Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers
Congressional research reportOct 15, 2024
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Federal Student Loans Made Through the
William D. Ford Federal Direct Loan Program:
Terms and Conditions for Borrowers
Updated October 15, 2024
Congressional Research Service
https://crsreports.congress.gov
R45931
SUMMARY
Federal Student Loans Made Through the
William D. Ford Federal Direct Loan Program:
Terms and Conditions for Borrowers
R45931
October 15, 2024
Alexandra Hegji
Specialist in Social Policy
The William D. Ford Federal Direct Loan (Direct Loan) program is the single largest source of
federal financial assistance to support students’ postsecondary educational pursuits. The U.S.
Department of Education estimates that in FY2025, $93.1 billion in new loans will be made
through the program. As of the end of the third quarter of FY2024, $1.4 trillion in principal and interest on Direct Loan
program loans, borrowed by or on behalf of 37.5 million individuals, remained outstanding.
For many individuals, borrowing a federal student loan through the Direct Loan program may be among their first
experiences in incurring a major financial obligation. Upon obtaining a loan, a borrower assumes a contractual obligation to
repay the debt over a period that may span a decade or more.
Loans were first made through the Direct Loan program in 1994. Since then, Congress has periodically made changes to the
program and the terms and conditions of loans. Changes have impacted program aspects such as the availability of loan
types, interest rates, loan repayment, loan discharge and forgiveness, and the consequences of default. Over time, the
accumulation of changes—many of which are differentially applicable to borrowers or loan types—has resulted in a set of
loan terms and conditions that are voluminous and complex. Congress may contemplate making future changes to loan terms
and conditions.
This report has been prepared to provide Congress with a comprehensive description of the terms and conditions and
borrower benefits that are applicable to loans made through the Direct Loan program. Emphasis is placed on discussing loan
types, provisions related to borrower eligibility, amounts that may be borrowed, interest and fees, loan repayment, repayment
relief, loan forgiveness benefits, the consequences of default, and the methods used to ensure borrowers are informed about
the terms and conditions of their loans and their obligation to repay them.
Direct Loan Types
Four types of loans are available through the Direct Loan program. Direct Subsidized Loans are available only to
undergraduate students with financial need. Direct Unsubsidized Loans are available both to undergraduate students and
graduate students. Direct PLUS Loans may be borrowed by graduate students and by the parents of undergraduate students
dependent on them for financial support. Direct Consolidation Loans allow borrowers to combine debt from multiple existing
federal student loans into a single new loan.
Eligibility and Amounts That May Be Borrowed
Whether an individual may borrow a loan, and the amount they may borrow, are determined by the interaction of many
factors. Eligibility to borrow varies by loan type, borrower characteristics, program level, and class level. The amount an
individual may borrow is subject to annual and aggregate borrowing limits, and federal need analysis and packaging
procedures. Loans are made available in amounts constrained by program rules, but—with the exception of Direct PLUS
Loans—without consideration of a borrower’s ability to repay. Eligibility to borrow a Direct PLUS Loan depends on an
individual’s creditworthiness.
Interest on Direct Loan Program Loans
Procedures for calculating interest vary by loan type, repayment status, and the period during which a loan was made. In
limited circumstances, the federal government subsidizes, or does not charge, interest that would otherwise accrue. Interest
subsidies are mostly limited to Direct Subsidized Loans; however, certain interest subsidies may be provided on all loan
types.
Loan Repayment Plans
Numerous repayment plans, each with different payment structures and maximum durations, are available. Among the
various plans, income-driven repayment (IDR) plans cap monthly payments at a specific percentage of a borrower’s
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
discretionary income. For most repayment plans, monthly payments must cover the interest that accrues; however, the IDR
plans allow for negative amortization, in which case monthly payments may be for less than the interest that accrues.
Deferment and Forbearance
Periods of deferment and forbearance offer a borrower temporary relief from the obligation to make monthly payments. In
certain instances, interest subsidies may be provided during periods of deferment; however, with limited exceptions, interest
subsidies are not available during periods of forbearance.
Loan Discharge and Loan Forgiveness
A borrower may be relieved of the obligation to repay their loans in certain circumstances. Student loan debt may be
discharged on the basis of borrower adversity (e.g., death, total and permanent disability, school closure) or may be forgiven
following an extended period of repayment according to an IDR plan or completion of a period of public service.
Loan Default, Its Consequences, and Resolution
If a borrower defaults, the loan becomes due in full and the borrower loses eligibility for many benefits, as well as access to
other forms of federal student aid. The government also uses numerous means to collect on defaulted student loan debt. A
limited set of options is available for a borrower to bring a defaulted loan back into good standing.
Loan Counseling and Disclosures
Student borrowers must undergo financial counseling, which is designed to provide them with comprehensive information on
the terms and conditions of their loans as well as the rights and the responsibilities they assume as borrowers. Loan terms and
conditions are specified in a promissory note, which is a contract that establishes the borrower’s obligation to repay the loan,
and in a plain language disclosure document that uses simplified terms to explain a loan’s terms and conditions and the
borrower’s rights and responsibilities.
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Contents
Introduction ..................................................................................................................................... 1
Background on the Direct Loan Program ........................................................................................ 2
Direct Loan Types ........................................................................................................................... 4
Eligibility and Amounts That May Be Borrowed ............................................................................ 6
Factors Affecting Eligibility to Borrow..................................................................................... 6
General Student-Based Eligibility Criteria ......................................................................... 6
Student Dependency Status................................................................................................. 7
Program Level..................................................................................................................... 8
Undergraduate Class Level ................................................................................................. 9
Financial Need .................................................................................................................... 9
Eligibility Requirements for Direct PLUS Loans ............................................................. 10
Eligibility Requirements for Direct Consolidation Loans ................................................. 11
Amounts That May Be Borrowed ........................................................................................... 14
Annual Loan Limits .......................................................................................................... 14
Aggregate Loan Limits ..................................................................................................... 14
Limits on Borrowing Determined by Need Analysis and Packaging ............................... 16
Interest on Direct Loan Program Loans ........................................................................................ 19
Interest Rates ........................................................................................................................... 19
Procedures for Setting Student Loan Interest Rates.......................................................... 19
Interest Accrual ....................................................................................................................... 22
Subsidized Interest .................................................................................................................. 23
Interest Subsidy on Direct Subsidized Loans ................................................................... 23
Interest Rate Reduction for Automatic Debit Repayment................................................. 24
Interest Subsidies on Eligible Loans Repaid According to Certain Income-Driven
Repayment (IDR) Plans During Negative Amortization ............................................... 24
No Accrual of Interest on Loans of Certain Active Duty Servicemembers ...................... 25
SCRA 6% Interest Rate Cap on Loans of Borrowers Who Enter Military Service .......... 25
Interest Subsidy on All Loan Types During Cancer Treatment Deferment ...................... 26
Deferred Payment of Accrued Interest .................................................................................... 26
Negative Amortization ...................................................................................................... 27
Interest Capitalization ............................................................................................................. 27
Loan Origination Fees ................................................................................................................... 27
Loan Repayment............................................................................................................................ 28
Grace Period ............................................................................................................................ 29
Loan Repayment Period .......................................................................................................... 29
Loan Repayment Plans ............................................................................................................ 30
Fixed Repayment Plans..................................................................................................... 39
Income-Driven Repayment (IDR) Plans ........................................................................... 42
Prepayment.............................................................................................................................. 61
Application of Payments on Delinquent Loans....................................................................... 63
Deferment and Forbearance .......................................................................................................... 63
Deferments .............................................................................................................................. 63
In-School Deferment......................................................................................................... 64
Graduate Fellowship Deferment ....................................................................................... 65
Rehabilitation Training Program Deferment..................................................................... 65
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Unemployment Deferment................................................................................................ 66
Economic Hardship Deferment......................................................................................... 66
Military Service Deferment .............................................................................................. 67
Post-Active Duty Student Deferment ............................................................................... 67
Cancer Treatment Deferment ............................................................................................ 67
Dislocated Military Spouse Deferment ............................................................................. 68
Forbearance ............................................................................................................................. 68
General (Discretionary) Forbearance ................................................................................ 69
Mandatory Forbearance .................................................................................................... 69
Administrative Forbearance .............................................................................................. 71
Forbearance to Permit Borrower to Resume Honoring an Agreement to Repay a
Defaulted Loan .............................................................................................................. 72
Loan Discharge and Loan Forgiveness.......................................................................................... 73
Loan Discharge for Borrower Adversity ................................................................................. 73
Discharge Due to Death .................................................................................................... 73
Total and Permanent Disability Discharge ........................................................................ 74
Closed School Discharge .................................................................................................. 75
False Certification and Unauthorized Payment Discharges .............................................. 77
Unpaid Refund Discharge ................................................................................................. 78
Borrower Defense to Repayment Discharge ..................................................................... 78
Bankruptcy Discharge ....................................................................................................... 80
Loan Forgiveness Following IDR Plan Repayment ................................................................ 80
Loan Forgiveness for Public Service....................................................................................... 81
Teacher Loan Forgiveness Program .................................................................................. 81
Public Service Loan Forgiveness (PSLF) Program .......................................................... 82
Tax Treatment of Discharged and Forgiven Debt ................................................................... 85
Loan Default, Its Consequences, and Resolution .......................................................................... 87
Consequences of Default for Borrowers ................................................................................. 87
Resolution of Default .............................................................................................................. 90
Loan Rehabilitation........................................................................................................... 90
Loan Consolidation ........................................................................................................... 92
Calculated $0 Monthly Payment under an IDR Plan ........................................................ 93
Loan Counseling and Disclosures ................................................................................................. 93
Entrance Counseling ............................................................................................................... 94
PLUS Loan Credit Counseling For Borrowers with Adverse Credit ...................................... 95
Master Promissory Note and Plain Language Disclosure ....................................................... 95
Exit Counseling ....................................................................................................................... 96
Additional Information on Loan Terms and Conditions ......................................................... 97
Figures
Figure 1. Direct Loan Repayment Plan ......................................................................................... 31
Tables
Table 1. Annual and Aggregate Loan Limits, by Borrower Type and Program Level: July
1, 2012, to Present ...................................................................................................................... 15
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Table 2. Interest Rates on Loans Made Through the Direct Loan Program: July 1, 2023,
through June 30, 2024, and July 1, 2024, through June 30, 2025 .............................................. 22
Table 3. Origination Fees on Loans Made Through the Direct Loan Program, FY2024 and
FY2025 ....................................................................................................................................... 28
Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to
Borrowers: Fixed Repayment Plans, Income-Driven Repayment Plans, and Alternative
Repayment Plans ........................................................................................................................ 33
Table 5. Repayment Periods: Standard Repayment Plan (34 C.F.R. §685.208(c)) and
Graduated Repayment Plan (34 C.F.R. §685.208(h))................................................................. 39
Table 6. Repayment Periods: Extended Repayment Plan (34 C.F.R. §685.208(d)) and
Graduated Repayment Plan (34 C.F.R. §685.208(f)) ................................................................. 40
Table 7. 2024 Poverty Guidelines for the 48 Contiguous States and the
District of Columbia ................................................................................................................... 43
Table 8. SAVE Repayment Plan Maximum Repayment Periods and
Monthly Payment Numbers ....................................................................................................... 55
Table 9. Maximum Repayment Period and Equivalent Number of Monthly Payments ............... 81
Table C-1. History of Annual and Aggregate Loan Limits for Direct Loan Program
Loans, by Borrower Type and Academic Level ....................................................................... 103
Table C-2. History of Interest Rate Formulas for Direct Subsidized Loans, Direct
Unsubsidized Loans, and Direct PLUS Loans ......................................................................... 108
Table C-3. History of Interest Rate Formulas for Direct Consolidation Loans ............................ 110
Table C-4. History of Interest Rates in Effect for Direct Loan Program Loans ........................... 111
Table C-5. History of Direct Loan Origination Fees ................................................................... 122
Appendixes
Appendix A. Directory of Resources............................................................................................. 98
Appendix B. Glossary of Terms .................................................................................................... 99
Appendix C. Historical Tables on Selected Loan Terms and Conditions .................................... 103
Appendix D. COVID-19 Flexibilities ......................................................................................... 123
Contacts
Author Information...................................................................................................................... 128
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Introduction
The William D. Ford Federal Direct Loan (Direct Loan) program makes several types of federal
student loans available to individuals to assist them with financing postsecondary education
expenses. It represents the single largest source of federal financial assistance to support students’
postsecondary educational pursuits. The U.S. Department of Education (ED) estimates that in
FY2025, 14.9 million new loans totaling $93.1 billion, will be made through the Direct Loan
program to undergraduate and graduate students, and to the parents of undergraduate students.1 In
addition, ED estimates that 875,000 Direct Consolidation Loans,2 totaling $41.5 billion, will be
made to existing borrowers of federal student loans.3 As of the end of the third quarter of
FY2024, $1.4 trillion in principal and interest on Direct Loan program loans (including Direct
Consolidation Loans), borrowed by or on behalf of 37.5 million individuals, remained
outstanding.4
This report presents a comprehensive overview of the terms and conditions that apply to federal
student loans made through the Direct Loan program.5 It begins by providing background
information on the history of the Direct Loan program. This is followed by a brief description of
the various types of loans that are offered through the program. The report then presents a
thorough description of the terms and conditions for loans made through the Direct Loan
program. In identifying and describing loan terms and conditions, it focuses on provisions that are
generally applicable to loans regardless of special circumstances (e.g., not temporarily in place
due to a national emergency) and applicable to loans that are currently being made or that have
been made in recent years. Emphasis is placed on discussing Direct Loan program provisions that
relate to borrower eligibility, amounts that may be borrowed, interest rates and fees, procedures
for loan repayment, repayment relief, the availability of loan discharge and loan forgiveness
benefits, and the consequences of defaulting. The final section of the report provides a summary
of the methods that are used to ensure that borrowers are informed about the terms and conditions
of the loans they obtain and their obligation to repay them.
1 U.S. Department of Education, FY2025 Justification of Appropriation Estimates to the Congress, Volume II, “Student
Loans Overview,” p. 25, https://www.ed.gov/sites/ed/files/about/overview/budget/budget25/justifications/tsloverview.pdf. In some instances, more than one loan will be borrowed by a student or on the student’s behalf.
2 Direct Consolidation Loans allow individuals who have at least one loan borrowed through either the Direct Loan
program or the Federal Family Education Loan program to refinance their eligible federal student loan debt by
borrowing a new loan and using the proceeds to pay off their existing federal student loan obligations.
3 U.S. Department of Education, FY2025 Justification of Appropriation Estimates to the Congress, Volume II, “Student
Loans Overview,” p. 25, https://www.ed.gov/sites/ed/files/about/overview/budget/budget25/justifications/tsloverview.pdf.
4 U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Federal Student Aid
Portfolio Summary,” FY2024 Q3, https://studentaid.gov/sa/sites/default/files/fsawg/datacenter/library/
PortfolioSummary.xls.
5 This report focuses on describing the terms and conditions of federal student loans made through the Direct Loan
program as specified by the Higher Education Act of 1965 (HEA) and other laws and their implementing regulations.
In addition to the generally applicable loan terms and conditions that are summarized in this report, the Higher
Education Relief Opportunities for Students (HEROES) Act authorizes a number of waivers and regulatory flexibilities
that may be used to extend benefits to certain classes of borrowers. The waivers and flexibilities made available by the
HEROES Act are beyond the scope of this report. For additional information, see CRS Report R42881, EducationRelated Regulatory Flexibilities, Waivers, and Federal Assistance in Response to Disasters and National Emergencies.
Additionally, in response to the current COVID-19 pandemic, Congress and the Administration provided additional
student loan relief measures to Direct Loan program borrowers. These measures are briefly described in Appendix D.
For additional information, see CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.
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This report has been prepared as a resource for Members of Congress, congressional committees,
and congressional staff to support them in their legislative, oversight, and representational roles
related to federal student loan policy. It is intended to provide a thorough, but nonexhaustive,
description of loan terms and conditions and borrower benefits. It is not intended to be relied
upon by borrowers as a resource for validating individual eligibility for specific borrower
benefits.
Appendix A to this report contains a directory of resources on topics relating to loans made
through the Direct Loan program. Appendix B consists of a glossary of terms.6 Appendix C
contains a set of tables that present historical information on borrowing limits, interest rates, and
fees that have applied to loans made through the Direct Loan program. Appendix D briefly
describes temporary Direct Loan program flexibilities and debt relief that were made available to
borrowers in light of the COVID-19 pandemic.
Background on the Direct Loan Program
The Direct Loan program is authorized under Title IV, Part D of the Higher Education Act of
1965 (HEA; P.L. 89-329 , as amended). It was established by the Student Loan Reform Act of
1993 (SLRA), Title IV of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).7 Federal
student loans were first made through the Direct Loan program in 1994.
In the Direct Loan program, loans are made by the government using federal capital (i.e., funds
from the U.S. Treasury), and once made, outstanding loans constitute an asset of the federal
government. Some important characteristics of loans made through the Direct Loan program are
that the federal government assumes the risk for losses that may occur as a result of borrower
default, and that it pays for the discharge of loans in cases of borrower death, total and permanent
disability, and other instances. The federal government also assumes the cost of loans that are not
required to be paid in full due to borrowers satisfying criteria that make them eligible to have a
portion or all of the balance of their loans discharged under any of several loan forgiveness
programs. For federal budgeting purposes, the program is classified as a direct loan program,
which is a type of federal credit program for which mandatory spending authority is provided.8
ED’s Office of Federal Student Aid (FSA) is the primary entity tasked with administering the
Direct Loan program. The institutions of higher education (IHEs) that participate in the Direct
Loan program originate loans to borrowers through FSA’s Common Origination and
Disbursement (COD) system. Contractors hired by ED service and collect on the program’s
loans.9
When the Direct Loan program was first established, it was intended to expand gradually and
then ultimately fully replace the Federal Family Education Loan (FFEL) program, a guaranteed
6 In the process of describing loans made through the Direct Loan program, numerous terms with precise meanings are
used. When some of these terms are introduced, it is not always practical to fully describe or define the term, as a
subsequent section in the report may be better suited to providing a detailed description. Definitions for selected terms
are presented in the Glossary in Appendix B.
7 A Federal Direct Loan Demonstration Program was enacted under the Education Amendments of 1992 (P.L. 102325); however, prior to being fully implemented, the demonstration program was succeeded by the Direct Loan
program that was enacted under P.L. 103-66.
8 Federal credit may be extended in the form of a direct loan or a loan guarantee. For additional information, see CRS
Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and
Issues for Congress.
9 For more detailed information on the administration of the Direct Loan program, see CRS Report R44845,
Administration of the William D. Ford Federal Direct Loan Program.
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student loan program authorized under Title IV, Part B of the HEA, and through which most
federal student loans were being made.10 The FFEL program had descended from the Guaranteed
Student Loan (GSL) program, which was enacted under Title IV of the HEA in 1965 to enhance
access to postsecondary education for students from low- and middle-income families by
providing them access to low-interest federal student loans. In the FFEL program, loan capital
was provided by private lenders who also originated and serviced loans. The federal government
guaranteed lenders against loss due to factors such as borrower default, death, total and
permanent disability, and in certain instances, bankruptcy. State and nonprofit guaranty agencies
administered the federal guarantee. The federal government was also responsible for making
several different types of payments to lenders and guaranty agencies to support the operation of
the program. The FFEL program was administratively complex and the Direct Loan program was
established with the aims of streamlining the federal student loan delivery system and achieving
cost savings.11
Several years into the implementation of the Direct Loan program, the Higher Education
Amendments of 1998 (P.L. 105-244) repealed statutory provisions specifying that it ultimately
succeed the FFEL program.12 From 1994 to 2010, the Direct Loan program and the FFEL
program operated side-by-side. During this period, IHEs could elect to participate in the program
of their choice. As this decision was made at the institutional level, the program through which an
individual could borrow federal student loans was dependent upon the program participation
decisions made by the institution a student attended.
During the period while loans were being made through both the FFEL and Direct Loan
programs, from the perspective of the borrower, the terms and conditions of loans offered through
the programs were similar in most respects. However, the degree of similarity varied over time.
Notable differences included certain characteristics of the repayment plans offered and, beginning
in 2008, the availability of the Public Service Loan Forgiveness (PSLF) program only to
borrowers of loans made through the Direct Loan program.13
The SAFRA Act, Title II of the Health Care and Education Reconciliation Act of 2010 (HCERA;
P.L. 111-152) terminated the authority to make loans through the FFEL program, effective July 1,
10 At the time the Direct Loan program was established, federal student loans were also being made through the Federal
Perkins Loan program, authorized by HEA, Title IV, Part E, and through several smaller health education loan
programs authorized under the Public Health Services Act (PHSA). These other loan programs are beyond the scope of
this report. For additional information on the loan programs authorized under the PHSA, see CRS Report R46720,
Student Loan Programs Authorized by the Public Health Service Act: An Overview.
11 See CRS Report 95-110 EPW, The Federal Direct Student Loan Program, October 16, 1996 (available to
congressional clients upon request).
12 During the early years of implementation of the Direct Loan program, concerns were raised about the capacity of ED
to transition from overseeing lending through the FFEL guaranteed loan program to lending completely through the
Direct Loan program. For additional information, see U.S. Congress, Senate Committee on Labor and Human
Resources, Subcommittee on Education, Arts and Humanities, Oversight of the Direct Student Loan Program, 104th
Cong., 1st sess., March 30, 1995, S.Hrg. 104-28 (Washington, DC: GPO, 1995).
13 When the PSLF program was enacted, it was made available only through the Direct Loan program, with the
expectation that it would encourage increased borrowing through the Direct Loan program at the expense of the FFEL
program. The legislative history of the College Cost Reduction and Access Act of 2008 (CCRAA; P.L. 110-84) shows
that when the establishment of a program of “loan forgiveness for certain public service jobs” was approved in the
House-passed version of H.R. 2669, it was estimated that the costs of establishing such a program would be offset with
savings that would result from borrowers switching from the FFEL program to the Direct Loan program for purposes of
taking advantage of loan forgiveness benefits. U.S. Congress, House Committee on Education and Labor, College Cost
Reduction Act of 2007, H.R. 2669, 110th Cong., 1st sess., June 25, 2007, H.Rept. 110-210 (Washington, DC: GPO,
2007), pp. 71-72.
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2010.14 While loans are no longer being made through the FFEL program, as of the end of the
third quarter of FY2024, $169 billion in principal and interest on FFEL program loans, borrowed
by or on behalf of 7.5 million students, remained outstanding and due to be repaid over the
coming years.15
Over the history of the Direct Loan program, Congress has periodically made changes to loan
terms and conditions. Such changes have often been made as part of comprehensive amendments
to the HEA, which authorizes the Direct Loan program; as part of amendments contained in
budget reconciliation measures; or as part of amendments included in annual appropriations
measures. Congress may contemplate making future changes to loan terms and conditions.
Direct Loan Types
Individuals currently may borrow the following types of loans through the Direct Loan program:
•
•
•
Direct Subsidized Loans. These loans are available only to undergraduate
students16 who demonstrate financial need. Direct Subsidized Loans are
characterized by having an interest subsidy (i.e., interest that is not charged, or is
only partially charged) that applies during an in-school period when a borrower is
enrolled in an eligible program on at least a half-time basis, during a six-month
grace period that borrowers receive prior to entering repayment on their loans,
during periods of authorized deferment, and during certain other periods. The
Direct Subsidized Loans currently being made have a fixed interest rate that
remains constant for the duration of the loan.17
Direct Unsubsidized Loans. These loans are available to undergraduate
students, graduate students, and professional students, without regard to the
student’s financial need. Direct Unsubsidized Loans generally do not have an
interest subsidy. The Direct Unsubsidized Loans currently being made have a
fixed interest rate that remains constant for the duration of the loan. The interest
rate on loans made to graduate and professional students is higher than the rate
on loans made to undergraduate students.
Direct PLUS Loans. These loans are available to graduate and professional
students, and to the parents of undergraduate students who are dependent on them
for financial support. They are available without regard to financial need and
generally do not have an interest subsidy. The Direct PLUS Loans currently
being made have a fixed interest rate, which remains constant for the duration of
14 For additional information on changes made to the FFEL and Direct Loan programs by the SAFRA Act, see CRS
Report R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation (available to congressional
clients upon request).
15 U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Federal Student
Aid Portfolio Summary,” FY2024 Q2, https://studentaid.gov/sites/default/files/fsawg/datacenter/library/
PortfolioSummary.xls.
16 Direct Subsidized Loans were once available to graduate and professional students for periods of instruction
beginning prior to July 1, 2012. The Budget Control Act of 2011 (BCA; P.L. 112-25) eliminated the availability of
Direct Subsidized Loans to graduate and professional students for periods of instruction beginning on or after July 1,
2012.
17 Procedures for setting interest rates on Direct Loan program loans have varied over the years, as specified in statute.
At some points in time, Direct Loan program loans have been made with variable interest rates, while at other points in
time, they have been made with fixed interest rates. See “Procedures for Setting Student Loan Interest Rates” for
additional information.
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•
the loan; and the interest rate is higher than the rate on both Direct Subsidized
Loans and Direct Unsubsidized Loans.
Direct Consolidation Loans.18 These loans allow individuals who have at least
one loan borrowed through either the Direct Loan program or the FFEL program
to borrow a new loan and use the proceeds to pay off their existing federal
student loan obligations, including loans that are in default. This is essentially a
form of debt refinancing. Direct Consolidation Loans are available without
regard to financial need. The Direct Consolidation Loans currently being made
have fixed interest rates. In general, the interest rate for a Direct Consolidation
Loan is determined by calculating the weighted average of the interest rates on
the loans that are consolidated, and rounding the result up to the next higher oneeighth of a percentage point. For a Direct Consolidation Loan that was the result
of the separation of a Joint Consolidation Loan (JCL), the interest rate is equal to
the interest rate on the JCL as of the date before the separation of the JCL.19
Typically, when an individual obtains a Direct Consolidation Loan, a new
repayment period begins, which may be for a longer period than applied to the
loans originally borrowed.20 A Direct Consolidation Loan may have a subsidized
component21 and an unsubsidized component.22
18 A number of variations of Direct Consolidation Loans were once available. Married individuals who both had federal
student loans were once able to obtain Joint Direct Consolidation Loans for purposes of repaying their combined
student loan debt. Borrowers of these loans became jointly and severally liable for the debt—even in the event of
divorce. The authority to make new Joint Direct Consolidation Loans was repealed effective July 1, 2006, under the
Higher Education Reconciliation Act of 2005 (HERA; P.L. 109-171). Also, Special Direct Consolidation Loans were
available during a limited period from January 17, 2012, through June 30, 2012, to borrowers who had both (1) one or
more student loans made through the FFEL program and held by a commercial lender, and (2) one or more loans made
through either the Direct Loan program or made through the FFEL program and held by ED. Eligible borrowers were
afforded the opportunity to consolidate their commercially held FFEL program loans into a Special Direct
Consolidation Loan, and in doing so simplify the repayment of their loans by having them all serviced by a single
entity. A number of special repayment incentives were available to borrowers who consolidated their loans under this
program. U.S. Department of Education, Office of Postsecondary Education, “Special Direct Consolidation Loan
Information - Short-Term Consolidation Opportunity Offered from January - June 30, 2012,” October 26, 2011,
https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2011-10-26/loans-subject-special-directconsolidation-loan-information-short-term-consolidation-opportunity-offered-january-june-30-2012.
19 HEA §455(g)(2)(B)(i)(II). Prior to October 11, 2022, a JCL could not be separated, even if the individuals who
borrowed the loan were no longer married. The Joint Consolidation Loan Separation Act (P.L. 117-200) authorized
borrowers of JCLs to separate those loans into two new Direct Consolidation Loans, one for each borrower of the JCL.
Beginning September 30, 2024, borrowers may apply to separate their JCLs into separate Direct Consolidation Loans.
U.S. Department of Education, “Update on Implementation of the Joint Consolidation Loan Separation Act for FFEL
Loan Holders and Servicers,” Electronic Announcement, LOANS-24-10, October 1, 2024, https://fsapartners.ed.gov/
knowledge-center/library/electronic-announcements/2024-10-01/update-implementation-joint-consolidation-loanseparation-act-ffel-loan-holders-and-servicers.
20 Loan consolidation is essentially a form of debt refinancing. Under current law, borrowers may use the proceeds of a
Direct Consolidation Loan to pay off debt owed on one or more previously borrowed federal student loans and to begin
a new repayment period of up to 30 years. Doing so may allow borrowers to lower their required monthly payment
amount. Borrowers may not, however, obtain a lower interest rate on their federal student loan debt as a result of loan
consolidation.
21 The subsidized component of a Direct Consolidation Loan (also referred to as a Direct Subsidized Consolidation
Loan) is the portion of a Direct Consolidation Loan attributable to the following loan types (some of which may have
been made through programs authorized under Title IV, Part B of the HEA): (1) Subsidized Federal Stafford Loans, (2)
Guaranteed Student Loans, (3) Federal Insured Student Loans, (4) Direct Subsidized Loans, (5) Direct Subsidized
Consolidation Loans, and (6) the portion of a Federal Consolidation Loan that is eligible for interest benefits during a
period of deferment. 34 C.F.R. §685.220(c)(1).
22 The unsubsidized component of a Direct Consolidation Loan (also referred to as a Direct Unsubsidized Consolidation
(continued...)
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Eligibility and Amounts That May Be Borrowed
Eligibility for an individual to borrow a loan through the Direct Loan program and the amount
they may borrow are governed by HEA provisions and by policies and procedures implemented
by ED. All loan types except Direct PLUS Loans are available without consideration of a
borrower’s ability to repay the loan. Eligibility to borrow a Direct PLUS Loan depends on an
individual’s creditworthiness.
The following section identifies and describes factors that determine an individual’s eligibility to
borrow one or more types of loans made available through the Direct Loan program. This is
followed by a section that describes policies and procedures for determining amounts that may be
borrowed.
Factors Affecting Eligibility to Borrow
For an individual to be eligible to borrow a loan through the Direct Loan program, the student
borrower, or the student on whose behalf a parent borrower would obtain a Direct PLUS Loan,
must meet a number of eligibility requirements. A broad set of general eligibility criteria applies
to students who may benefit from a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a
Direct PLUS Loan. An additional set of requirements applies specifically to applicants seeking to
borrow a Direct PLUS Loan. Still other requirements apply to applicants for Direct Consolidation
Loans. Eligibility to borrow various types of loans is also affected by a student’s dependency
status, program level (e.g., undergraduate, graduate, or professional), undergraduate class level,
financial need, cost of attendance (COA)23 of the academic program, estimated financial
assistance (EFA) they expect to receive from other sources, and certain other factors. Factors that
affect eligibility to borrow through the Direct Loan program are discussed below.
General Student-Based Eligibility Criteria
In general, for a student to be eligible to borrow a Direct Subsidized Loan, a Direct Unsubsidized
Loan, or a Direct PLUS Loan, or for a parent to borrow a Direct PLUS Loan on behalf of a
student, the student must
•
be enrolled on at least a half-time basis as a regular student in either an eligible
program at a participating eligible IHE24, a preparatory program necessary for
Loan) is the portion of a Direct Consolidation Loan attributable to the following loan types (some of which may have
been made through programs authorized under Title IV, Part B and Part E of the HEA and Title VII and Title VIII of
the Public Health Service Act [PHSA]): (1) Federal Perkins Loans, (2) National Direct Student Loans, (3) National
Defense Student Loans, (4) Federal PLUS Loans, (5) Parent Loans for Under Graduate Students (PLUS), (6) Direct
PLUS Loans, (7) Direct PLUS Consolidation Loans, (8) Unsubsidized Federal Stafford Loans, (9) Federal
Supplemental Loans for Students (SLS), (10) Direct Unsubsidized Loans, (11) Direct Unsubsidized Consolidation
Loans, (12) Auxiliary Loans to Assist Students (ALAS), (13) Health Professions Student Loans (HPSL), (14) Loans for
Disadvantaged Students (LDS), (15) Health Education Assistance Loans (HEAL), (16) Nursing Loans, and (17) the
portion of a Federal Consolidation Loan that is ineligible for interest benefits during a period of deferment. 34 C.F.R.
§685.220(c)(2). Furthermore, the term Direct PLUS Consolidation Loan refers to the portion of a Direct Consolidation
Loan attributable to (1) Direct PLUS Loans, (2) Direct PLUS Consolidation Loans, (3) Federal PLUS Loans, and (4)
Parent Loans for Undergraduate Students that were repaid by the Direct Consolidation Loan.
23 Cost of attendance is defined at HEA §472. COA is determined by the IHE attended and generally includes tuition
and fees, an allowance for books, supplies and transportation, room and board, and other expenses related to school
attendance.
24 For additional information on institutional and program eligibility requirements for participation in the HEA Title IV
(continued...)
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
•
•
•
•
•
•
enrollment in an eligible program (for up to one year), or a teacher certification
program;25
not be incarcerated;
be a U.S. citizen or national, U.S. permanent resident, or other eligible
noncitizen;26
have a high school diploma or recognized equivalent, such as a general education
development (GED) certificate, or meet other academic requirements;27
maintain satisfactory academic progress as defined by the school and in
accordance with the HEA;28
not be in default on a federal student loan, nor owing a refund on a grant or loan
made under HEA, Title IV without having made satisfactory repayment
arrangements; and
have on file at the IHE attended a statement of educational purpose stating that
the loan will be used solely for educational expenses.29
Student Dependency Status
For purposes of awarding federal student aid, dependency status determines whether a student is
considered dependent on their parents’ financial support or is independent of their support.
Dependency status is determined by a student’s responses to questions on the Free Application for
Federal Student Aid (FAFSA), which they must complete and submit to ED when applying for
federal student aid.
A student is considered an independent student if they
•
•
•
•
•
•
are, or will be, 24 years of age or older before January 1 of the award year;
are married at the time of completing the FAFSA;
will be a graduate or professional student at the start of the award year;
are currently serving on active duty in the Armed Forces for other than training
purposes;
are a veteran of the U.S. Armed Forces;
have legal dependents other than a spouse;
student financial aid programs, see CRS Report R43159, Institutional Eligibility for Participation in Title IV Student
Financial Aid Programs.
25 Loans may be obtained through the Direct Loan program for purposes of financing postsecondary expenses at both
domestic and foreign institutions. The Direct Loan program is the only HEA, Title IV program that makes federal
student aid available for purposes of enrolling in a foreign institution.
26 Individuals who are citizens of the Freely Associated States (the Federated States of Micronesia, the Republic of
Palau, and the Republic of the Marshall Islands) are ineligible to borrow Direct Loans. 34 C.F.R. §668.33(b).
27 For additional information, see U.S. Department of Education, 2024-2025 Federal Student Aid Handbook, vol. 1, p.
7-12 (hereinafter, “FSA Handbook”).
28 See also 34 C.F.R. §668.34. For example, in part, “if a student is enrolled in an educational program of more than
two academic years, the policy specifies that at the end of the second academic year, the student must have a GPA of at
least a ‘C’ or its equivalent, or have academic standing consistent with the institution’s requirements for graduation.”
29 Prior to award year 2021-2022, students were ineligible if they did not meet applicable Selective Service System
requirements or if they had been convicted of a federal or state offense of selling or possessing illegal drugs that
occurred during a period of enrollment for which the student was receiving federal student aid and their eligibility had
not been otherwise restored under specified circumstances. The FAFSA Simplification Act of 2020 (Title VII, Division
FF of P.L. 116-260, Consolidated Appropriations Act, 2021) eliminated these eligibility restrictions.
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
•
•
•
•
were an orphan, in foster care, or a ward of the court, at any time since age 13;
are an emancipated minor or are in legal guardianship as determined by a court of
competent jurisdiction in the individual’s state of legal residence, or were when
reaching the age of majority;
are an unaccompanied youth who is homeless, or self-supporting and at risk of
being homeless; or
are a student for whom a financial aid administrator makes a documented
determination of independence by reason of other unusual circumstances or
based upon a documented determination of independence that was previously
made by another financial aid administrator in the same award year.30
A student who does not satisfy any of the criteria to qualify as an independent student is classified
as a dependent student.31
Dependency status determines the types of loans students and their families may borrow, which in
turn affects the amounts that may be borrowed. Of particular importance with regard to
undergraduate students is the fact that Direct PLUS Loans—the loans with the most flexible
borrowing limits—are available to the parents of dependent students but not to the parents of
independent students. However, independent undergraduate students are extended higher personal
borrowing limits than are dependent students.32 These differential borrowing limits are predicated
on the expectation that the postsecondary education expenses of dependent students will be
financed by some combination of students and their parents, whereas the postsecondary education
expenses of independent students will typically be financed without parental assistance.
Dependency status also determines which individuals in a student’s family will have their income
and assets considered in need analysis calculations for the student (discussed below). Need
analysis calculations for a dependent student are based on the income and assets of both the
student and the student’s parents,33 whereas need analysis calculations for an independent student
are based on the income and assets of the student (and if applicable, the student’s spouse).
Program Level
The academic level of the program in which a student is enrolled impacts both the types of loans
that they may borrow and certain terms and conditions of such loans.
30 HEA, §480(d); U.S. Department of Education, 2024-2025 Handbook, Application and Verification Guide, pp. 12-16.
Effective July 1, 2023, institutions may use a documented determination of independence made by another institution
in the same or a prior award year. U.S. Department of Education, Dear Colleague Letter GEN-22-15, “FAFSA
Simplification Act Changes for Implementation in 2023-24,” November 04, 2022, https://fsapartners.ed.gov/
knowledge-center/library/dear-colleague-letters/2022-11-03/fafsar-simplification-act-changes-implementation-202324.
31 34 C.F.R. §668.2(b).
32 Dependent undergraduates may be eligible to borrow additional amounts in the form of Direct Unsubsidized Loans
up to the larger loan limits available to independent undergraduate students (displayed in Table 1) in instances where a
financial aid administrator determines that the student’s parents are unable to borrow Direct PLUS Loans due to certain
exceptional circumstances. Exceptional circumstances may apply in instances of a student whose parent is unable to
qualify to borrow Direct PLUS Loans due to having an adverse credit history, whose parent’s only income is from
public assistance or disability benefits, whose parent is incarcerated, whose parent’s whereabouts are unknown, or
whose parent is not a U.S. citizen or permanent resident. 34 C.F.R. §685.203(c).
33 Parental income and assets can be defined in a variety of ways in cases where a student’s parents are not married to
each other. For additional information, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and
Expected Family Contribution.
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Undergraduate Studies
Undergraduate students may borrow Direct Subsidized Loans and Direct Unsubsidized Loans,
and the parents of undergraduate students who are dependent upon them for financial support
may borrow Direct PLUS Loans on the student’s behalf. Direct PLUS Loans may not be
borrowed by undergraduate students nor by parents on behalf of undergraduate independent
students.
Graduate and Professional Studies
Graduate and professional students may borrow Direct Unsubsidized Loans and Direct PLUS
Loans. To be eligible to borrow as a graduate or professional student, an individual must be
enrolled in a program above the baccalaureate level or in one that leads to a first professional
degree, must have completed at least the equivalent of three years of full-time study either prior
to entering the program or as part of it, and must not be concurrently receiving Title IV aid as an
undergraduate student.34 Graduate and professional students, all of whom are classified as
independent students, are extended higher borrowing limits than undergraduate students.
Undergraduate Class Level
For undergraduates, a student’s class level determines the maximum amount the student may
borrow on an annual basis. A student’s class level is based on their progression according to the
academic standards of the school the student attends. For undergraduate students, progression to a
higher grade level for purposes of awarding a loan through the Direct Loan program does not
necessarily correspond to the start of a new academic year (AY). For instance, a student who
continues to make satisfactory academic progress but does not progress to the next grade level
due to having completed an insufficient number of credits could borrow a loan through the Direct
Loan program more than once as a first-year student. Once the student accrues enough credits to
progress to the next higher grade level, they would become eligible for the higher borrowing
limits available to second-year students, and so on.35
Financial Need
Direct Subsidized Loans are need-based and may only be borrowed by students who demonstrate
having financial need according to federal need analysis procedures.36 Applicants seeking to
borrow Direct Subsidized Loans must undergo a need test through which a student’s student aid
34 34 C.F.R. §668.2(b).
35 34 C.F.R. §685.203.
36
From July 1, 2013, to August 13, 2021, a student who had no outstanding balance of principal or interest on a Direct
Loan program or FFEL program loan on July 1, 2013, or on the date the borrower obtained a loan after July 1, 2013,
could only borrow Direct Subsidized Loans for a period not to exceed 150% of the published length of the academic
program in which they were enrolled (the maximum eligibility period). In addition, if a Direct Subsidized Loan
borrower subject to this rule remained enrolled in the same program for which the loan was obtained, or another
undergraduate academic program of equal or shorter length beyond the applicable maximum eligibility period, the
borrower would lose the interest subsidy otherwise available on their Direct Subsidized Loans and would become
responsible for paying the interest that accrued on their Direct Subsidized Loans after the date that the maximum
eligibility period was exceeded. These rules were known as Subsidized Usage Limit Applies (SULA) and were repealed
by the FAFSA Simplification Act of 2020 (Title VII, Division FF of P.L. 116-260). For additional information, see
U.S. Department of Education, “Repeal of the William D. Ford Federal Direct Loan Program Subsidized Usage Limit
Restriction,” 86 Federal Register 31432-31438, June 14, 2021.
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
index (SAI)37 is calculated. The SAI is the amount of funds a student, and, if applicable, a
student’s family, is expected to pay toward the student’s postsecondary education expenses as
determined on the basis of the financial resources available to the student. According to federal
student aid need analysis procedures, the sum of the student’s SAI and the amount of estimated
financial assistance (EFA) they expect to receive from sources other than programs authorized
under Title IV of the HEA is subtracted from the estimated COA of the institution the student
attends to determine the amount of need-based financial aid that they are eligible to receive.
Additional procedures are followed to determine the composition of the student’s federal student
aid package. For instance, undergraduate students must receive a determination of their eligibility
to receive a Federal Pell Grant38 (a form of need-based aid available only to undergraduates) prior
to being certified by their school as being eligible to borrow a Direct Subsidized Loan. This
procedure is designed to first provide maximum grant aid to low-income students before they
incur student loan debt. The amount a student may borrow with a Direct Subsidized Loan may
not exceed the amount of the student’s unmet financial need after other forms of need-based
federal student aid available under HEA, Title IV have been awarded. (For additional
information, see the “Limits on Borrowing Determined by Need Analysis and Packaging”
section.) Since July 1, 2012, only undergraduate students have been eligible to borrow Direct
Subsidized Loans.
Eligibility Requirements for Direct PLUS Loans
In addition to satisfying the general student-based eligibility criteria, an individual must meet
certain other eligibility criteria specifically applicable to Direct PLUS Loans.
Parent Borrower Eligibility Criteria
Direct PLUS Loans may be borrowed by one or both parents of a dependent undergraduate
student who meets the general student-based eligibility criteria described above. Eligible parents
include biological parents, adoptive parents, and stepparents (if the stepparent’s income and assets
are taken into account in determining a student’s SAI). A legal guardian may not borrow a Direct
PLUS Loan on behalf of a student as a parent borrower. Parent borrowers must also meet the
same citizenship and residency requirements as student borrowers; may not be in default on a
federal student loan, nor owe a refund on a grant or loan made under Title IV without having
made satisfactory repayment arrangements; and may not be incarcerated.
For a parent to be eligible to borrow a Direct PLUS Loan on behalf of a dependent undergraduate
student, the student must have completed a FAFSA. A parent borrower is not required to complete
a separate FAFSA. The eligibility of a noncustodial parent to borrow a Direct PLUS Loan on
behalf of their child is not impacted by that parent’s financial information not appearing on the
student’s FAFSA.39
37 Prior to award year 2024-2025, the SAI was called the expected family contribution (EFC). The FAFSA
Simplification Act (Title VII, Division FF of P.L. 116-260) made significant changes to the underlying processes and
methodologies for determining federal student aid eligibility, including renaming EFC to SAI. For additional
information on need analysis, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected
Family Contribution. For additional information on the FAFSA Simplification Act, see CRS Report R46909, The
FAFSA Simplification Act.
38 For additional information on the Federal Pell Grant program, see CRS Report R45418, Federal Pell Grant Program
of the Higher Education Act: Primer.
39 U.S. Department of Education, 2023-2024 Federal Student Aid Handbook, vol. 8, p. 5 (hereinafter, “2023-2024 FSA
Handbook”).
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Creditworthiness Requirements to Borrow Direct PLUS Loans
Eligibility for an individual to borrow a Direct PLUS Loan also depends on that individual’s
creditworthiness. Only individuals who do not have an adverse credit history, as determined
according to procedures specified in regulations, may borrow Direct PLUS Loans.40 The
creditworthiness criteria apply to both parent borrowers and to graduate and professional student
borrowers. Creditworthiness is assessed on the basis of a credit report on the applicant obtained
from at least one consumer reporting agency. An applicant is considered to have an adverse credit
history if they either
•
•
have one or more debts totaling more than $2,085 that are 90 days or more
delinquent as of the date of the credit report, or that have been placed in
collection or been charged off by the creditor as a loss within the two years prior
to the credit report;41 or
have been the subject of a default determination, bankruptcy discharge,
foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under
HEA, Title IV within the five years prior to the credit report.
An applicant who is determined to have an adverse credit history may not obtain a Direct PLUS
Loan unless they either obtain an endorser42 or demonstrate that extenuating circumstances exist
with regard to the applicant’s credit history.43 Extenuating circumstances may include an updated
credit report or a letter from a creditor stating that the applicant has made satisfactory repayment
arrangements on a derogatory debt.44 In addition, to obtain a Direct PLUS Loan an applicant who
has an adverse credit history must also complete credit counseling. (See the “PLUS Loan Credit
Counseling For Borrowers with Adverse Credit” section) An applicant may not, however, be
rejected for a Direct PLUS Loan on the basis of having no credit history.
A dependent undergraduate student whose parents are unable to obtain a Direct PLUS Loan due
to their having an adverse credit history may borrow a larger amount in the form of a Direct
Unsubsidized Loan.45 In such a case, the student may borrow up to the borrowing limit applicable
to a similarly situated independent undergraduate student. (These amounts are discussed in the
“Amounts That May Be Borrowed” section.)
Eligibility Requirements for Direct Consolidation Loans
Two differing sets of borrower eligibility criteria apply for Direct Consolidation Loans. One set
generally applies across borrowers seeking Direct Consolidation Loans, while another set applies
to borrowers seeking to separate their Joint Consolidation Loans into one or two Direct
Consolidation Loans.
40 34 C.F.R. §685.200.
41 Regulations specify that the $2,085 threshold will periodically be adjusted for inflation “when the Secretary
determines that an inflation adjustment … would result in an increase of $100 or more.” It appears the Secretary has
not adjusted the threshold since the regulations’ implementation in 2015. 34 C.F.R. §685.200(c)(2)(viii)(C).
42 An endorser is an individual who does not have an adverse credit history, who signs a promissory note, and who
agrees to repay the loan should the borrower not do so. 34 C.F.R. §685.102(b).
43 A dependent student on whose behalf the loan would be made to a parent borrower may not be an endorser. 20232024 FSA Handbook, vol. 8, p. 5.
44 34 C.F.R. §685.200(c)(2)(viii)(G).
45 34 C.F.R. §685.203(c)(iii).
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
General Direct Consolidation Loan Criteria
In general, to be eligible to obtain a Direct Consolidation Loan, a borrower must have an
outstanding principal balance on at least one loan that was made through either the Direct Loan
program or the FFEL program. In addition, with respect to the loans being consolidated, the
applicant must be (1) in the grace period prior to entering repayment; (2) in repayment status, but
not in default; or (3) in default, but having made satisfactory repayment arrangements.46
For the purposes of including a defaulted loan in a Direct Consolidation Loan, making
“satisfactory repayment arrangements” means that the defaulted borrower has made at least three
consecutive voluntary full monthly payments within 20 days of the due date, or has agreed to
repay according to one of the Income-Driven Repayment (IDR) plans (described below).47 A
borrower of a defaulted loan who is subject to a court judgment or wage garnishment is ineligible
to obtain a Direct Consolidation Loan.
In general, a set of loans may be consolidated only once.48 However, in select circumstances a
borrower may add additional loans to their preexisting Direct Consolidation Loan or may use a
Direct Consolidation Loan to repay a previously obtained Direct Consolidation Loan or a FFEL
Consolidation Loan. Loans made to borrowers within 180 days prior to or after the date of
obtaining a Direct Consolidation Loan may be added to that Direct Consolidation Loan. A
borrower who has an existing Direct Consolidation Loan and also has other eligible loans that
have not been consolidated, or who subsequently obtains other eligible loans, may consolidate
those loans with their existing loans for purposes of obtaining a new Direct Consolidation Loan.
A borrower who has an existing FFEL Consolidation Loan and whose loan is in default or has
been referred to a guaranty agency for default aversion assistance49 may consolidate their loan
into a Direct Consolidation Loan for purposes of repaying according to one of the IDR plans. A
borrower who has an existing FFEL Consolidation Loan may consolidate that loan into a Direct
Consolidation Loan for the purposes of applying for loan forgiveness through the PSLF Program
or to receive the No Accrual of Interest on Loans of Certain Active Duty Servicemembers benefit
that is only available to borrowers of loans made through the Direct Loan program. Borrowers
with a JCL made under either the FFEL or the Direct Loan program may apply to separate that
loan into two new Direct Consolidation Loans or one new Direct Consolidation Loan and a
remaining JCL, depending on the circumstances (see the ““Criteria to Separate a Joint
Consolidation Loan into One or More Direct Consolidation Loans”” section).
A Direct Consolidation Loan must consist of at least one eligible loan made through either the
Direct Loan or FFEL programs, and may also contain other types of federal student loans.50 The
eligible types of federal student loans made through the Direct Loan and FFEL programs include
Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation
Loans, FFEL Subsidized Stafford Loans, FFEL Unsubsidized Stafford Loans, FFEL PLUS Loans,
and FFEL Consolidation Loans.51 The eligible types of federal student loans made outside of the
Direct Loan and FFEL programs are Federal Perkins Loans, Guaranteed Student Loans, Federal
46 HEA §428C(a).
47 34 C.F.R. §685.102(b).
48 HEA §428C(a)(3)(B).
49 Default aversion activities are means of assistance provided by a guaranty agency to a lender that holds a delinquent
loan prior to the loan legally entering default status. HEA §§422(h)(8) and 422B(d).
50 HEA §428C(a)(4).
51 Over the history of the Direct Loan program and the FFEL program, the terminology used to refer to various types of
loans has changed. A complete listing of loan types eligible for inclusion in a Direct Consolidation Loan is specified in
regulations at 34 C.F.R. §685.220(b).
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Insured Student Loans, National Direct Student Loans, National Defense Student Loans,
Supplemental Loans for Students (SLS), Auxiliary Loans to Assist Students (ALAS), Health
Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Loans for
Disadvantaged Students (LDS), and Nurse Faculty Loans, and Nursing Student Loans.52
Criteria to Separate a Joint Consolidation Loan into One or More Direct
Consolidation Loans
Between October 1, 1992, and July 1, 2006, married borrowers who each had eligible FFEL
program and/or Direct Loan program student loans could consolidate their debt into a single JCL.
To do so, each spouse was required to agree “to be held jointly and severally liable for the
repayment of the consolidation loan, without regard to the amounts of the respective loan
obligations” that were to be consolidated and without regard to any subsequent change in the
couple’s marital status.53
On October 11, 2022, the Joint Consolidation Loan Separation Act (P.L. 117-200) was enacted to
enable borrowers of FFEL and Direct Loan program JCLs to separate their loans into one or two
new Direct Consolidation Loans. Each new Direct Consolidation Loan is to be in an amount
equal to the proportion of the unpaid principal, interest, and fees of the JCL attributable to the
loans of the individual borrower for whom the separate, new Direct Consolidation Loan is being
made. The portion of the JCL attributable to the loans of an individual borrower is to be
determined on the basis of the original loan obligation of the borrower as of the date the JCL was
made, or if requested by both borrowers, on the basis of the debt’s distribution described in a
divorce decree, court order, settlement agreement, or other document. For a Direct Consolidation
Loan that was the result of a separation of a JCL, the interest rate is to be equal to the interest rate
on the JCL as of the date before the separation of the JCL.
Under the Joint Consolidation Loan Separation Act, borrowers may separate JCLs in one of two
ways. First, a married couple (or two individuals who were previously a married couple) may
each apply to ED to separate the loan. Second, an individual borrower in a married couple (or
previously married couple) may apply to separate the loan without regard to whether the other
individual borrower in the married couple (or previously married couple) applies for the
separation of the loan. To do so, the applicant borrower must certify to ED that they have
experienced an act of domestic violence or economic abuse from the other borrower54 or are
“unable to reasonably reach or access the loan information from the other individual borrower.”55
If an individual borrower receives a new Direct Consolidation Loan after separating the JCL
without application from the other borrower, the nonapplicant borrower becomes solely liable for
any remaining balance of the JCL following the loan separation.
Unlike a general Direct Consolidation Loan, a JCL for which a borrower(s) seeks separation may
be in default and applicants need not have entered into a satisfactory repayment arrangement to
be eligible to separate a JCL.
52 Several of these loan types were once made through programs that have since been discontinued.
53 20 U.S.C. §1078-3 (2018), “Editorial Notes.”
54 Domestic abuse and economic abuse are defined in 34 U.S.C. §12291.
55 ED is also authorized to permit borrowers to apply individually to separate their JCLs if doing so would be in the
best fiscal interest of the federal government.
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Beginning September 30, 2024, borrowers may apply to separate their JCLs into separate Direct
Consolidation Loans.56
Amounts That May Be Borrowed
The maximum amounts that a student or a parent may borrow in loans made through the Direct
Loan program are determined by the interaction of annual and aggregate borrowing limits and
federal need analysis and packaging procedures. Limitations on borrowing vary by loan type,
borrower characteristics, program level, and class level.
Annual Loan Limits
For undergraduate students, annual loan limits cap both the maximum amount that may be
borrowed in Direct Subsidized Loans and the total combined amount that may be borrowed
through Direct Subsidized Loans and Direct Unsubsidized Loans during a single academic year.
Annual loan limits for Direct Subsidized Loans vary by undergraduate class level; however, at
any particular class level these limits are the same for both dependent undergraduate students and
undergraduate independent students. Annual loan limits for the total combined amount of Direct
Subsidized Loans and Direct Unsubsidized Loans that may be borrowed by undergraduate
students vary by both undergraduate class level and by student dependency status.
For graduate and professional students, annual loan limits cap the maximum that may be
borrowed in Direct Unsubsidized Loans, irrespective of class level. However, higher exceptional
annual loan limits are extended to students enrolled in certain health professions programs. There
is no specified dollar limit to the amount that may be borrowed in Direct PLUS Loans by either
parent borrowers or by graduate and professional students.
The annual loan limits apply to the maximum principal amount that may be borrowed in an
academic year. Any loan origination fees that the borrower is required to pay (see the “Loan
Origination Fees” section) are included in the amount to be borrowed that is subject to these
limits.
Borrowing limits for a student who is enrolled for less than one year are prorated based on the
fraction of the academic year for which the student is enrolled. An academic year is defined in
statute as a minimum of 30 weeks of instruction for courses of study measured in credit hours, or
26 weeks for courses of study measured in clock hours and during which a full-time student is
expected to complete a minimum of 24 semester or trimester hours, 36 quarter hours, or 900
clock hours.57
Aggregate Loan Limits
Aggregate loan limits cap the total cumulative amount of outstanding loans that a student may
borrow through certain loan types. One limit applies to the total amount that may be borrowed in
Direct Subsidized Loans and another limit applies to the total combined amount that may be
borrowed in Direct Subsidized Loans and Direct Unsubsidized Loans.58 No aggregate limits are
56 U.S. Department of Education, “Update on Implementation of the Joint Consolidation Loan Separation Act for FFEL
Loan Holders and Servicers,” Electronic Announcement, LOANS-24-10, October 1, 2024, https://fsapartners.ed.gov/
knowledge-center/library/electronic-announcements/2024-10-01/update-implementation-joint-consolidation-loanseparation-act-ffel-loan-holders-and-servicers.
57 HEA §481(a)(2)(A).
58 Aggregate loan limits for Direct Subsidized Loans also include Subsidized Stafford Loan amounts borrowed through
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placed on Direct PLUS Loan borrowing. The aggregate loan limits apply only to the aggregate
outstanding principal balance (OPB) of the loans a student has borrowed. They do not apply to
accrued or capitalized interest.59 Annual and aggregate limits that have applied to loans made
through the Direct Loan program since July 1, 2012, are presented in Table 1.
Table 1. Annual and Aggregate Loan Limits,
by Borrower Type and Program Level: July 1, 2012, to Present
(dollars)
Borrower Type
and Program Level
Direct
Subsidized
Loans
Direct Subsidized Loans and
Direct Unsubsidized Loans,
Combined
All Eligible
Borrowers
Dependent
Students
Independent
Students
Direct
PLUS
Loans
All Eligible
Borrowers
Undergraduate Students
Annual Loan Limits
Preparatory coursework for an
undergraduate program
2,625
2,625
8,625a
n.a.
1st year
3,500
5,500
9,500a
n.a.
6,500
10,500a
n.a.
7,500
12,500a
n.a.
n.a.
n.a.
2nd year
3rd year and above
4,500
5,500
Preparatory coursework for a
graduate programb
5,500
5,500
12,500a
Teacher certificationb
5,500
5,500
12,500a
23,000
31,000
57,500a
n.a.
In general
n.a.
n.a.
20,500f
Up to COA-EFAg
Health professions programsh
n.a.
n.a.
40,500
to 47,167f
Up to COA-EFAg
Health professions programsi
n.a.
n.a.
33,000
to 37,167f
Up to COA-EFAg
In general
65,000k
n.a.
138,500
Not limitedg
Health professions
programse,h,i
65,000k
n.a.
224,000
Not limitedg
Aggregate Loan Limitsc,d
In generale
n.a.
Graduate Students
Annual Loan Limits
Aggregate Loan Limitsc,d,j
Parents of Dependent Undergraduate Students
Annual Loan Limits
the FFEL program. Aggregate loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans, combined, also
include Subsidized Stafford Loans and Unsubsidized Stafford Loans, combined, borrowed through the FFEL program.
59 In addition, recipients of TEACH Grants who fail to meet the requirements of the program may be required to repay
the amount of their TEACH Grant award in the form of a Direct Unsubsidized Loan. For such individuals, this Direct
Unsubsidized Loan amount is determined separately from otherwise applicable annual borrowing limits.
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Borrower Type
and Program Level
All
Direct
Subsidized
Loans
Direct Subsidized Loans and
Direct Unsubsidized Loans,
Combined
All Eligible
Borrowers
Dependent
Students
Direct
PLUS
Loans
Independent
Students
All Eligible
Borrowers
n.a.
n.a.
n.a.
Up to COA-EFAg
n.a.
n.a.
n.a.
Not limitedg
Aggregate Loan Limitsc,d
In general
Source: HEA, §§428, 428H, 451, and 455; 34 C.F.R. §685.203; and U.S. Department of Education, Office of
Postsecondary Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08.
Notes: “n.a.” means not applicable. “COA” means cost of attendance. “EFA” means estimated financial
assistance.
a. These loan limits also apply to dependent undergraduate students whose parents are unable to obtain a
Direct PLUS Loan.
b. Applies to individuals who have obtained a baccalaureate degree.
c. Accrued interest and capitalized interest do not count toward aggregate loan limits.
d. If a borrower has a Direct Consolidation Loan, any Direct Subsidized Loans or Direct Unsubsidized Loans
that have been included in the Direct Consolidation Loan remain attributable to the aggregate limits for
Direct Subsidized Loans and Total Direct Subsidized Loans and Direct Unsubsidized Loans combined, in
accordance with their proportionate share of the Direct Consolidation Loan. Aggregate loan limits also
include amounts of comparable loan types borrowed through the FFEL program (e.g., Subsidized Stafford
Loans, Unsubsidized Stafford Loans).
e. Includes Subsidized Stafford Loans and Unsubsidized Stafford Loans borrowed through the FFEL program.
f.
Direct Subsidized Loans are not currently available to graduate students.
g. There is no statutorily specified dollar limit on borrowing amounts for Direct PLUS Loans; however, all aid
combined may not exceed COA.
h. Students enrolled in programs in the following disciplines are eligible to annually borrow an additional
$20,000 more than regular students in Direct Unsubsidized Loans for programs with 9-month academic
years, and an additional $26,667 for programs with 12-month academic years: Doctor of Allopathic
Medicine, Doctor of Osteopathic Medicine, Doctor of Dentistry, Doctor of Veterinary Medicine, Doctor of
Optometry, Doctor of Podiatric Medicine; and, effective May 1, 2005, Doctor of Naturopathic Medicine and
Doctor of Naturopathy. Amounts are prorated for 10- and 11-month programs.
i.
Students enrolled in programs in the following disciplines are eligible annually to borrow an additional
$12,500 more than regular students in Direct Unsubsidized Loans for programs with 9-month academic
years, and an additional $16,667 for programs with 12-month academic years: Doctor of Pharmacy,
Graduate in Public Health, Doctor of Chiropractic, Doctoral Degree in Clinical Psychology, and Masters or
Doctoral Degree in Health Administration. Amounts are prorated for 10- and 11-month programs.
j.
Aggregate loan limits for graduate and professional students include amounts borrowed for undergraduate
study.
k. The aggregate loan limit for Direct Subsidized Loans to graduate and professional students applies to loans
borrowed for programs of instruction beginning before July 1, 2012.
A listing of the annual and aggregate loan limits that have applied throughout the history of the
Direct Loan program is presented in Table C-1.
Limits on Borrowing Determined by Need Analysis and Packaging
The process of awarding one or more forms of federal student aid to a student in accordance with
federal student aid need analysis procedures and individual program rules is referred to as
packaging. Financial aid administrators at IHEs are afforded a degree of discretion in determining
how aid is packaged. The packaging of aid may affect the amounts and types of Direct Loans that
a student (or parent on behalf of a student) may borrow. The process for packaging aid provided
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through the Direct Loan program is briefly described below. The following terms are instrumental
in describing this process.
•
•
•
•
•
Cost of Attendance (COA). This is an institution-determined amount indicative
of a student’s educational expenses for a period of enrollment (e.g., an academic
year) at the IHE. It is determined by the institution a student attends and may
include tuition and fees, and allowances for room and board, books, supplies,
transportation, loan fees, personal expenses, child or dependent care, and other
costs.60 For the Direct Loan program, a student’s COA represents an absolute
limit on the maximum amount of aid they may receive during an academic year.
Student Aid Index (SAI).61 This is the dollar amount a student and the student’s
family (e.g., parents or spouse) are expected to contribute toward their education
expenses for a year.62 A student’s SAI is calculated according to procedures
specified in law using information supplied by the student on the FAFSA.63 The
formula for calculating a student’s SAI takes into account myriad factors
including taxed and untaxed income, financial assets, and family size.
Other Financial Assistance (OFA). This is the amount of aid anticipated to be
made available to a student from federal, state, institutional, or other sources for a
period of enrollment.64 It includes grant, scholarship, fellowship, loan, and needbased employment assistance. For purposes of need analysis and packaging, two
variations of OFA are relevant: (1) OFA not received under HEA, Title IV
programs, and (2) OFA from all sources. OFA does not include qualifying federal
veterans’ education benefits (e.g., GI Bill benefits); payments and services
received under Title IV, Part E of the Social Security Act to a child or youth in
foster care, or formerly in foster care (e.g., Education and Training Vouchers);
and emergency financial assistance provided to students for unexpected
expenses. For purposes of awarding Direct Subsidized Loans, OFA does not
include Segal AmeriCorps Education Awards.65
Financial Need. This is the amount determined by subtracting a student’s SAI
and OFA not received under HEA, Title IV from the student’s COA.66
Unmet Financial Need. This is the amount determined by subtracting the sum of
a student’s SAI and OFA from the student’s COA.67
60 HEA §§472 and 479A. For additional information on COA, see FSA Handbook, vol. 3, Chapter 2—Cost of
Attendance (Budget).
61 The FAFSA Simplification Act makes significant changes to the underlying processes and methodologies for
determining federal student aid eligibility, including renaming EFC as the student aid index (SAI). The act’s general
effective date is July 1, 2024, although some provisions of the act may be implemented before then. For additional
information on need analysis, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected
Family Contribution. For additional information on the FAFSA Simplification Act, see CRS Report R46909, The
FAFSA Simplification Act.
62 HEA Title IV, Part F—Need Analysis. For additional information on the EFC, see CRS Report R44503, Federal
Student Aid: Need Analysis Formulas and Expected Family Contribution.
63 For additional information, see HEA, Title IV, Part F, and FSA Handbook, Application and Verification Guide,
Chapter 3—Student Aid Index (SAI) and Pell Grant Eligibility.
64 HEA §§480(i), 428(2)(a)(C)(ii)(I)(aa), and 455(a)(1).
65 For additional information on the EFA, see HEA, §§428(a)(2)(C)(ii) and 480(j), 34 C.F.R. §685.102(b), and FSA
Handbook, vol. 3, Chapter 3—Packaging Aid.
66 HEA §471.
67 For additional information, see FSA Handbook, vol. 3, pp. 40-43.
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When packaging Title IV aid, the total amount of need-based aid awarded to a student may not
exceed the amount of the student’s financial need. A common packaging strategy is to award
need-based aid that is not required to be repaid (e.g., Federal Pell Grant, Federal Supplemental
Educational Opportunity Grant [FSEOG], and Federal Work-Study [FSW] awards) before
awarding loan aid, which must be repaid. With respect to loans made through the Direct Loan
program, only Direct Subsidized Loans are need-based. Direct Subsidized Loans, Direct
Unsubsidized Loans, and Direct PLUS Loans may all be awarded to satisfy a student’s unmet
financial need. Additionally, once a student’s unmet financial need has been satisfied, non-needbased aid, such as Direct Unsubsidized Loans and Direct PLUS Loans, may be awarded to
replace some or all of a student’s SAI. Overall, when packaging Title IV aid, the total amount
awarded (including both need-based and non-need-based aid) may not exceed the student’s COA,
less OFA. Processes for determining the amount of aid that may be awarded through the various
types of loans offered through the Direct Loan program are described below.
Direct Subsidized Loans
Direct Subsidized Loans are need-based. They may be awarded to satisfy a student’s unmet
financial need. Students are eligible to borrow Direct Subsidized Loans in amounts up to the
lesser of (1) the results of subtracting the sum of the student’s SAI and OFA from COA, or (2) the
statutorily specified applicable annual loan limits. The calculation shown in the text box below is
used to determine the amount that a student may borrow through a Direct Subsidized Loan.
Direct Subsidized Loan Eligibility
Direct Subsidized Loan eligibility = min[(COA - (SAI + OFA)), Direct Subsidized Loan limit68]
Direct Unsubsidized Loans
Direct Unsubsidized Loans are non-need-based. Students are eligible to borrow Direct
Unsubsidized Loans irrespective of the amount of their SAI, in amounts up to the lesser of (1) the
result of subtracting the student’s OFA (including, for undergraduate students, any amount
borrowed through a Direct Subsidized Loan) from COA, or (2) the result of subtracting the
amount borrowed through a Direct Subsidized Loan from the annual Direct Subsidized Loan and
Direct Unsubsidized Loan combined borrowing limit applicable to the student’s program level
and class level. The calculation shown in the text box below is used to determine the amount that
a student may borrow through a Direct Unsubsidized Loan.
Direct Unsubsidized Loan Eligibility
Direct Unsubsidized Loan eligibility = min[(COA - OFA), (total Direct Loan limit69 - Direct Subsidized Loan amt.)]
Direct PLUS Loans
Direct PLUS Loans are non-need-based. Graduate and professional students and the parents of
dependent undergraduate students may borrow Direct PLUS Loans irrespective of the student’s
SAI. The amount that may be borrowed through a Direct PLUS Loan is limited to the result of
subtracting the OFA (including any amount borrowed through a Direct Subsidized Loan or a
Direct Unsubsidized Loan) of the student on whose behalf the loan will be made from the COA of
68 For information on Direct Subsidized Loan limits, see Table 1.
69 For information on loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans, combined, see Table 1.
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the institution attended. The calculation shown in the text box below is used to determine the
amount that a student or a parent may borrow through a Direct PLUS Loan.
Direct PLUS Loan Eligibility
Direct PLUS Loan eligibility = COA - OFA
With regard to parent borrowing, the total Direct PLUS Loan eligibility amount may be borrowed
by one parent, or it may be divided among more than one parent (including noncustodial parents)
and borrowed in separate amounts by each.
Interest on Direct Loan Program Loans
Interest is charged on loans made through the Direct Loan program. It constitutes a charge for the
use of borrowed money over a specified period of time. In the Direct Loan program, interest is
calculated based on rates that are set according to formulas specified in the HEA. Interest accrual
is calculated using a simple daily interest formula. The federal government offers several types of
interest subsidies that may limit the amount of interest that accrues or must be paid on the
outstanding principal balance of a loan. In certain circumstances, a borrower may be permitted to
defer paying some or all of the interest that has accrued on their loan(s) until a later point in time.
If a borrower does not pay the interest that has accrued, it may, in certain circumstances, be
capitalized (i.e., added to the outstanding principal balance of the borrower’s loan).
Interest Rates
Interest rates on loans made through the Direct Loan program are set according to procedures
specified by statute. Since the inception of the Direct Loan program in 1994, a variety of different
procedures have been used for setting student loan interest rates. The loans currently being made
through the Direct Loan program have fixed interest rates that remain constant from the time a
loan is made until it is paid in full. Since July 1, 2013, Direct Subsidized Loans, Direct
Unsubsidized Loans, and Direct PLUS Loans, have been made with fixed interest rates that are
indexed to the interest rates on 10-year U.S. Treasury notes that are auctioned just prior to the
start of the academic year during which the loans are made. Since February 1, 1999, Direct
Consolidation Loans have been made with fixed interest rates that are based on the weighted
average of the interest rates on the loans that are included in the Direct Consolidation Loan.
Previously, other procedures had been used for setting student loan interest rates, and a number of
loans that had been made according to these prior procedures remain outstanding.
Procedures for Setting Student Loan Interest Rates
The various procedures that have been used for setting interest rates on loans made through the
Direct Loan program can be broadly categorized as follows: (1) variable interest rates that are
indexed to the interest rates on short-term U.S. Treasury securities that are auctioned just prior to
the start of the academic year during which the rate will be in effect, (2) fixed interest rates that
are set according to the weighted average of the interest rates of the loans included in a Direct
Consolidation Loan, (3) fixed interest rates that are specified in statute, and (4) fixed interest rates
that are indexed to the interest rates on long-term U.S. Treasury securities that are auctioned just
prior to the start of the academic year during which the loans are made. Because loans with
interest rates that have been set according to each of these categories still remain outstanding,
each is briefly discussed below. Appendix C presents a detailed history of the various procedures
that have been used to set the interest rates that apply to Direct Subsidized Loans, Direct
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Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Unsubsidized Loans, and Direct PLUS Loans (Table C-2); the procedures that have been used to
set the interest rates that apply to Direct Consolidation Loans (Table C-3); and the interest rates
that have been in effect on these loans on a year-by-year basis (Table C-4).
Variable Interest Rates Indexed to Short-Term U.S. Treasury Securities
At the inception of the Direct Loan program in 1994, all loan types were made with variable
interest rates that would adjust once per year on July 1.70 On variable rate loans, the applicable
interest rate is determined according to a formula specified in statute. For each 12-month period
that extends from July 1 through June 30, the applicable interest rate is indexed to the bond
equivalent rate of 91-day U.S. Treasury bills (or other short-term U.S. Treasury securities)
auctioned at the final auction held prior to the preceding June 1.71 An interest rate add-on
increases the rate above the rate of the index. Different interest rate add-ons may apply to loans
depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the status of the
loan (e.g., in school, grace, repayment), and when the loan was made. An interest rate cap of
8.25% applies to variable rate Direct Subsidized Loans and Direct Unsubsidized Loans72 and the
portion of a variable rate Direct Consolidation Loan attributable to such loans. An interest rate
cap of 9.0% applies to variable rate Direct PLUS Loans73 and the portion of a variable rate Direct
Consolidation Loan attributable to a PLUS Loan. Direct Consolidation Loans were made with
variable interest rates through January 31, 1999, while all other types of Direct Loan program
loans continued to be made with variable interest rates through June 30, 2006.
Fixed Interest Rates on Direct Consolidation Loans
Since February 1, 1999, Direct Consolidation Loans have been made with fixed interest rates that
remain in effect for the duration of the loan.74 In general, the applicable interest rate on a fixedrate Direct Consolidation Loan is determined by calculating the weighted average of the interest
rates in effect on the loans being consolidated, and rounding the result up to the nearest higher
one-eighth of 1%.75 If a borrower obtains a Direct Consolidation Loan to repay one or more loans
having a variable interest rate, the weighted average of the interest rates in effect on the loans
being consolidated will be used to set the fixed rate that will apply for the duration of the new
Direct Consolidation Loan.76 For Direct Consolidation Loans made during the period from
70 See HEA §455(b)(1).
71 The practice of using the rate of the final auction held prior to the preceding June 1 provides approximately one
month of lead time for ED to determine interest rates for particular loan types and to communicate this information to
current and prospective borrowers and loan servicers.
72 HEA §455(b)(1).
73 HEA §455(b)(4).
74 For Direct Consolidation Loans, the determination of whether certain terms and conditions apply to a given loan
(e.g., which interest rate setting formula applies) is based on the date when the application for the Direct Consolidation
Loan is received by the loan servicer.
75 See HEA §455(b)(6)(D) &(7)(C). For variable rate loans made through the FFEL program and the Direct Loan
program during the period from July 1, 1995, through June 30, 2006, interest rates are 0.6 percentage points lower
during in-school and grace periods than during repayment periods. A borrower may apply to obtain a Direct
Consolidation Loan during the six-month grace period after ceasing to be enrolled on at least a half-time basis, and by
doing so may lock in the lower grace period interest rate.
76 During the period when Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans were made
with variable rates and Direct Consolidation Loans were made with fixed interest rates, the availability of fixed rate
Direct Consolidation Loans essentially provided borrowers with an option to lock in rates determined according to the
variable interest rate formula (rounded to the nearest higher one-eighth of 1%) that a borrower may have considered to
(continued...)
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February 1, 1999, through June 30, 2013, the maximum interest rate was capped at 8.25%.77 For a
Direct Consolidation Loan that was the result of a separation a JCL, the interest rate is to be equal
to the interest rate on the JCL as of the date before the separation of the JCL.78 There is no
maximum interest rate for Direct Consolidation Loans made on or after July 1, 2013.79
Fixed Interest Rates Specified in the HEA
During the period from July 1, 2006, through June 30, 2013, all loans made through the Direct
Loan program, with the exception of Direct Consolidation Loans, were made with fixed interest
rates that were determined by Congress and specified in statute.80 Different fixed interest rates
applied depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the
program level for which it was borrowed (e.g., undergraduate, graduate), and the academic year
for which the first disbursement of the loan was made (e.g., AY2007-2008, AY2008-2009). For
these loans, the interest rate that was in effect when the loan was made remains in effect for the
duration of the loan.
Fixed Interest Rates Indexed to Long-Term U.S. Treasury Securities
With the exception of Direct Consolidation Loans, all loans made through the Direct Loan
program on or after July 1, 2013, have market-indexed fixed interest rates.81 For these loans, the
applicable interest rate is set according to a formula specified in statute and remains in effect for
the duration of the loan. For new loans made during each 12-month period that extends from July
1 through June 30, the applicable interest rate is indexed to the bond equivalent rate of 10-year
U.S. Treasury notes auctioned at the final auction held prior to the preceding June 1.82 An interest
rate add-on increases the applicable borrower rate above the rate of the index. Different interest
rate add-ons apply depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS
Loan) and the program level for which it was borrowed (e.g., undergraduate, graduate). An
interest rate cap of 8.25% applies to Direct Subsidized Loans and to Direct Unsubsidized Loans
made to undergraduate students; a cap of 9.5% applies to Direct Unsubsidized Loans made to
graduate and professional students; and a cap of 10.5% applies to all Direct PLUS Loans. The
interest rates applicable to loans being made through the Direct Loan program for loans first
disbursed July 1, 2023, through June 30, 2024, and for loans first disbursed July 1, 2024, through
June 30, 2025, are presented below in Table 2.
be advantageous. The approximate one-month lead between when future interest rates become known and when they
go into effect provided borrowers a window during which they could evaluate whether to obtain a Direct Consolidation
Loan at the then-current rate (should rates for the next year be scheduled to increase) or defer the option to consolidate
for another year (should rates for the next year be scheduled to decrease).
77 HEA §455(b)(6)(D). During the period when the 8.25% interest rate cap was in effect, a borrower who had one or
more loans with an interest rate that was greater than the cap (e.g., a FFEL PLUS Loan made with an 8.5% interest
rate) could lower the applicable interest rate by including the loan(s) in a Direct Consolidation Loan.
78 HEA §455(g)(2)(B)(i)(II).
79 HEA §455(b)(8)(D).
80 HEA §455(b)(7).
81 HEA §455(b)(8).
82 The final auction held prior to the preceding June 1 is generally held in May. See U.S. Department of the Treasury,
Treasury Direct, “General Auction Timing,” https://www.treasurydirect.gov/instit/auctfund/work/auctime/
auctime.htm#:~:text=20%2Dyear%20bond%20and%2030,September%2C%20October%2C%20and%20December
(accessed June 13, 2024).
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Table 2. Interest Rates on Loans Made Through the Direct Loan Program:
July 1, 2023, through June 30, 2024, and July 1, 2024, through June 30, 2025
(percentage)
Fixed Interest Rate in Effect
Direct
Subsidized
Loans
Direct
Unsubsidized
Loans
Direct
PLUS
Loans
Undergraduate students
5.50
5.50
n.a.
Graduate and professional students
n.a.
7.05
8.05
Parents of dependent undergraduate students
n.a.
n.a.
8.05
Undergraduate students
6.53
6.53
n.a.
Graduate and professional students
n.a.
8.08
9.08
Parents of dependent undergraduate students
n.a.
n.a.
9.08
Borrower Type
Direct Loans disbursed July 1, 2023-June 30, 2024
Direct Loans disbursed July 1, 2024-June 30, 2025
Source: HEA §455(b); 20 U.S.C. §1087e(b); U.S. Department of Education, Office of Federal Student Aid, “FY23
Interest Rates for Direct Loans First Disbursed Between July 1, 2023 and June 30, 2024,” Electronic
Announcement, DL-23-03, May 16, 2023, https://fsapartners.ed.gov/knowledge-center/library/electronicannouncements/2023-05-16/interest-rates-direct-loans-first-disbursed-between-july-1-2023-and-june-30-2024;
and U.S. Department of Education, Office of Federal Student Aid, “Interest Rates for Direct Loans First
Disbursed Between July 1, 2024 and June 30, 2025,” DL-24-03, May 14, 2024, https://fsapartners.ed.gov/
knowledge-center/library/electronic-announcements/2024-05-14/interest-rates-direct-loans-first-disbursedbetween-july-1-2024-and-june-30-2025.
Note: “n.a.” means not applicable.
Interest Accrual
Interest accrual is the process through which interest accumulates over time. In the Direct Loan
program, the accrual of interest is calculated using a simple daily interest formula.83 With this
formula, interest accrues only on the OPB of the loan. This is in contrast to a compound interest
formula, in which interest accrues on both the OPB of the loan and any interest that has accrued
during a prior period. In a limited set of circumstances, accrued interest that has not been paid by
a borrower may be capitalized, or added to the OPB of the loan. (This is discussed below in the
“Interest Capitalization” section.)
According to the simple daily interest formula used in the Direct Loan program, the amount of
interest that accrues over a certain period of time is determined by first calculating the daily
interest (per diem) that accrues on a loan. The per diem is computed by dividing the applicable
interest rate by the number of days in a year (365.25) and multiplying the resulting quotient by
the OPB of the loan.84 The per diem is then multiplied by the number of days of interest being
calculated (e.g., days since the last payment was made). The result of this calculation is the
83 U.S. Department of Education, Office of Federal Student Aid, “Understand how interest is calculated and what fees
are associated with your federal student loan: How is interest calculated?,” https://studentaid.gov/understand-aid/types/
loans/interest-rates#how-calculated (accessed June 13, 2024).
84 The per diem is calculated out to five decimal places and truncated. U.S. Department of Education, Office of Federal
Student Aid, “Business Operations Servicing Requirements: Attachment 01,” version 0.0.5, February 23, 2023.
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amount of interest that has accrued during the applicable time period.85 An example of the
calculation of accrued interest over a 30-day period is provided in the text box below.
Simple Daily Interest Formula: Example of the Calculation of Accrued Interest
Days since last payment: 30
Outstanding principal balance: $4,500
Per diem:
Applicable interest rate: 0.0653
Days in a year: 365.25
Accrued Interest = [30 x $4,500 x (0.0653 ÷ 365.25)] = $24.13
For loans made through the Direct Loan program, interest begins to accrue on the OPB once the
first installment of a loan is disbursed. Unless it is subsidized (see the “Subsidized Interest”
section), interest accrues during the entirety of the period that a loan is in effect, irrespective of
whether the borrower is expected to be making payments on it.
Subsidized Interest
In certain circumstances, the federal government subsidizes some or all of the interest that would
otherwise accrue on loans made through the Direct Loan program.86 During periods when an
interest subsidy is provided, borrowers are not required to pay the interest that would accrue. The
availability of an interest subsidy depends on factors such as the type of loan borrowed, eligibility
for an authorized deferment, the repayment plan selected, and the borrower’s status as a
servicemember in the Armed Forces.87 Interest subsidies that may be available on loans made
through the Direct Loan program are described below.88
Interest Subsidy on Direct Subsidized Loans
On Direct Subsidized Loans, and on the subsidized component of Direct Consolidation Loans,
interest is subsidized by the government (i.e., interest does not accrue) during in-school periods
while a borrower is enrolled in an eligible program on at least a half-time basis, during a sixmonth grace period, and during periods of authorized deferment. Due to amendments to the HEA
made by the Consolidated Appropriations Act, 2012 (P.L. 112-74), interest is not subsidized
85 The result of the calculation is truncated at two decimal places and “shall not be rounded up.” U.S. Department of
Education, Office of Federal Student Aid, “Business Operations Servicing Requirements: Attachment 01,” version
0.0.5, February 23, 2023,
86 In this report, the terms subsidized interest and interest subsidy refer to the government not charging a borrower for
some or all of the interest that would otherwise accrue on a loan during a specified period of time. These terms are not
used to refer to the interest rate on a loan made through the Direct Loan program being below the market rate that
would typically be available on unsecured credit extended to a borrower without regard to the borrower’s employment,
income, assets, or credit history. These terms are also in contrast to the term loan subsidy, which is used for budgeting
purposes and is the estimated present value of the cash flows from the government (e.g., loan disbursements),
excluding administrative expense, less the estimated present value of the cash flows to the government (e.g.,
repayments of principal and interest), resulting from a direct loan or loan guarantee, discounted to the time when the
loan is disbursed, and taking into account estimated effects of defaults, prepayments, fees, penalties, loan deferments,
loan forgiveness, etc.
87 In addition, in response to the COVID-19 pandemic, for March 13, 2020 through July 31, 2023, the accrual of
interest on all types of Direct Loan program loans is suspended. This can be viewed as a limited-time interest subsidy.
88 In addition to the Direct Loan program interest subsidies described here, a student loan interest deduction is made
available through the federal tax code. For information on this interest subsidy, see CRS Report R41967, Higher
Education Tax Benefits: Brief Overview and Budgetary Effects.
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during the grace period on Direct Subsidized Loans disbursed between July 1, 2012, and June 30,
2014.89
Interest Rate Reduction for Automatic Debit Repayment
The HEA authorizes the Secretary of Education (the Secretary) to offer borrowers of loans made
through the Direct Loan program an interest rate reduction as an incentive for having loan
payments automatically debited from a bank account.90 The Secretary currently offers a 0.25
percentage point interest rate reduction for automatic debit repayment. This option helps ensure
that borrowers make their student loan payments on time. The interest rate reduction for
automatic debit repayment does not apply during in-school, grace, deferment, or forbearance
periods.
Interest Subsidies on Eligible Loans Repaid According to Certain IncomeDriven Repayment (IDR) Plans During Negative Amortization
Interest subsidies are provided on certain types of loans repaid according to several of the IDR
plans—both of the Income-Based Repayment (IBR) plans, the Pay As You Earn (PAYE)
repayment plan, and the Saving on a Valuable Education (SAVE) repayment plan91—during
periods when a borrower’s loans are in negative amortization.92 (Details of these IDR plans are
described in the “Loan Repayment Plans” section.) A common characteristic of these IDR plans is
that an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component
of Direct Consolidation Loans for a maximum of the first three consecutive years that the
borrower repays according to the applicable IBR plan. In addition, in the SAVE repayment plan
an extended, interest subsidy is provided on all eligible loan types. These IDR plan interest
subsidies are described in greater detail below.
89 Between July 1, 2013, and August 13, 2021, individuals who were first-time borrowers on or after July 1, 2013, had
their eligibility to both borrow a Direct Subsidized Loan and to receive the interest subsidy on such previously obtained
loans limited to a period that could not exceed 150% of the published length of the academic program in which the
student was enrolled (the maximum eligibility period). Borrowers subject to these limitations who remained enrolled
beyond the maximum eligibility period would lose the interest subsidy and become responsible for paying the interest
that accrued on their Direct Subsidized Loans after the date that they exceeded the maximum eligibility period. The
FAFSA Simplification Act of 2020 (P.L. 116-260) repealed these limitations. Thus, for borrowers with Direct
Subsidized Loans first disbursed on or after July 1, 2021, these limitations do not apply. In addition, for borrowers with
Direct Subsidized Loans outstanding as of July 1, 2021, and on which the borrower was responsible for paying interest
because they exceeded the maximum eligibility period, ED was to “adjust their account to remove the interest that
accrued and reapply the borrower’s payments accordingly.” U.S. Department of Education, “Repeal of the William D.
Ford Federal Direct Loan Program Subsidized Usage Limit Restriction,” 86 Federal Register 31433, June 14, 2021.
90 HEA, §455(b)(9); 34 C.F.R. §685.211(b). Until June 30, 2012, the Secretary was authorized to offer a variety of
interest rate reductions to borrowers as a means of encouraging on-time repayment. These incentives were required to
be cost neutral to the government.
91 Prior to June 30, 2023, the SAVE repayment plan was named the Revised Pay As You Earn (REPAYE) plan.
Regulations now specify that the REPAYE repayment plan may also be referred to as the SAVE repayment plan. ED
made this change as part of a series of updates to the REPAYE repayment plan’s terms. U.S. Department of Education
“Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family
Education Loan (FFEL) Program,” 88 Federal Register 43820, July 10, 2023 (SAVE Plan Final Rule).
92 Negative amortization is a period of time during which a borrower’s monthly payment amount is less than the
amount of interest that accrues on their loans.
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Three-Year Interest Subsidy on Direct Subsidized Loans Repaid According to
Certain IDR Plans During Negative Amortization
The structure of the IBR and PAYE repayment plans provide that in certain instances, a
borrower’s required monthly payment amount may be insufficient to pay all of the interest that
has accrued on the borrower’s Direct Subsidized Loans or on the subsidized component of a
Direct Consolidation Loan. In such instances, the Secretary provides the borrower with an interest
subsidy (i.e., does not charge the borrower) for the amount of the accrued interest that exceeds the
applicable monthly payment amount (referred to as the remaining accrued interest) for a period
of up to the first three years from the date the borrower began repaying according to one of those
plans. For borrowers who switch repayment plans and repay their loans sequentially according to
more than one of the IBR or PAYE repayment plans, a cumulative three-year limit on receipt of
the interest subsidy applies to periods of repayment made under those plans.93 Any periods during
which the borrower receives an economic hardship deferment and during which an interest
subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct
Consolidation Loans do not count toward the three-year eligibility limit. Periods during which the
borrower receives an interest subsidy under the SAVE repayment plan do not count toward the
three-year eligibility limit.94
Interest Subsidy on All Eligible Loan Types Repaid According to the SAVE
Repayment Plan During Negative Amortization
In the instance that a borrower’s required monthly payment amount is insufficient to pay all of the
interest that has accrued on their loans, the SAVE repayment plan provides a subsidy equal to the
remaining accrued interest for all periods of repayment on all Direct Loan types.95
No Accrual of Interest on Loans of Certain Active Duty Servicemembers
For all types of loans made through the Direct Loan program that were first disbursed on or after
October 1, 2008, no interest accrues during a period of up to 60 months while the borrower is
serving on active duty in the Armed Forces or is performing qualifying National Guard duty in an
area of hostilities during a war or national emergency. For Direct Consolidation Loans, the
interest subsidy applies only to the portion of the loan that was used to repay other loans that were
first disbursed on or after October 1, 2008.96
SCRA 6% Interest Rate Cap on Loans of Borrowers Who Enter Military Service
The Servicemembers Civil Relief Act (SCRA) provides that for individuals who borrow loans
after August 14, 2008, but prior to their entrance into military service, the interest rate on their
loans must be capped at a rate of 6% for the duration of their military service.97 The federal
government, as the creditor on loans made through the Direct Loan program, must forgive interest
above the 6% rate and may not accelerate repayment of the loans. Loan servicers are required to
93 34 C.F.R. §685.209(h)(2). See also SAVE Plan Final Rule, 43870. With regard to Direct Consolidation Loans, the
three-year period also includes periods during which an interest subsidy was provided on the underlying loans while
they were being repaid according to an IDR plan during periods of negative amortization.
94 34 C.F.R. §685.209(h)(2).
95 34 C.F.R. §685.209(h)(2).
96 HEA §455(o).
97 SCRA §207; HEA §§428(d) and 455(a). For additional information on the SCRA, see CRS Report R45283, The
Servicemembers Civil Relief Act (SCRA): Section-by-Section Summary.
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regularly check with the U.S. Department of Defense Manpower Data Center (DMDC) to
determine whether borrowers qualify for the SCRA 6% interest rate cap and to extend the benefit
to borrowers. Borrowers also have the option of completing an SCRA Interest Rate Limitation
Request and submitting it to their loan servicer to document their eligibility for the 6% interest
rate cap.98
SCRA 6% Interest Rate Cap and Direct Consolidation Loans
If a borrower repays one or more loans on which the interest rate has been reduced to 6% under
the SCRA with a Direct Consolidation Loan, the 6% interest rate is required to be used as the
applicable interest rate on those loans for purposes of determining the weighted average interest
rate of the new Direct Consolidation Loan.99 In such an occurrence, because Direct Consolidation
Loans are currently being made with fixed interest rates, the 6% rate would essentially be locked
in and would remain in effect beyond the end of the borrower’s period of military service.
Interest Subsidy on All Loan Types During Cancer Treatment Deferment
A Cancer Treatment Deferment is provided during periods while a borrower is receiving
treatment for cancer and for the six months thereafter. During periods while a borrower receives
this deferment, no interest accrues on their qualifying loans. The Cancer Treatment Deferment is
available on all types of Direct Loan program loans that are either made on or after September 28,
2018, or that had entered repayment status on or before September 28, 2018.100 This benefit does
not appear to be available for loans that were made prior to September 28, 2018, but had not yet
entered repayment prior to that date.
Deferred Payment of Accrued Interest
In certain instances, the obligation of a borrower to pay the interest that accrues on the
outstanding principal balance of loans made through the Direct Loan program may be deferred.
For instance, during in-school, grace, deferment, and forbearance periods, borrowers are not
required to make payments of either principal or the interest that accrues on the OPB. Also, for a
borrower whose loans are in repayment status and who is repaying according to any IDR plan
except the SAVE repayment plan,101 if the amount of their required monthly payment is less than
the amount of interest that has accrued on the loans, the payment of any accrued interest owed
that is in excess of the required monthly payment amount may be deferred. Nonetheless, except to
the extent that a borrower is receiving an interest subsidy, interest continues to accrue on their
loans during periods while repayment of accrued interest is deferred.
98 U.S. Department of Education, Office of Federal Student Aid, Servicemembers Civil Relief Act (SCRA): Interest Rate
Limitation Request, OMB No. 1845-0135, https://fsapartners.ed.gov/sites/default/files/attachments/2020-01/
011020RenewalSCRAIntRateLimitRequestAttach.pdf.
99 34 C.F.R. §685.202(a)(10)(i)(F); U.S. Department of Education, Dear Colleague Letter GEN-16-20, “Retroactive
Adjustments for Servicemembers Civil Relief Act (SCRA) from August 14, 2008, Onward,” November 15, 2016,
https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2016-11-15/gen-16-20-subject-retroactiveadjustments-servicemembers-civil-relief-act-scra-august-14-2008-onward.
100 HEA, §455(f)(3); U.S. Department of Education, Office of Federal Student Aid, Cancer Treatment Deferment
Request, OMB No. 1845-0154, https://studentaid.gov/sites/default/files/CancerTreatmentDeferment.pdf.
101 Under the SAVE repayment plan, unpaid accrued interest is not charged to the borrower.
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Negative Amortization
The term negative amortization describes the situation in which the amount of interest that
accrues on a loan over a given period of time is greater than the amount of payments that are
made on it. In a case of negative amortization, the accumulation of unpaid accrued interest leads
to the outstanding balance of principal and interest on the loan increasing over time. The deferred
payment of accrued interest during periods of repayment according to the IDR plans (see the
“Income-Driven Repayment (IDR) Plans” section) may lead to negative amortization.
Interest Capitalization
On certain occasions, any interest that has accrued but not been paid by a borrower may be added
to the outstanding principal balance of the borrower’s loans. This is called interest capitalization.
When interest is capitalized, it becomes part of the OPB and interest begins to accrue on that new,
larger loan amount. Over time, interest capitalization increases the total amount a borrower is
required to repay. Interest is capitalized in the following situations:
•
•
•
•
Exit from or Failure to Recertify Income and Family Size in the IBR Plan.
Any unpaid interest that has accrued on a borrower’s loan during a period when
they were repaying according to the IBR plan is capitalized at the time the
borrower changes to a different repayment plan and when they fail to recertify
their income and family size for purposes of annually determining their monthly
payments under the plan.102
End of Partial Financial Hardship in IBR Plans. Any unpaid interest that has
accrued on a borrower’s loan during a period when they were repaying according
to the IBR plan and had a partial financial hardship is capitalized when the
borrower is determined to no longer have a partial financial hardship.103
End of Deferment. In general, any unpaid interest that has accrued on a
borrower’s Direct Unsubsidized Loans, Direct PLUS Loans, or portion of a
Direct Consolidation Loan used to repay such loans during a period of deferment
is capitalized at the expiration of the deferment period.104
Loan Consolidation. Any interest that has accrued on a borrower’s loan and
remains unpaid when the borrower includes the loan in a Direct Consolidation
Loan is capitalized upon consolidation.105
Loan Origination Fees
Loan origination fees are charged to borrowers of Direct Subsidized Loans, Direct Unsubsidized
Loans, and Direct PLUS Loans. No fees are charged to borrowers of Direct Consolidation Loans.
102 34 C.F.R. §685.209(j)(2)(iii); U.S. Department of Education, “Income-Driven Repayment (IDR) Plan Request,”
OMB. No. 1845-0102, https://studentaid.gov/sites/default/files/IncomeDrivenRepayment-en-us.pdf.
103 34 C.F.R. §685.209(j)(2)(ii). Under the IBR and PAYE repayment plans, a borrower is determined to have a partial
financial hardship if the total annual payments for all of their eligible loans, as calculated according to a standard
repayment plan with a maximum 10-year term, are greater than a specified percentage (15% or 10%, depending on the
plan) of the borrower’s income that is in excess of 150% of the poverty guideline applicable to their family size. For
additional information, see the discussion of the IBR and PAYE repayment plans in the “Income-Driven Repayment
(IDR) Plans” section.
104 34 C.F.R. §685.202(b)(2).
105 HEA §§428C(b)(1)(C) and 455(a)(1).
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These fees help offset federal loan subsidy costs by passing along some of the costs to
borrowers.106 Loan origination fees are calculated as a proportion of the loan principal borrowed
and are deducted proportionately from the proceeds of each loan disbursement to the borrower.
The amount to be charged for loan origination fees is specified in statute. For Direct Subsidized
Loans and Direct Unsubsidized Loans made on or after July 1, 2010, the HEA specifies a loan
origination fee of 1%.107 (Higher loan origination fees were charged on loans made prior to July
1, 2010.) Since the inception of the Direct Loan program, the HEA has specified a loan
origination fee of 4% for Direct PLUS Loans.108
During periods when a budget sequestration order that applies to direct (or mandatory) spending
programs is in effect, such as for the Direct Loan program, special rules apply to loan origination
fees.109 In instances where the first disbursement of a loan is made during a period that is subject
to a sequestration order, the loan origination fee is required to be increased by the uniform
percentage sequestration amount that is applicable to nondefense, mandatory spending programs.
Loan origination fees that apply to loans made during FY2024 and FY2025 (periods of budget
sequestration) are presented below in Table 3. A history of loan origination fees that previously
applied to loans made through the Direct Loan program is presented in Table C-1.
Table 3. Origination Fees on Loans Made Through the Direct Loan Program,
FY2024 and FY2025
(percentage)
Direct
Subsidized
Loans
Direct
Unsubsidized
Loans
Direct
PLUS
Loans
October 1, 2023-September 30, 2024
1.057
1.057
4.228
October 1, 2024-September 30, 2025
1.057
1.057
4.228
Disbursement Period
Source: HEA §455(c); Balanced Budget and Emergency Deficit Control Act (BBEDCA), §256(b); U.S.
Department of Education, Office of Federal Student Aid, “Interest Rates and Fees for Federal Student Loans,”
https://studentaid.gov/understand-aid/types/loans/interest-rates (accessed June 27, 2024).
Loan Repayment
Borrowers are required to make payments on loans made through the Direct Loan program during
a repayment period that, depending on the loan type, begins either when the loan is fully
disbursed (Direct PLUS Loans and Direct Consolidation Loans made on or after July 1, 2006) or
after a six-month grace period (Direct Subsidized Loans, Direct Unsubsidized Loans, and preJuly 1, 2006, Direct Consolidation Loans). Borrowers may choose from among a selection of loan
repayment plan options to repay their loans. The repayment plan selected is a determining factor
106 When the Direct Loan program was established, the terms and conditions of loans were designed to be substantially
similar to those of loans that were being offered through the FFEL program. At that time, borrowers of FFEL program
loans were responsible for paying a loan origination fee and a default fee (which at one time had been referred to as a
loan insurance fee). In the Direct Loan program, the loan origination fee was initially set at 4%, which equaled the sum
of the FFEL loan origination fee and the FFEL default fee.
107 HEA §455(c)(2)(E).
108 HEA §455(c)(1).
109 For additional information on how budget sequestration affects federal student loans, see CRS Report R42050,
Budget “Sequestration” and Selected Program Exemptions and Special Rules.
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in the duration of the repayment period. Borrowers may prepay all or any part of a loan made
through the Direct Loan program at any time without being subject to a prepayment penalty.110
Grace Period
A grace period is a six-month period beginning immediately after a borrower of a Direct
Subsidized Loan, a Direct Unsubsidized Loan, or a pre-July 1, 2006, Direct Consolidation Loan
first ceases to be enrolled in an eligible program on at least a half-time basis. The grace period
excludes any period of up to three years during which a borrower who is a member of a reserve
component of the Armed Forces is called or ordered to active duty for a period of more than 30
days and thus ceases to be enrolled on at least a half-time basis, as well as any additional period
necessary for such a borrower to resume enrollment at the next available regular enrollment
period.111
The grace period is distinct from and not part of the repayment period. A loan on which a grace
period is provided does not enter repayment status until the day after the grace period ends. If a
borrower desires to enter repayment on loans that have a grace period immediately after
completing school or ceasing to be enrolled on at least a half-time basis, they may consolidate
those loans into a Direct Consolidation Loan during the grace period and enter repayment on the
Direct Consolidation Loan upon its disbursement.112
Loan Repayment Period
In the Direct Loan program, the repayment period is the period during which borrowers are
obligated to repay their loans. The repayment period for Direct Subsidized Loans, Direct
Unsubsidized Loans, and pre-July 1, 2006, Direct Consolidation Loans begins the day after the
grace period ends. Thus, for these types of loans the loan repayment period begins six months and
one day after the borrower first ceases to be enrolled in an eligible program on at least a half-time
basis.113 The repayment period for Direct PLUS Loans and Direct Consolidation Loans made on
or after July 1, 2006, begins the day the loan is fully disbursed.114 (This would be the day of the
last disbursement if the loan has multiple disbursements.) For all loan types, the first payment is
due no later than 60 days after the start of the repayment period.115
In general, the repayment period excludes any periods of authorized deferment and forbearance.
However, in certain instances, when a borrower is repaying a loan according to an IDR plan,
periods during which the borrower is receiving one of several types of deferment or forbearance
specified in regulation may be considered as part of the repayment period.116 These types of
deferment and forbearance include, for example, economic hardship deferment; military service
deferment; and administrative forbearance for a period of 60 days necessary for ED to process
110 HEA §455(d)(1).
111 34 C.F.R. §685.207(b)(4), (c)(4), and (e)(2).
112 U.S. Department of Education, Office of Federal Student Aid, Public Service Loan Forgiveness Questions and
Answers, “Can I waive the six-month grace period on my Direct Subsidized Loans and Direct Unsubsidized Loans and
begin making qualifying PSLF payments early?,” https://studentaid.gov/help-center/answers/article/waiving-loangrace-period-to-begin-pslf-payments (accessed June 28, 2024).
113 34 C.F.R. §685.207(b)(2), (c)(2), and (e).
114 34 C.F.R. §685.207(e)(1).
115 34 C.F.R. §685.207(a)(3).
116 34 C.F.R. §685.209(k)(4)(iv).
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documentation supporting a borrower’s request for a deferment or forbearance, or to process a
borrower’s application for a consolidation loan.
Loan Repayment Plans
Borrowers may choose from among numerous loan repayment plan options to repay their loans.
The available repayment plans fall into three broad categories: fixed repayment plans, incomedriven repayment (IDR) plans, and alternative repayment plans.
Fixed repayment plans require monthly payments amortized over a prescribed repayment period,
based on the amount of a borrower’s loan debt and the loan’s interest rate. They are divided into
three subtypes: standard repayment plans, extended repayment plans, and graduated repayment
plans.
Income-Driven Repayment
Plan Regulations Litigation
On July 10, 2023, ED published a Final
Rule to modify significantly one of the
existing IDR plans, the Revised Pay As
You Earn (REPAYE) plan, renaming the
modified plan the Saving on a Valuable
Education (SAVE) plan. The Final Rule
also made a number of more modest
changes to the other IDR plans.117 The
Final Rule took full effect July 1, 2024,
but has since been enjoined by a federal
court.118
This report details the various loan
repayment plans as in effect July 1,
2024. It does not attempt to delineate
which provisions have been enjoined by
the federal court.
IDR plans require monthly payments based, in whole or in
part, on a borrower’s income and family size and are
divided into two subtypes: income-contingent repayment
(ICR) plans and income-based repayment (IBR) plans. The
ICR plans are the Income-Contingent Repayment plan,
Pay-As-You-Earn (PAYE) repayment plan, and the Saving
on a Valuable Education (SAVE) repayment plan. The IBR
plans are the Original Income-Based Repayment plan, and
the IBR plan for Post-July 1, 2014, New Borrowers.
The alternative repayment plans are provided to borrowers
in situations in which a borrower demonstrates that the
terms of the other repayment plans “are not adequate to
accommodate the borrower’s exceptional circumstances.”119
One subtype of alternative repayment plan is provided to
borrowers on a case-by-case basis,120 while another is
provided to borrowers who were enrolled in the SAVE
repayment plan and failed to recertify their income and
family size for purposes of determining their monthly payment amounts.
Figure 1 depicts the broad categories of repayment plans and their subtypes.
117 SAVE Plan Final Rule.
118 Missouri v. Biden, No. 24-2332, 2024 WL 3738157, *4 (8 th Cir. Aug. 9, 2024) (per curiam).
119 HEA §455(d)(4).
120 The subtype of alternative repayment plans that is provided to borrowers on a case-by-case basis can be broken
down into four distinct plans: the alternative fixed repayment plan, alternative fixed term repayment plan, the
alternative graduated repayment plan, and the alternative negative amortization repayment plan. (U.S. Department of
Education, Office of Federal Student Aid, Loan Repayment Plans, “Alternative Repayment Plans,” p. 9,
https://fsapartners.ed.gov/sites/default/files/attachments/presentations/41LoanRepaymentPlansV1.pdf.) ED indicated to
CRS that these distinct plans were offered to borrowers as of March 16, 2023. (Email communication with staff of U.S.
Department of Education, Office of Legislation and Congressional Affairs, March 16, 2023.) Since that time, ED has
updated its regulations addressing alternative repayment plans. Those updated regulations do not delineate distinct
repayment plans (see 34 C.F.R. §685.221). CRS has asked ED whether it will continue to offer the four aforementioned
alternative repayment plans following the regulations’ updates but has not yet received a response. As such, it is
unclear whether these four alternative repayment plans are still offered by ED.
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Figure 1. Direct Loan Repayment Plan
(figure is interactive in the HTML version of this report)
Source: CRS analysis of HEA §§455(d)–(e) and 493C; 34 C.F.R. §§685.208, 685.209, and 685.22.
The particular repayment plans available to any individual borrower may depend on factors such
as the type(s) of loans borrowed, the date of becoming a new borrower, or the date of entering
repayment status. In general, all of a borrower’s loans made through the Direct Loan program
must be repaid together according to the same repayment plan.121 However, if a borrower has
some types of loans that may be repaid according to an IDR plan and some that may not, the
borrower may repay the eligible loans according to an IDR plan and the ineligible loans
according to a non-IDR plan. If a borrower fails to actively select a repayment plan, they are
placed into the standard repayment plan that is applicable to the loans.122 In some instances, ED
places a borrower who has been delinquent on their loans for at least 75 days or is in default on
their loans into the IDR plan that results in the lowest monthly payment for the borrower.123
In general, borrowers may change from one plan to another plan for which they are eligible at any
time. However, a borrower may only switch to a non-IDR plan if doing so would not result in the
121 34 C.F.R. §685.210(a)(3).
122 HEA §455(d)(2).
123 34 C.F.R. §685.210(m).
Congressional Research Service
31
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
borrower having a remaining repayment period of fewer than zero months.124 Additionally,
regulations limit future enrollment in certain IDR plans.125
Under the fixed repayment plans, payment amounts may not be less than the amount of accrued
interest that is due; however, negative amortization is permitted in the IDR plans.126 Also, for
loans with variable interest rates (which had been made prior to July 1, 2006), monthly payment
amounts or the length of the repayment period may be adjusted under the fixed repayment plans
to take into account the effects of annual changes in the variable interest rate.127
Table 4 provides a summary of selected characteristics of the various loan repayment plans that
are made generally available to borrowers. Following the table, the various repayment plans are
described in detail.
124 34 C.F.R. §685.210(b)(2). For fixed repayment plans and the alternative repayment plan, the remaining repayment
period is calculated by subtracting the period of time since a loan has entered repayment (including any deferment or
forbearance periods) from the maximum repayment period for the repayment plan the borrower is seeking to enter.
Thus, for example, a borrower who had been in repayment on their loan for 15 years could not switch into a standard
repayment plan with a 12-year maximum repayment period, as subtracting 15 from 12 would result in a remaining
repayment period of fewer than zero months (i.e., -3 years).
125 34 C.F.R. §685.209(c).
126 Negative amortization also is permitted in the alternative negative amortization repayment plan. See footnote 120.
127 34 C.F.R. §685.208(b) and (d)-(g).
Congressional Research Service
32
Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to Borrowers: Fixed Repayment Plans,
Income-Driven Repayment Plans, and Alternative Repayment Plans
Maximum
Repayment
Period
Forgiveness
at End of
Repayment
Period
Eligible Loan
Typesa
Payment
Structure
Standard Repayment Plan (34
C.F.R. §685.208(b))
Subsidized Loans,
Unsubsidized Loans,
and PLUS Loans,
regardless of when
they entered
repayment, and
Consolidation Loans
that entered
repayment before July
1, 2006
Level payments based
on amortization
schedule
No
No
10 years
No
Standard Repayment Plan (34
C.F.R. §685.208(c))
Consolidation Loans
that enter repayment
on or after July 1,
2006
Level payments based
on amortization
schedule
No
No
10 to 30 years,
based on combined
loan balanceb
No
Extended Repayment Plan (34
C.F.R. §685.208(d))
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans, and
Consolidation Loans
that entered
repayment before July
1, 2006
Level payments based
on amortization
schedule
No
No
12 to 30 years,
based on loan
balancec
No
Extended Repayment Plan (34
C.F.R. §685.208(e))
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans, and
Consolidation Loans
that enter repayment
Level payments based
on amortization
schedule or payments
that increase
No
No
25 years
No
Repayment Plan
Subsidized
Interest
Negative
Amortization
Permitted
Fixed Repayment Plans
Standard Repayment Plans
Extended Repayment Plans
CRS-33
Repayment Plan
Eligible Loan
Typesa
Payment
Structure
Subsidized
Interest
Negative
Amortization
Permitted
Maximum
Repayment
Period
Forgiveness
at End of
Repayment
Period
on or after July 1,
2006d
incrementally every 2
years
Graduated Repayment Plan (34
C.F.R. §685.208(f))
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans, and
Consolidation Loans
that entered
repayment before July
1, 2006
Payments increase
incrementally every 2
years
No
No
12 to 30 years,
based on loan
balancec
No
Graduated Repayment Plan (34
C.F.R. §685.208(g)
Subsidized Loans,
Unsubsidized Loans,
and PLUS Loans that
enter repayment on
or after July 1, 2006
Payments increase
incrementally every 2
years
No
No
10 years
No
Graduated Repayment Plan (34
C.F.R. §685.208(h))
Consolidation Loans
that enter repayment
on or after July 1,
2006
Payments increase
incrementally every 2
years
No
No
10 to 30 years,
based on combined
loan balanceb
No
Payments equal to
lesser of
• 12-year
amortization,
multiplied by an
income percentage
factor,f or
• 20% of AGIg that
exceeds 100% of
federal poverty
No
Yes
25 years
Yes
Graduated Repayment Plans
Income-Driven Repayment Plans (34 C.F.R. §685.209)
Income-Contingent Repayment Plans
Income-Contingent Repayment
(ICR) Plan
CRS-34
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loanse
Repayment Plan
Eligible Loan
Typesa
Payment
Structure
Subsidized
Interest
Negative
Amortization
Permitted
Maximum
Repayment
Period
Forgiveness
at End of
Repayment
Period
guideline applicable to
the borrower’s family
size
Pay As You Earn (PAYE)
Repayment Plan
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loans that did not
repay a Parent PLUS
Loanh
Payment equal to
lesser of
• 10% of AGIg that
exceeds 150% of
federal poverty
guideline applicable to
the borrower’s family
size, or
• Monthly payment
according to 10-year
amortization schedule
based on original OPB
and loan interest rate
Yes. All remaining
Yes
accrued interest on
Direct Subsidized
Loans during negative
amortization for first 3
years of repayment
under the plani
20 years
Yes
Saving on a Valuable Education
(SAVE) Repayment Planj
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loans that did not
repay a Parent PLUS
Loanh
Payment equal to the
following percentages
of AGIg that exceeds
225% of federal
poverty guideline
applicable to the
borrower’s family size
• 5% for borrowers
who borrowed
exclusively for
undergraduate
education
• 10% for borrowers
who borrowed
exclusively for
graduate or
professional education
Yes. All remaining
Yes
accrued interest on all
eligible Direct Loan
types during negative
amortization
• 10 to 25 years,
depending on
composition of
loans and loan
balance.
Yes
CRS-35
Eligible Loan
Typesa
Repayment Plan
Payment
Structure
Subsidized
Interest
Negative
Amortization
Permitted
Maximum
Repayment
Period
Forgiveness
at End of
Repayment
Period
• the weighted average
of 5% and 10%, based
on original OPB, for
borrowers who
borrowed for both
undergraduate and
graduate or
professional education
Income-Based Repayment Plans
Original Income-Based
Repayment (IBR) Plan
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loans that did not
repay a Parent PLUS
Loanh
Payment is the lesser
of
• 15% of AGIg that
exceeds 150% of
federal poverty
guideline applicable to
the borrower’s family
size, or
• Monthly payment
according to 10-year
amortization schedule
based on original OPB
and loan interest rate
Yes. All remaining
Yes
accrued interest on
Direct Subsidized
Loans during negative
amortization for first 3
years of repayment
under the plani
25 years
Yes
IBR Plan for Post-July 1, 2014,
New Borrowers
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loans that did not
repay a Parent PLUS
Loanh
Payment is the lesser
of
• 10% of AGIg that
exceeds 150% of
federal poverty
guideline applicable to
the borrower’s family
size, or
• Monthly payment
according to 10-year
amortization schedule
Yes. Remaining
Yes
accrued interest on
Direct Subsidized
Loans during negative
amortization for first 3
years of repayment
under the plani
20 years
Yes
CRS-36
Repayment Plan
Eligible Loan
Typesa
Payment
Structure
Subsidized
Interest
Negative
Amortization
Permitted
Maximum
Repayment
Period
Forgiveness
at End of
Repayment
Period
based on original OPB
and loan interest rate
Alternative Repayment Plans
Case-by-Case Basisk (34 C.F.R.
§685.221)
Subsidized Loans,
Unsubsidized Loans,
PLUS Loans, and
Consolidation Loans
SAVE Alternative Repayment
Subsidized Loans,
Plan (34 C.F.R. §685.209(l)(9)(iii) Unsubsidized Loans,
PLUS Loans to
graduate and
professional students,
and Consolidation
Loans that did not
repay a Parent PLUS
Loanh,m
Based on individual
borrower
circumstances
—l
Based on
individual
borrower
circumstances
30 years
No
Level payments equal
to the amount the
borrower would pay
according to a
standard repayment
plan with a 10-year
repayment period,
based on the OPB the
borrower owes when
they are placed into
the plan and the loan
interest rate
No
No
10 years from
placement into the
plan
—n
Source: HEA, §§455 and 493C; 34 C.F.R. §§685.208, 685.209, and 685.221.
Notes: AGI = adjusted gross income; OPB = outstanding principal balance.
a. Eligibility for certain plans may be contingent on when an individual became a new borrower, the period during which a borrower obtained a loan, or when a
borrower’s loan entered repayment status, and borrower’s previous participation in other IDR plans. For details, see the “Loan Repayment Plans” section of this
report.
b. The combined loan balance represents the sum of (1) the outstanding balances on all of the borrower’s loans eligible to be included in the Direct Consolidation
Loan, plus (2) the outstanding balance of other federal education loans and private education loans to the extent that the balance of the other education loans is not
greater than the balance of the Direct Consolidation Loan, the other education loans are not in default, and the other education loans were not borrowed from an
individual. For additional details, see Table 5.
c. The loan balance represents the total amount of the borrower’s loans made through the Direct Loan program. For additional details, see Table 6.
d. To be eligible to repay loans according to this repayment plan, a borrower’s outstanding Direct Loan balance must exceed $30,000.
CRS-37
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
CRS-38
This plan is available for all Consolidation Loans for which an application was received on or after July 1, 2006, including those that repaid Parent PLUS Loans. (U.S.
Department of Education, “Income-Driven Repayment (IDR) Plan Request,” OMB. No. 1845-0102, p.9 https://studentaid.gov/sites/default/files/
IncomeDrivenRepayment-en-us.pdf).
Income percentage factors range from 50.52% to 200%, depending on a borrower’s AGI and income tax filing status.
For a married borrower who files a joint federal tax return with their spouse, the AGI for both spouses is used; for a married borrower who files a separate federal
tax return, only the borrower’s AGI used.
This plan is available for Direct Consolidation Loans disbursed before July 1, 2025, that repaid a Consolidation Loan that repaid a Direct Parent PLUS Loan or FFEL
Parent PLUS Loan.
Periods during which a borrower has received an interest subsidy while qualifying for an economic hardship deferment (during which an interest subsidy is provided
on Direct Subsidized Loans and on the subsidized component of a Direct Consolidation Loan) or while enrolled in the SAVE repayment plan are excluded from the
three-year period.
Prior to June 30, 2023, the SAVE repayment plan was named the Revised Pay As You Earn (REPAYE) plan. Regulations specify that the REPAYE repayment plan may
also be referred to as the SAVE repayment plan.
Plan is available for borrowers who demonstrate that the terms and conditions of the other repayment plans are “not adequate to accommodate [their] exceptional
circumstances.” 34 C.F.R. §685.221(a). The alternative repayment plans that are provided to borrowers on a case-by-case basis can be broken down into four
distinct plans: the alternative fixed repayment plan, alternative fixed term repayment plan, the alternative graduated repayment plan, and the alternative negative
amortization repayment plan. (U.S. Department of Education, Office of Federal Student Aid, Loan Repayment Plans, “Alternative Repayment Plans,” p. 9,
https://fsapartners.ed.gov/sites/default/files/attachments/presentations/41LoanRepaymentPlansV1.pdf.) ED indicated to CRS that these distinct plans were offered to
borrowers as of March 16, 2023. (Email communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs, March 16, 2023.)
Since that time, ED has updated its regulations addressing alternative repayment plans. Those updated regulations do not delineate distinct repayment plans (see 34
C.F.R. §685.221). CRS has asked ED whether it will continue to offer the four aforementioned alternative repayment plans following the regulations’ updates but has
not yet received a response. As such, it is unclear whether these four alternative repayment plans are still offered by ED.
Information currently unavailable to CRS.
This plan is only available to borrowers who were repaying according to the SAVE repayment plan and who failed to recertify their income and family size for
purposes of determining their monthly payment amounts.
Up to 12 months of repayment according to the SAVE Alternative repayment plan may count toward the maximum repayment period to qualify for loan forgiveness
under the SAVE repayment plan. It appears that all periods of repayment according to the SAVE Alternative repayment plan may count toward the maximum
repayment period to qualify for loan forgiveness under all other IDR plans.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Fixed Repayment Plans
Fixed repayment plans are plans with monthly payments that are based on the amount of a
borrower’s student loan debt, their loan’s interest rate, and a prescribed repayment period. They
are divided into three subtypes: standard repayment plans, extended repayment plans, and
graduated repayment plans.
Standard Repayment Plans
Standard repayment plans allow borrowers to make level payments (i.e., monthly payments that
remain the same over the life of the loan) on their loans over a defined period of time. Two
standard repayment plans are offered.
Standard Repayment Plan (34 C.F.R. §685.208(b))
All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans,
regardless of when they entered repayment, and borrowers of Direct Consolidation Loans who
entered repayment prior to July 1, 2006, may select a standard repayment plan that has a
maximum repayment period of 10 years. According to this plan, borrowers make fixed monthly
payments of not less than $50 over a period of 10 years; however, loans with small balances may
be repaid in a period that is shorter than 10 years.128
Standard Repayment Plan (34 C.F.R. §685.208(c))
Borrowers of Direct Consolidation Loans who entered repayment on or after July 1, 2006, may
select a standard repayment plan that has a repayment period of between 10 and 30 years. Under
this plan, borrowers make fixed monthly payments of not than less than $50.129 The duration of
the repayment period is based on the combined balances of the Direct Consolidation Loan and all
other federal and private education loans owed by the borrower.130 However, for purposes of
determining the repayment period, the combined balance of the other education loans may not be
greater than the balance of the Direct Consolidation Loan. Repayment periods for the Standard
Repayment Plan specified in 34 C.F.R. §685.208(c)are shown in Table 5. (The repayment periods
shown also apply to the Graduated Repayment Plan specified in 34 C.F.R. §685.208(h), which is
discussed in a later section.)
Table 5. Repayment Periods: Standard Repayment Plan (34 C.F.R. §685.208(c)) and
Graduated Repayment Plan (34 C.F.R. §685.208(h))
Borrowers who entered repayment on or after July 1, 2006
Combined Loan Balancea
at Start of Repayment
Repayment Period
Less than $7,500
10 years
$7,500, but less than $10,000
12 years
$10,000, but less than $20,000
15 years
$20,000, but less than $40,000
20 years
128 The last payment may be for less than $50.
129 The last payment may be for less than $50.
130 For additional details, see 34 C.F.R. §§685.208(c) and (j), 685.220(i), and U.S. Department of Education, Office of
Federal Student Aid, “Repayment Plans: Standard Plan,” https://studentaid.gov/manage-loans/repayment/plans/
standard (accessed July 5, 2024).
Congressional Research Service
39
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Combined Loan Balancea
at Start of Repayment
Repayment Period
$40,000, but less than $60,000
25 years
$60,000 or more
30 years
Source: 34 C.F.R. §§685.208(c), (h), and (j), and 685.220(i).
a. The combined loan balance represents the sum of (1) the outstanding balances on all of the borrower’s
loans eligible to be included in the Direct Consolidation Loan, plus (2) the outstanding balance of other
federal education loans and private education loans to the extent that the balance of the other education
loans is not greater than the balance of the Direct Consolidation Loan, the other education loans are not in
default, and the other education loans were not borrowed from an individual.
Extended Repayment Plans
All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and
Direct Consolidation Loans may elect to repay according to an extended repayment plan. The
extended repayment plans afford borrowers with large total loan balances the opportunity to make
lower monthly payments in return for extending the repayment of their loans for a longer
duration. By extending the repayment period, interest accrues over a longer period of time; as a
consequence, a larger amount of interest is paid by the borrower under an extended repayment
plan than would be paid according to a standard repayment plan with a 10-year term. There are
two extended repayment plans. Eligibility to select an extended repayment plan is limited based
on when a borrower’s loans entered repayment and the total outstanding principal balance owed
on loans made through the Direct Loan program.131
Extended Repayment Plan (34 C.F.R. §685.208(d))
This extended repayment plan is available to borrowers of loans made through the Direct Loan
program who entered repayment prior to July 1, 2006. Under this plan, borrowers make monthly
payments in equal amounts over a period that may range from 12 to 30 years from the date their
loans entered repayment status. The minimum monthly payment amount is $50, and the duration
of the repayment period depends on the outstanding principal balance of the borrower’s loans
made through the Direct Loan program.132 The extension of the repayment period results in
monthly payment amounts being lower than they would be under a standard repayment plan with
a 10-year term. Repayment periods for the extended repayment plan, by loan amount, are shown
below in Table 6. (The repayment periods shown in this table also apply to the Graduated
Repayment Plan specified in 34 C.F.R. §685.208(f), which is discussed in the next section.)
Table 6. Repayment Periods: Extended Repayment Plan (34 C.F.R. §685.208(d)) and
Graduated Repayment Plan (34 C.F.R. §685.208(f))
Borrowers who entered repayment prior to July 1, 2006
Outstanding
Principal Balancea
Less than $10,000
Repayment Period
12 years
131 For information on these plans, see U.S. Department of Education, Office of Federal Student Aid, “Repayment
Plans: Extended Plan,” https://studentaid.gov/manage-loans/repayment/plans/extended (accessed July 5, 2024).
132 In contrast to the Standard Repayment plan for Direct Consolidation Loans, amounts owed on other federal student
loans and private education loans are not considered for purposes of determining the duration of the repayment period
under this plan.
Congressional Research Service
40
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Outstanding
Principal Balancea
Repayment Period
$10,000, but less than $20,000
15 years
$20,000, but less than $40,000
20 years
$40,000, but less than $60,000
25 years
$60,000 or more
30 years
Source: 34 C.F.R. §685.208(d), (f) and (i).
Notes: These repayment plans are available to borrowers of Direct Subsidized Loans, Direct Unsubsidized
Loans, Direct PLUS Loans, and Direct Consolidation Loans who entered repayment prior to July 1, 2006.
a. Total OPB of loans made through the Direct Loan program.
Extended Repayment (34 C.F.R. §685.208(e))
This repayment plan is available to individuals who are new borrowers on or after October 7,
1998,133 who enter repayment on or after July 1, 2006, and who have an outstanding balance of
more than $30,000 on loans made through the Direct Loan program. Under this plan, borrowers
may make monthly payments in equal amounts, or in amounts that increase every two years, over
a period of 25 years from the date their loans entered repayment status. This results in monthly
payment amounts being lower than they would be under a standard repayment plan with a 10year term. The minimum monthly payment amount is $50.
Graduated Repayment Plans
Loan repayment according to the graduated repayment plans is structured so that a borrower’s
monthly payment amount will periodically increase over the course of the repayment period. In
general, borrowers will be required to make smaller payments at first and larger payments later.
Monthly payment amounts may be less than $50; however, in no instance may they be less than
the amount of interest that accrues. There are three graduated repayment plans. A borrower’s
eligibility to select one of the graduated repayment plans depends on loan type and when the
borrower’s loans entered repayment.
Graduated Repayment Plan (34 C.F.R. §685.208(f))
Borrowers of loans made through the Direct Loan program who entered repayment prior to July
1, 2006, may repay their loans according to a graduated repayment plan with a repayment period
that can range from 12 to 30 years. Under this plan, monthly payment amounts increase
incrementally every two years from an initial amount that may not be less than either $25 or 50%
of the amount that would be required under a standard repayment plan with a 10-year repayment
period, and are capped at 150% of the amount that would be required under a standard repayment
plan with a 10-year repayment period. The duration of the repayment period is determined based
on the total outstanding principal balance of the borrower’s loans made through the Direct Loan
program. Repayment periods for this graduated repayment plan
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