What Are Direct Stafford Loans?

The Direct Subsidized and Unsubsidized Loan Programs – sometimes referred to as Stafford Loans or Direct Stafford Loans – are the primary federal student lending programs. The Department of Education is the lender for both loans.

The Direct Loan Program

The Direct Loan program is the government’s primary loan program for students. They offer four types of loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

The Department of Education is the lender for all four loans. In order to apply for a Direct loan, students must file their FAFSA®.

Direct Subsidized Loans

Direct Subsidized Loans are offered only to undergraduate students who demonstrate financial need. In order to apply, students must file their FAFSA®.

“Subsidized” means the Department of Education pays off the loan interest while you are still in school, during your six-month grace period, and during any periods of deferment.

Subsidized loan limits

Your school will determine how much they are willing to offer you in Direct Subsidized Loans based on your FAFSA®. The following are the loan limits for each year of your education:

First-year undergraduate $3,500
Second-year undergraduate $4,500
Third-year and beyond undergraduate $5,500

Direct Subsidized Loans carry an aggregate limit of $23,000.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are offered to both undergraduate and graduate students. Unlike Subsidized loans, students do not need to demonstrate financial need to take out an unsubsidized loan.

“Unsubsidized” means that students are responsible for paying for the interest accrued during all periods of the loan, even if they choose to defer payment on the interest until after their grace period.

Unsubsidized loan limits

Just like subsidized loans, your school will determine how much they are willing to offer you in unsubsidized loans. These are the loan limits, determined by academic year and dependency status.

Year Dependent Students Independent Students
First-year undergraduate $5,500 $9,500
Second-year undergraduate $6,500 $10,500
Third-year and beyond undergraduate $7,500 $12,500
Graduate or Professional students N/A $20,500

There is an aggregate loan limit of $57,500 for undergraduate students and $138,500 for graduate and professional students.

Applying for Direct Loans

To receive a Direct loan, students must file their FAFSA® for federal financial aid.

Financial Aid Award Letter

Once your school receives your FAFSA®, they will send you a financial aid award letter to inform you how much financial aid they are offering you. Included in your award letter will be information about any grants, scholarships, and loans you are being offered.

Information about your Direct Subsidized and Direct Unsubsidized loans will be included in your award letter.

You have the right to decline any loans you are being offered. You can also request a reduced loan amount.

Master Promissory Note

Once you and your school agree to any Direct loans, you will need to sign a Master Promissory Note. The MPN is a legally binding document whereby you agree to repay the loan, accrued interest, and fees to the Department of Education.


Disbursement is the process through which your school delivers your financial aid to you. Your school will disburse your loan to you at least once per academic period. In many cases, students do not ever see the money. Instead, the loan is deducted from the amount the student owes the school (for tuition, room, board, and other costs) at the time of disbursement.

If your loan amount is greater than the amount you owe your school, you will receive a loan refund. This may come in the form of a check or a direct deposit to your bank.

Loan Repayment

You will be given a six-month grace period before you need to begin repaying your loans. Your grace period begins following the completion of your education (through graduation or dropping out), or if you drop below half-time status as a student.

You will have the following loan repayment options:

Standard Repayment Plan – Pay a fixed amount to ensure your loans are paid off within 10 years.

Graduated Repayment Plan – Payments start low, then increase, usually every two years. Full repayment occurs within 10 years.

Extended Repayment Plan – Payments will be fixed or graduated to ensure your loans are paid off within 25 years.

PAYE – Under the “pay as you earn” repayment plan, your monthly repayment will be 10% of your monthly income. If your loan is not paid off within 20 years, any leftover balance will be forgiven.

Income-Driven – Under income-driven repayment plans, you will pay off between 10-15% of your monthly income.

Exit Counseling

Students who take out federal loans for college are required by federal law to complete exit counseling at their school’s financial aid office upon graduation, if they endeavor to leave school, or if they drop below a half-time course load. The meeting is designed to ensure students understand all their loan repayment options and rights.

During exit counseling, you will be provided with vital information on options to facilitate the repayment of your loans. Exit counseling usually takes 20 to 30 minutes and must be completed in one session.