College Decision Time: Federal Student Loan FAQs

Learn about Federal Direct Loans including when the interest rate is determined, how interest accumulates, the difference between subsidized and unsubsidized loans.
A student filling out a financial aid form

Don't you love it when your questions get answered? Through our How to Pay for College program we've been answering questions from families all about financial aid offers, the college bill, and financing strategies. We'd love for everyone to benefit from the information and guidance we've been providing across the Commonwealth, so we're sharing our most frequently asked questions on different topics at the top of mind for those families planning for college next year. 

Today we're focusing on questions related to the Federal Direct Student Loan program.

  1. When is the interest rate determined each year for the Federal Direct Student Loan?
    The interest rate is set annually in late spring and is fixed for the life of each academic year's loans. The interest rate is set by the federal government and is tied to the rate of the 10-year Treasury note. 
  2. My offer has both a Subsidized and an Unsubsidized Direct Loan listed.  What is the difference between the two?
    The Subsidized Direct Loan won't start accruing interest until after the student's 6-month grace period following graduation. The Unsubsidized Direct Loan begins accruing interest once the loan is disbursed to the school. The interest rate is the same for the Subsidized and Unsubsidized Direct Loans.
  3. What determines if I receive a Subsidized versus an Unsubsidized Direct Loan?
    The Subsidized Direct Loan is need-based, meaning the student must have financial aid eligibility to receive the Subsidized Direct Loan. The Unsubsidized Direct Loan is available to any student who submits a valid FAFSA®
  4. If I don't see my full eligibility of $5,500 in Direct Loans on my financial aid offer, can I ask the school for the remaining amount?
    Yes, you can contact the school to request the full $5,500 of Direct Loan eligibility. Keep in mind that your total financial aid plus any loans borrowed cannot exceed the school's total cost of attendance. As well, you should only borrow what you need to pay your expenses.
  5. Does the interest compound on the Unsubsidized Direct Loan?
    The interest that accrues on the Unsubsidized Direct Loan is not added to the principal amount of the loan until after the end of your grace period (the six months following your graduation).
  6.  Can I pay the interest on my Unsubsidized Direct Loan during school?
    Yes, you can pay the interest as it accrues on your Unsubsidized Direct Loan while you are in school. Your loan servicer will send you a statement to let you know of the interest that has accrued on your Unsubsidized Direct Loan.
  7.  What are the repayment terms on the Direct Loan?
    The standard repayment on the Direct Loan is ten years, post graduation. However, there are several different repayment options available to help students manage their student loan debt and repayment. Visit the Federal Student Aid site for more information.
  8. Is there a prepayment penalty on the Direct Loan?
    There is no prepayment penalty. You may begin repayment while in school, and may also repay the loan more quickly than the standard repayment schedule.
  9. Can I defer my Direct Loan during graduate school?
    Yes, your Direct Loan can be deferred during enrollment of at least half-time status in graduate school. Contact your loan servicer for details on the length of time permitted for deferment. 
  10.  What if I decide that I don't want my Direct Loan?
    Understanding how much debt to take on is an important consideration for all students, and MEFA counsels students and families to weigh overall debt carefully. Therefore, if you feel as if you don't need to borrow a Direct Loan, you may contact your college's financial aid office over the summer to cancel the loan.