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Federal Direct Loan Program

Federal Direct Loan Program

Federal Direct Loan Program

The Federal Direct Student Loan Program provides low-interest loans to students to help pay their costs of postsecondary education. The U.S. Department of Education is the lender. Direct Loans are either subsidized or unsubsidized.

A subsidized loan is awarded on the basis of financial need. Student borrowers are not charged interest during periods of at least half-time enrollment, grace periods, or authorized periods of deferment. The federal government "subsidizes" the interest during these periods.

An unsubsidized loan is not awarded on the basis of need. Student borrowers are charged interest from the time the loan is disbursed until it is paid in full. If the interest is allowed to accumulate, it will be capitalized; that is, the interest will be added to the principal amount of the loan and additional interest will be based upon the higher amount. This increases the amount to repay. A borrower who chooses to pay the interest as it accumulates will repay less in the long run.

Loan limits: Maximum loan limits for eligible students are:

Dependent Student Subsidized Unsubsidized Total
First Year $3,500 $2,000 $5,500
Second Year $4,500 $2,000 $6,500
Independent Student Subsidized Unsubsidized Total
First Year $3,500 $6,000 $9,500
Second Year $4,500 $6,000 $10,500

*Definition of first year student: 0-30 credit hours recorded on the Middlesex County College transcript.

*Definition of second year student: 31 or more credit hours recorded on the Middlesex County College transcript.

Aggregate loan limits: The aggregate unpaid principal amount of all Direct Loans may not exceed:

  • $23,000 - dependent undergraduate students.
  • $57,500 - independent undergraduate students (only $23,000 of this amount may be subsidized loans).

*First Time Borrowers as of July 1, 2013 will be subjected to the 150% time limitation on his/her Direct Subsidized Loan. For first time borrowers, will have a limit placed on the maximum period of time (measured in academic years) one can receive Direct Subsidized loans. The maximum eligibility period will be based on the length of the eligible academic program.

Example: 2-year Associate Degree Program, the maximum period for which you can receive Direct Subsidized Loans is 3 years (150% of 2 years = 3 years).

Initial Grace Period: 6 months

During the grace period on a subsidized loan, no principal and no interest is charged. During the grace period on an unsubsidized loan, no principal is due, but interest accrues; borrowers may either pay the interest or allow it to be capitalized.

Repayment period begins: Six months after graduating, leaving school, or dropping below half-time enrollment.

Direct PLUS Loans for Parents

  • Allows parents to borrow money to pay for a dependent student's college education
  • Loan is in parent’s name and parent, not student, is responsible for the loan
  • Requires a credit check, usually only looking for adverse credit

Interest Rate Information

Interest rates for Federal Direct Loans are established by Congress each year. Please refer to the Federal Student Aid website for up to date information pertaining to interests rates for the Federal Direct Loan Program at http://studentaid.ed.gov/types/loans/interest-rates.

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