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How Do I Take Out a Federal Direct Student Loan?

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One of the most basic factors that come into play when you’re choosing colleges for your application list is cost. With college costs rising every year, students and parents have a number of options for managing the burden of college expenses. One popular option is borrowing money, either from a private lender or from the U.S. government itself.


We’ve talked about Federal Direct student loans before in our post Borrowing for Beginners: A Guide to Student Loans. The Federal Direct loan program allows you to borrow money directly from the U.S. government to help fund your education, and comes with terms and benefits that make it a particularly attractive borrowing option for qualified students.


In this post, you’ll find a step-by-step guide to taking out a Federal Direct loan, from determining your eligibility to planning for your future repayment period. With this guide in hand, you can go into the process of taking out and managing Federal Direct loans as an informed and confident borrower.



Step One: The FAFSA


The first and most basic requirement of the Federal Direct loan program is the Free Application for Federal Student Aid, or FAFSA. This online form collects information about your family’s financial situation. For a detailed overview of the questions you’ll encounter and the information you’ll need to provide, check out our Ultimate Guide to Filling Out the FAFSA.


When your FAFSA is processed, it translates your family’s financial data into an assessment of your family’s financial resources and needs when it comes to paying for college. The federal government uses it to determine your eligibility for certain types of governmental aid. Individual colleges and private organizations use it, along with other forms, to make decisions regarding their own institutional financial aid.


The information you provide through the FAFSA confirms that you’re qualified to receive financial aid from the U.S. government. It also determines whether you’re eligible for subsidized or unsubsidized Federal Direct loans. (In short, only students with financial need can take out unsubsidized loans.)


Make sure that you turn in your FAFSA by the appropriate deadline. The schools you’ve applied to may have earlier deadlines than the standard deadline, so it’s generally best to submit the form as soon as possible after it becomes available.



Step Two: Getting Your Colleges Involved


The FAFSA determines your eligibility for Federal Direct student loans, but it doesn’t necessarily tell you how much you should take out in loans. To make that decision, you’ll first need to look at the broader picture of your expected college costs and your other sources of financial aid. This means incorporating information about each college you’re considering.


Each college has its own financial aid application requirements, but in most cases, you’ll need to fill out additional paperwork (such as the CSS Profile or a school-specific form) along with the FAFSA. Each college also has its own financial aid policies and procedures that it uses to distribute financial aid among incoming students.


If you’re accepted to a college, its financial aid office will take all this information and put together a financial aid package for you, based on their own cost of attendance and funding availability as well as your eligibility for government aid. As long as you meet all the requisite deadlines, you should get your award letter around the same time as your admissions decision.


Your award letter will include a breakdown of what you’ll be charged if you attend that school and what aid you’ll be offered to offset that expense. Depending on how the numbers work out for you personally, as well as your loan eligibility, you may be offered some amount of Federal Direct student loans as part of this aid.



Step Three: Evaluating Your Loan Offer and Accepting Your Loan


As you consider your options and try to come to a decision about where to attend, you’ll need to assess and compare the financial aid awards you’ve been offered. Every student’s situation is different, so only you and your family can decide which offers work best for you.


The best place to go for more information or questions about your award letter is the individual college’s financial aid office.  Financial aid officers from that school can go over the school’s policies, explain what each line item on your award letter means, and help you figure out whether the award meets your needs.


If you feel that your initial aid application didn’t adequately explain your situation, you might choose to appeal your award and provide more information, as we describe in the post Can I Appeal My Financial Aid Award? If your appeal is successful, your award letter—including your loan offer—may change.


Once you decide which college you’re going to attend, you’ll need to formally accept their offer of admission, and also accept their financial aid award. Each college has its own process for accepting your financial aid award and thus the loans you’ve been offered—you might be asked to fill out a brief online form, send an email, or take some other action.


Whatever you need to do, make sure you do it by the appropriate deadline in order to ensure that your aid is squared away in time for school to start. You don’t want anything to interfere with your ability to matriculate alongside your new classmates.



Step Four: Entrance Counseling and Your Promissory Note


Before your loan can be disbursed— that is, before you can receive your loan funds— it’s important that you understand what you’re taking on. Entrance counseling involves receiving all the information about your loan’s terms, policies, and repayment expectations that you’ll need to be an informed borrower. You might be required to attend an in-person session once you get to college, and/or complete readings and quizzes online.


Once your entrance counseling is complete, you’ll sign your Master Promissory Note, or MPN, the formal document in which you agree to your loan’s terms. You’ll likely do this online, but some schools offer a paper option.


In addition to your personal information, you’ll need to provide contact information for your parents and other references, just in case you default on your loan and the lender needs help in finding you. (These references aren’t at all responsible for the loan themselves.)


Your financial aid office will let you know if they have any additional requirements. As soon as all these requirements are completed, your loan will be processed and applied to your student account to help pay for your educational expenses. If you’re using loan funds to pay for indirect educational expenses like books and materials, you’ll likely have to request that those funds be released directly to you; check with your aid office for instructions.



Step Five: Taking Out Future Loans


If you take out additional Federal Direct student loans later in college, you may not have to sign a new promissory note. As long as you’re at the same institution and are simply taking out more Federal Direct student loans, you can use the same MPN. You’ll simply need to talk to your financial aid officer to determine your eligibility and get the loan set up.


In most situations, you’ll only have to sign a new MPN under certain circumstances, such as if more than ten years passes or you transfer to a different college. A few colleges also require you to sign a new MPN each year. Your financial aid office will provide instructions when the time comes.


Throughout this process, you’ll be able to keep track of all your loan information online via the Federal Student Aid loan website. There, you can check your balances, review your loan terms, and get the information you need to plan for repayment.



Step Six: Planning for Repayment


The whole point of student loans is that you won’t have to pay them off for several years. Still, it’s a good idea to make sure you understand what to expect. You’ll also want to be informed in case you have to leave school unexpectedly—for example, if you have to take time off for medical reasons. (Summer breaks and other regularly scheduled absences don’t count.)


When you leave school, whether because you graduated or for another reason, you’ll receive more information about your repayment responsibilities and options for your Federal Direct student loans. You’ll then get a six-month grace period in which you don’t have to make payments. Once the grace period ends, you’ll enter the repayment period.


A major perk of the Federal Direct loan program is that you’ll have a number of different options for payment plans, such as income-based repayment. You may also be able to put off paying your loans if you go back to school, serve in the military, or encounter severe financial hardship.


However, it’s also important to understand that your Federal Direct loans are a very serious commitment. If you don’t pay off your loans according to your payment plan, you risk going into default, which can ruin your credit score and lead to legal consequences such as income garnishment.



For More Information


When it comes to finding ways to afford college, student loans are only one option among many. Need-based grant aid, merit-based scholarships, and work-study programs can also be part of your approach. To get started on learning more about all of your potential financial aid options, check out these posts from the CollegeVine blog:


Tuition vs. Total Cost of Attendance: Understanding Your College Expenses

15 College Financial Aid Resources

FAFSA, CSS Profile, IDOC, Oh My: A Guide to Financial Aid

How To Evaluate, Compare, and Leverage Financial Aid


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Monikah Schuschu
Senior Blogger

Short Bio
Monikah Schuschu is an alumna of Brown University and Harvard University. As a graduate student, she took a job at the Harvard College Office of Financial Aid and Admissions, and discovered the satisfaction of helping students and parents with the often-baffling college admissions process. She also enjoys fiber art, murder mysteries, and amateur entomology.