What are Direct Loans?

Direct Loans are Stafford and PLUS loans, plain and simple. They are called “Direct” because the student and/or parent is borrowing directly from the U.S. Department of Education.

Why is APU switching to Direct Loans?

For the 2008–09 academic year and prior, APU participated in what is known as the Federal Family Education Loan Program (FFELP), a public-private partnership in which private, nonprofit, and state-based lenders make federally guaranteed loans to students and parents. Due to recent changes made by Congress to the FFEL Program, coupled with the current economic downturn, a significant number of lenders have exited the program, limiting options and decreasing the number of benefits for borrowers.

What are the benefits of Direct Loans?

Direct Loans provide a single point of contact through the Direct Loan Servicing Center for all student and parent borrowers, even if you receive Direct Loans at different schools. Also, loans received from the U.S. Department of Education are never sold. Your Direct Loan account provides you online access to your loan information 24 hours a day, 7 days a week. After graduation, you can consolidate your Direct Loans with loans from other lenders, giving you one simple payment. Direct Loans also offer flexibility, allowing you to choose from several repayment plans designed to meet your needs.

How will this affect my current loans?

The Stafford and PLUS loans you received for the 2008–09 academic year and prior will remain with those lenders. They will not convert to Direct Loans. For the 2009–10 academic year, borrowers will receive new loans directly from the U.S. Department of Education.

What do I have to do to get a Direct Loan?

Your first step to receiving a Direct Loan is completing a 2009–10 FAFSA (Free Application for Federal Student Aid). Once the Office of Student Financial Services reviews your FAFSA information, we will send you a financial aid award letter, which will contain detailed instructions for securing your Direct Loan. One of those instructions will tell you how to complete a Direct Loan Master Promissory Note (MPN), which explains the terms and conditions of your loan and is your legally binding agreement to repay the amount you borrow. All Stafford and PLUS loan borrowers are required to complete a Direct Loan MPN for the 2009–10 academic year.

What types of Direct Loans are available?

The Direct Loan Program offers several types of loans for borrowers:

  • Subsidized Stafford Loans provide students with financial need as determined by federal regulations. This subsidized loan will not accrue interest while the student is enrolled in school at least half time, or during the student’s grace and deferment periods.
  • Unsubsidized Stafford Loans, disbursed to students, are not need-based. These loans accrue interest during all periods.
  • PLUS Loans are offered to graduate/professional students and parents of dependent college students to help meet college costs.
  • Consolidation Loans allow student and parent borrowers to combine multiple forms of eligible federal student loans into one loan.

What are the eligibility requirements?

To be eligible for Direct Loans, you must be enrolled in school at least half time and meet general eligibility requirements for the Federal Student Aid (FSA) programs.

How much can I borrow?

The amount you can borrow each year for Subsidized and Unsubsidized Stafford loans depends on your grade level and whether you are a dependent or independent student.

Dependent student Independent student1
Freshman undergraduate $5,500 per school year
(up to $3,500 of which may be subsidized)
$9,500 per school year
(up to $3,500 of which may be subsidized)
Sophomore undergraduate $6,500 per school year
(up to $4,500 of which may be subsidized)
$10,500 per school year
(up to $4,500 of which may be subsidized)
Junior and Senior undergraduates $7,500 per school year
(up to $5,500 of which may be subsidized)
$12,500 per school year
(up to $5,500 of which may be subsidized)
Graduate/Professional N/A $20,500 per school year
(up to $8,500 of which may be subsidized)
Credential Only Programs $7,500 per school year
(up to $5,500 of which may be subsidized)
$12,500 per school year
(up to $5,500 of which may be subsidized)

The amount you are able to borrow is also limited by your school costs, other financial aid you received, and (in the case of subsidized loans) your expected family contribution.

Aggregate (total) limits for all Subsidized and Unsubsidized Stafford loans, whether solely from the Direct Loan Program or in combination with FFEL Stafford loans, are:

  • $31,000 for a dependent undergraduate student (no more than $23,000 may be subsidized)
  • $57,500 for an independent undergraduate student1 (no more than $23,000 may be subsidized)
  • $138,500 for a graduate or professional student (no more than $65,000 may be subsidized; includes loans for undergraduate study)

With a PLUS loan, a graduate/professional student or the parent of a dependent undergraduate student may borrow up to the student’s cost of attendance minus other financial aid the student receives.

1This includes dependent students whose parents are unable to borrow a PLUS loan.

What are the interest rates for Direct Loans?

Stafford loans disbursed on or after July 1, 2006 have a fixed interest rate of 6.8%, with the exception that subsidized loans disbursed on or after July 1, 2008 to undergraduate student, have an interest rate of 6%. Direct PLUS Loans have a fixed rate of 7.9%.

Is there a charge for this loan?

Yes. In addition to interest, the Department of Education takes a loan fee of 2% of the principal amount of each Direct Subsidized or Unsubsidized Stafford Loan that you borrow. The loan fee for PLUS loans is 4%. This fee reduces the cost of making these low-interest loans and is deducted before you receive any loan money, so the loan amount you actually receive will be less than the amount you have to repay. For example, if you borrow a $5,500 Stafford loan, you will receive $5,390 after the loan fee is taken by the Department of Education.

How will I receive my loan money?

APU will disburse your loan money by crediting it to your school account. Your loan money will usually be disbursed in at least two installments.

When do I have to begin repaying my loan?

Direct Subsidized and Direct Unsubsidized Stafford loans have a six-month grace period that starts the day after you graduate, leave school, or drop below half-time enrollment. You don’t have to begin making payments until your grace period ends.

How much time will I have to repay my loan, and how much will I have to pay each month?

Generally, you’ll have from 10–25 years to repay your loan, depending on the repayment plan that you choose. Your monthly payment amount will be based on how much you borrowed and how long you take to repay. You may choose one of four repayment plans:

  • Standard Repayment Plan - Schedule fixed monthly payments for up to 10 years.
  • Extended Repayment Plan - Make monthly payments for up to 25 years, depending on the total amount of your Direct Loans. This repayment plan includes fixed and graduated (gradually increasing) payment options.
  • Graduated Repayment Plan – Offers payments that start off lower and then gradually increase, usually every two years. You’ll repay your loan in full within 10 years, depending on the total amount of your Direct Loans.
  • Income Contingent Repayment Plan - Your monthly payment is adjusted each year based on your annual income (and your spouse’s income, if you’re married), your family size, and the total amount of your Direct Loans. After 25 years, any unpaid loan amount will be forgiven.

You can change repayment plans at any time. There’s no penalty if you make payments before they are due or pay more than the amount due each month.

Can I ever postpone making loan payments?

Yes, under some conditions you may receive a deferment or forbearance that allows you to temporarily stop making payments. For example, you may qualify for a deferment if you return to school at least half time, are unemployed, or are experiencing an economic hardship as defined in federal regulations. If you do not qualify for a deferment but are temporarily unable to make loan payments for reasons such as illness or financial hardship, you may be granted forbearance.

What happens if I don’t repay my Direct Loan?

If you fail to make a payment on time, you are considered delinquent on your Direct Loan. If you do not make payments for 270 days, you are considered to be in default. Default has severe and long-lasting consequences, including the following:

  • The Department of Education can immediately demand repayment of the total amount due on the loan.
  • The department will attempt to collect the debt and may charge you for the costs of collecting.
  • The default will be reported to national credit bureaus.
  • You are ineligible for Title IV student aid.
  • You are ineligible for deferments.
  • The Internal Revenue Service can withhold your federal income tax refund.
  • Your wages may be garnished.

Can my loan ever be discharged or forgiven?

You must repay your loan even if you do not complete your program of study, or are unhappy with the education you paid for with your loan. However, your loan may be discharged (forgiven) if you have your loan discharged in bankruptcy, if you become totally and permanently disabled (additional conditions apply), or if you die.

Some or all of your loan may also be discharged if your school closed before you completed the program, if the school forged your signature or falsely certified that you were eligible for aid, or if you dropped out of school and the school did not pay a refund of your loan money that it was required to pay under federal regulations. You may also qualify for forgiveness of some of your loans if you teach full time for five years in certain low-income schools and meet other requirements.

Can I have my loan payments automatically paid from my account?

Yes, and this payment option will save you time and money! The Direct Loan Program offers the option of having your loan payments automatically taken out of your bank account, saving you the trouble of writing a check each month and ensuring that your payment will always be made on time. Plus, your interest rate will be reduced by a quarter point (.25%) during all periods when your payments are being made under this option.

Who can I contact for more information?

For more information regarding Direct Loans, please contact the appropriate Office of Student Financial Services:

Office of Undergraduate Student Financial Services
(626) 812-3009

Office of Graduate and Professional Student Financial Services
(626) 815-4570