Federal Direct Unsubsidized Loans: What You Need to Know

The federal government provides financial aid to eligible students enrolled at an accredited college, university or other post-secondary institution. The William D. Ford Federal Direct Loan Program is federal financial aid known as a Direct Loan. The program includes the Stafford Loan for students, the PLUS Loan for parents and graduate or professional students, and the Consolidation Loan.

Types

Direct Stafford Loans are either subsidized or unsubsidized. You must demonstrate financial need to receive a subsidized loan, but any eligible student may borrow an unsubsidized loan no matter his family's financial situation. You must complete a Free Application for Federal Student Aid (FAFSA) each year to determine your eligibility for a subsidized or unsubsidized loan. The amount you may borrow each academic year depends on your grade level and dependency status.

Interest

The most significant difference between subsidized and unsubsidized Stafford loans is the interest. The federal government pays any interest that accrues on a subsidized loan while you are in school and at certain other times, but you must pay any interest that accrues on an unsubsidized loan. You may allow the interest to accrue and capitalize until you enter repayment on the loan, but this will increase the total amount you must repay.

Repayment

You repay any Direct Loan funds you borrow to the U.S. Department of Education. Depending on the amount you borrow and the repayment plan you select, you'll have 10 to 25 years to repay the loan.