Student loans are a type of financial aid and require that you complete the FAFSA (Free Application for Federal Student Aid). Direct Loans are low-interest federal loans to students attending at least half-time (6 credits) to help pay for their college education. These loans are borrowed money and must be repaid with interest after the student graduates or drops below half-time enrollment.
There are two types of Direct Loans:
- Subsidized - If you meet certain financial need (results of the FAFSA) criteria, the federal government will pay the interest on your loan while you attend school at least half-time and during the times when you qualify for an authorized deferment.
- Unsubsidized - If you do not meet the financial need criteria to qualify for a subsidized loan, you may be eligible for the unsubsidized loan. For this loan, the federal government does not pay the interest on your loan. You are responsible for paying the interest. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods, or you can allow it to accrue and be capitalized (which means the interest is added to the principal amount of your loan). If you choose not to pay the interest as it accrues, this will increase the total amount you have to repay because you will be charged interest on a higher principal amount.
Failure to repay a student loan jeopardizes your future eligibility for financial aid and also impacts your credit worthiness for any future borrowing, including car loans, home mortgages or other consumer loans.