What Are Direct Education Loans?

Direct education loans are those which are made out directly in the names of students. There are a number of federal and private education loans that fall in this category. These education loans have both advantages and disadvantages.

Limitation: Loan Ceiling

One disadvantage with direct education loans is that they are normally quite limited in amount, and therefore may not be adequate to meet the total cost of your education. Let us take the Stafford loans as an example of the typical direct loan. These loans are need-based, and the final amount to be disbursed will depend upon a strict assessment of your actual needs. The maximum loan amount for a Stafford loan is $18500 per annum.

Advantages: Low Interest and Grace Period

However, there are some good points about direct education loans, too. First, the interest rates for these are a lot lower than the going commercial rates. As of July 1 2006, these became fixed for at least a year at 6.8% per annum.

Secondly, for many direct education loans, there is a grace period and repayment does not need to start till six months after the completion of your course. the unsubsidized Stafford loans are a good example of this. The interests accrued during the grace period will also be much lower than the 6.8%. In some cases, if you can prove your need, the accrued interest for this period may even be waived. This is the case with the subsidized Stafford loans.

PLUS: A Special Category

PLUS loans, which were once given to parents only, are now also issued to graduate students, and so must be counted in the list of direct education loans. These are demand-based, not need-based, and have a higher ceiling and a higher interest rate compared to the other direct education loans. Also, repayments start from the very first. But it is possible to cover the total expense of your education with a grad PLUS.