Paying for College

What's In a Name? Breaking Down the Federal Direct Student Loan Program

Learn about Federal Direct Student Loans and the difference between subsidized and unubsidized loans.
A family balancing their budget

As the piles of financial aid offers start coming in, you may notice several different names used on your offers to describe your main student loan from the federal government. Though the official name of the federal loan is the William D. Ford Federal Direct Loan Program, You have have loans listed simply titled Direct Loan, Stafford Loan, or Ford Loan. These are all the same loan, just named differently at colleges and universities.

Who was William D. Ford? William D. Ford was a Representative from Michigan from 1965 to 1995. He was known for his efforts to increase educational opportunities for families of limited means. In 1978, Rep. Ford sponsored the Middle Income Student Assistance Act, which expanded the college loan program. In 1994, the Federal Direct Student Loan program was named in his honor.

Once you've recognized your federal loan on each of your offers, you may notice that you potentially have different types of this loan, both subsidized and unsubsidized.

Subsidized loans are for students who demonstrated financial need, as determined by the federal financial aid formula when you completed the FAFSA®. No interest is charged on these loans while a student is in school at least half-time, during the grace period54, and during deferment periods.

Unsubsidized loans are not offered based on financial need, but families still need to complete a FAFSA to be considered for this loan. Interest on this loan is charged during all periods, even during the time a student is in school and during grace and deferment periods. The student does not need to pay the interest during this time, but families should know that the interest is accruing once the loan has been paid to the college.

If a student needs to borrow, Federal Direct Student Loans are a great option. These loans are low-interest loans for students to help pay for the cost of education after high school. The lender is the U.S. Department of Education though most of the contact will be with the loan servicer. The maximum amount a student can borrow each year in Direct Subsidized and Unsubsidized Loans depends on the student's grade level and on whether the student is a dependent or independent student. These loans have caps on the amount that can be borrowed. The total or aggregate amount a student may borrow is $31,000 for an undergraduate education, and no more than $23,000 of this may be subsidized. The Federal Direct Student Loans offer various repayment options and can be consolidated.