommodation, books, laboratory costs and other various costs made legitimate in the pursuit of higher education. Even expenses such as transportation to the class, the costs of a PC, dependent care and certain personal expenses are permitted, including disability-related costs.

  • No penalty for prepayment – If you fall into a windfall of your job, an inheritance or another source and are suddenly able to pay off your loan – or you earn more than the minimum payment – you can retire your loan balance on any time without advance payment or penalty.

  • No payments until after you have graduated at least half-time – Students do not have to pay back their loans until six months after they graduate or have lowered their academic status to below that of a student’s rest period.

  • Forgiveness of student loans – As direct federal loans, these loans belong to a select group that is eligible for student loan forgiveness. Read more about this in Debt Forgiveness: how you can pay your student loans.


The last line

The last line


Most students and parents today must take out at least one student loan to pay for the university. Grants and scholarships are the first way to get financial help to explore, but federal student loans are usually on the following list. Federal Direct Loans have become the most popular type of federal student Lady Teazleening because of their flexibility and availability. For more information about student loan options, contact your student counselor in high school or your student counselor. And read Federal Direct Loans , and Investopedia’s tutorial on student loans.