Direct Loan

The student completes the FAFSA. The institution packages an award that may include subsidized and/or unsubsidized amounts up to annual and aggregate limits. Funds are disbursed in at least two payments per academic year, usually credited to the student’s account. After a six-month grace period following graduation or dropping below half-time, repayment begins. Income-driven repayment plans and Public Service Loan Forgiveness are available under current rules.

Example: a dependent undergraduate with demonstrated need is offered $3,500 in Direct Subsidized and $2,000 in Direct Unsubsidized for the year. The institution disburses half in the fall and half in the spring. Interest on the subsidized portion does not accrue while the student remains enrolled at least half-time.

Pell Grants do not require repayment. Private loans are made by banks or other lenders and lack the federal repayment protections. Parent PLUS Loans are borrowed by the parent, not the student, and have different credit and repayment rules.

Assuming all Direct Loans are subsidized. Ignoring aggregate loan limits when planning multiple years. Treating loan disbursements as free money rather than debt that will enter repayment.