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Entrance Counseling Guide for Direct LoanBorrowers
You are borrowing Direct Subsidized Loansand/or Direct Unsubsidized Loans to help you finance your education. Repaying theseloans is a serious responsibility. This guideexplains some of the most important information that you will need to successfully understand, manage, and repay your loans.Throughout this guide, the words “we,” “us,” and “our” refer to the U.S. Department of Education. The word “loan” refers to one or more Direct Subsidized Loans or Direct Unsubsidized Loans that you are borrowing.
The William D. Ford Federal Direct LoanProgram
The William D. Ford Federal Direct Loan(Direct Loan) Program includes the followingtypes of loans:
Federal Direct Stafford/Ford Loans(Direct Subsidized Loans)
Federal Direct UnsubsidizedStafford/Ford Loans (DirectUnsubsidized Loans)
Federal Direct PLUS Loans (DirectPLUS Loans)
Federal Direct Consolidation Loans(Direct Consolidation Loans)Loans made under the Direct Loan Programare known collectively as “Direct Loans.”Direct Loans are made by the U.S.Department of Education.
Who to Contact About Your Direct Loans
Our Direct Loan Servicing Center services,answers questions about, and processespayments on Direct Loans. You may contactthe Direct Loan Servicing Center by:
Calling 800-848-0979 or, if you use atelecommunications device for the deaf (TDD), by calling 800-848-0983;
Visiting the Direct Loan ServicingCenter's web site at www.dl.ed.gov
 
; or 
Writing to:U.S. Department of EducationDirect Loan Servicing Center P.O. Box 4609Utica, NY 13504-4609.
Where You Can Find Your Direct LoanRecords
Direct Loans are reported to the NationalStudent Loan Data System (NSLDS).NSLDS is our central database for studentaid records. It provides a centralized view of your loans, tracking your loans from whenthey are approved through when they arepaid off. You may access your account onthe NSLDS web site atwww.nslds.ed.govbyusing a Personal Identification Number (PIN)that we assign to you along with other identifying data. If you do not have Internetaccess, you may call 800-4-FED-AID (800-433-3243).
Master Promissory Note for DirectSubsidized Loans and DirectUnsubsidized Loans
Direct Subsidized Loans and DirectUnsubsidized Loans are made to students tohelp pay for the cost of education beyondhigh school. In most cases, the loans youreceived were made under a Master Promissory Note (MPN). The MPN is alegally binding agreement between you andus and contains the terms and conditions of your loans.Under an MPN, you may receive more thanone loan over a period of up to 10 years topay for your educational costs, as long as theschool you are attending is authorized tomake multiple loans under the MPN andchooses to do so.If the school you are attending is notauthorized or chooses not to make multipleloans under the MPN, or if you do not want toreceive more than one loan under the MPN,you must sign a new MPN for each loan thatyou receive. If you do not want to receivemore than one loan under the MPN, you mustnotify the school you are attending or theDirect Loan Servicing Center in writing.
Use of your loan money
You may use the loan money you receiveonly to pay for your authorized educationalexpenses for attendance at the school thatdetermined you were eligible to receive theloan. Authorized expenses include thefollowing:
Tuition,
Room,
Board,
Institutional fees,
Books,
Supplies,
Equipment,
Dependent child care expenses,
Transportation,
Commuting expenses,
Rental or purchase of a personal,computer,
Loan fees, and
Other documented, authorized costs.
Information you must report to us after you receive your loan
You must notify the Direct Loan ServicingCenter and/or the financial aid office at your school about certain changes.Until you graduate or otherwise leave school,you must notify your school’s financial aidoffice if you:
Change your local address, permanentaddress, or telephone number;
Change your name (for example,maiden name to married name);
Do not enroll at least half-time for theloan period certified by the school;
Do not enroll at the school thatdetermined you were eligible to receivethe loan;
Stop attending school or drop belowhalf-time enrollment;
Transfer from one school to another school; or 
Graduate.
Money Management
Many students start college with little or nopersonal experience with loans, credit cards,living expenses, and budgeting.Understanding and practicing effective moneymanagement will help you to determine howmuch money you actually need to borrow.The following tips will help you manage your money and keep your debt under control.
(1)
 
Know your rights and responsibilities.
Failing to take advantage of your rights (for example, applying for a deferment or forbearance) and to carry out your responsibilities (keeping the Direct LoanServicing Center informed of your address,phone number, and other information) is asure way to end up delinquent or in default.Keep a complete set of all your records, andtalk to the Direct Loan Servicing Center whenyou have questions or concerns.
(2)
 
Take advantage of tax relief.
The Taxpayer Relief Act of 1997 created taxcredits (the HOPE Scholarship Credit and theLifetime Learning Credit) for individualspaying tuition and related expenses. Contactthe IRS for more information.
(3)
 
Understand and limit credit card use.
Credit cards are one form of borrowingmoney. If you decide you need a credit card,stick with one card with a low limit. Multiplecards mean higher debt. Pay off your totalbalance each month. If that is not possible,always pay more than the minimum. Manycredit card offers entice you with a lowinterest rate for the first few months and raisethe rate after this initial period. If you make apayment late (even a day late!), they mayincrease your interest rate.
(4)
 
Pay interest on Direct Unsubsidized Loans.
If you borrow a Direct Unsubsidized Loan,you are responsible for paying all of theinterest that accumulates on the loan. You donot have to pay the interest while you are inschool. But if you start to pay the interestwhile you are in school, it may save you asignificant amount of money over the life of your loan because the interest that you paywhile you are in school will not be capitalized.Start by making your interest payments a
Page 1 of 4Direct Loan Servicing Center: 800-848-0979 ~ www.dl.ed.gov 
 
 
Entrance Counseling Guide for Direct LoanBorrowers
budget priority. Remember that paying a littlemore each month can save you many dollarslater.A common theme run through these moneymanagement tips: Develop a budget.Developing a budget after you leave school isa very important tool. The three main stepsin creating your budget are: (1) calculatingyour total resources; (2) calculating your totalexpenses; and
 
(3)
 
determining the balance.The Interactive Budget Worksheet andCalculator at www.ed.gov/DirectLoan will help you determine your total expenses andestimate your total available income. Thebudget calculator lists most of the criticalitems to help you consider all of your resources. Based on the figures entered, anestimated budget figure will be calculated for the year.
Amount you may borrow
The charts on this page show the maximumamounts of Direct Subsidized Loans andDirect Unsubsidized Loans that you mayborrow for a single academic year (annualloan limits), and the maximum amounts thatyou may borrow in total for undergraduateand graduate study (aggregate loan limits).These amounts vary depending on your academic level and dependency status. If you are enrolled in certain health professionsprograms, you may qualify for higher annualand aggregate limits on Direct UnsubsidizedLoans.If your school awards both Direct SubsidizedLoans and Direct Unsubsidized Loans, it isrequired to determine your eligibility for aDirect Subsidized Loan before determiningyour eligibility for a Direct Unsubsidized Loan.The actual loan amount that you receive willbe determined by your school, based on your academic level, dependency status, andother factors such as:
The length of the program or the remainingportion of the program in which you areenrolled, if it is less than a full academic year;
Your cost of attendance;
Your Expected Family Contribution;
Other financial aid you receive; and
Your remaining eligibility under the annual or aggregate loan limits.The actual amount you receive may be lessthan the maximum annual amounts shown inthe charts.
Annual Loan Limits for Direct SubsidizedLoans and Direct Unsubsidized Loans:
 
Dependent Undergraduates
First Year (freshman)$2,625Second Year (sophomore)$3,500Third Year (junior)and Beyond$5,500
Independent Undergraduates
First Year (freshman)$6,625(maximum $2,625subsidized)Second Year (sophomore)$7,500(maximum $3,500subsidized)Third Year (junior)and Beyond$10,500(maximum $5,500subsidized)
Graduate and Professional Students
$18,500(maximum $8,500 subsidized)
Aggregate Loan Limits for DirectSubsidized and Direct UnsubsidizedLoans:Dependent Undergraduates
$23,000
Independent Undergraduates
$46,000(maximum $23,000 subsidized)
Graduate and Professional Students
$138,500(includes loans received for undergraduatestudy; maximum $65,500 subsidized)
Interest Rate
The interest rate on Direct Subsidized Loansand Direct Unsubsidized Loans is a variablerate that is based on a formula established bylaw. The interest rate may be adjusted eachyear on July 1. As a result, your interest ratemay change annually, but it will never exceed8.25 percent. We will notify you annually of the actual interest rate for each loan that youreceive.
Payment of Interest
We do not charge interest on a DirectSubsidized Loan while you are enrolled inschool at least half-time, during your graceperiod, and during deferment periods. Wecharge interest on a Direct Subsidized Loanduring all other periods (starting on the dayafter your grace period ends), includingforbearance periods.We charge interest on a Direct UnsubsidizedLoan during all periods (starting on the dayyour loan is paid out). This includes periodswhile you are enrolled in school at least half-time, during your grace period, and duringdeferment and forbearance periods.If you do not pay the interest on a DirectSubsidized Loan during forbearance periods,we will add it to the unpaid principal amountof your loan. This is called “capitalization.”If you do not pay the interest on a DirectUnsubsidized Loan while you are enrolled inschool at least half-time, during your graceperiod, and during deferment andforbearance periods, we will capitalize your interest.Capitalization increases the unpaid principalbalance of your loan, and we will then chargeinterest on the increased principal amount.The chart below shows the difference in thetotal amount you would repay on a $15,000Direct Unsubsidized Loan if you pay theinterest as it is charged during a 12-monthdeferment or forbearance period, comparedto the amount you would repay if you do notpay the interest and it is capitalized.
If you paytheinterest asit ischarged…If you do notpay theinterest andit iscapitalized…LoanAmount
$15,000$15,000
CapitalizedInterest for 12 months(at themaximumrate of 8.25%)
$0$1,238
Principal tobe Repaid
$15,000$16,238
MonthlyPayment(StandardRepaymentPlan)
$184$199
Number of Payments
120120
TotalAmountRepaid
$23,315$23,900
In this example, you would pay $15 less per month and $585 less altogether if you pay theinterest as it is charged during a 12-monthdeferment or forbearance period.You may be able to claim a federal incometax deduction for interest payments you make
Page 2 of 4Direct Loan Servicing Center: 800-848-0979 ~ www.dl.ed.gov 
 
 
Entrance Counseling Guide for Direct LoanBorrowers
on Direct Loans. For further information,refer to IRS Publication 970, which isavailable atwww.irs.ustreas.gov.
Loan fee
We charge a loan fee of up to 4 percent of the principal amount of each loan youreceive. This fee will be subtractedproportionally from each disbursement of your loan. The loan fee will be shown on adisclosure statement that we send to you.
Disbursement (how your loan money willbe paid out)
Generally, your school will disburse (pay out)your loan money in more than oneinstallment, usually at the beginning of eachacademic term (for example, at the beginningof each semester or quarter). If your schooldoes not use academic terms, it will generallydisburse your loan in at least twoinstallments, one at the beginning of theperiod of study for which you are receivingthe loan, and one at the midpoint of thatperiod of study.In most cases, if the Direct Subsidized Loanor Direct Unsubsidized Loan that you arereceiving is your first student loan under either the Direct Loan Program or the FederalFamily Education Loan (FFEL) Program, youmust complete entrance counseling beforeyour school can make the first disbursementof your loan.Your school may disburse your loan moneyby crediting it to your account at the school,or may give some or all of it to you directly bycheck or other means. The Direct LoanServicing Center will notify you in writingeach time your school disburses part of your loan money.If your school credits your loan money to your account and the amount credited is morethan the amount of your tuition and fees,room and board, and other authorizedcharges, the excess amount is called a creditbalance. Unless you authorize your school tohold the credit balance for you, your schoolmust pay you the credit balance within thefollowing timeframes:
If the credit balance occurs after the firstday of class of a payment period (your school can tell you this date), your school must pay you the credit balanceno later than 14 days after the date thebalance occurs.
If the credit balance occurs on or beforethe first day of class of a paymentperiod, your school must pay you thecredit balance no later than 14 daysafter the first day of class of the paymentperiod.
Canceling your loan
Before your loan money is disbursed, youmay cancel all or part of your loan at any timeby notifying your school. After your loanmoney is disbursed, there are two ways tocancel all or part of your loan:
Within 14 days after the date your school notifies you that it has creditedloan money to your account at theschool, or by the first day of your school’s payment period, whichever islater (your school can tell you the firstday of the payment period), you may tellyour school that you want to cancel allor part of the loan money that wascredited to your account. Your schoolwill return the cancelled loan amount tous. You do not have to pay interest or the loan fee on the part of your loan thatyou tell your school to cancel within thistimeframe. If you received an up-frontinterest rebate on your loan, the rebatedoes not apply to the part of your loanthat you tell your school to cancel. Your loan will be adjusted to eliminate anyinterest, loan fee, and rebate amountthat applies to the amount of the loanthat was cancelled.If you ask your school to cancel all or part of your loan outside the timeframesdescribed above, your school mayprocess your cancellation request, but itis not required to do so.
Within 120 days of the date your schooldisbursed your loan money (by creditingthe loan money to your account at theschool, by paying it directly to you, or both), you may return all or part of your loan to us. Contact the Direct LoanServicing Center for guidance on howand where to return your loan money.You do not have to pay interest or theloan fee on the part of your loan that youreturn within 120 days of the date thatpart of your loan is disbursed. If youreceived an up-front interest rebate onyour loan, the rebate does not apply tothe part of your loan that you return.Your loan will be adjusted to eliminateany interest, loan fee, and rebateamount that applies to the amount of theloan that you return.
Demand for immediate repayment
The entire unpaid amount of your loanbecomes due and payable (on your MPN thisis called “acceleration”) if you:
Receive loan money but do not enroll atleast half-time at the school thatdetermined you were eligible to receivethe loan;
Use your loan money to pay for anythingother than educational expenses at theschool that determined you were eligibleto receive the loan;
Make a false statement that causes youto receive a loan that you are not eligibleto receive; or 
Default on your loan.
Avoiding Delinquency and Default
If you think you might have a problem makingthe scheduled payments on your loans,contact the Direct Loan Servicing Center immediately. The Direct Loan ServicingCenter can help you avoid the costs andnegative consequences associated withdelinquency and default.You are delinquent if your monthly payment isnot received by the due date. If you fail tomake a payment, the Direct Loan ServicingCenter will send you a reminder that your payment is late. If your account remainsdelinquent, the Direct Loan Servicing Center will send you warning notices reminding youof your obligation to repay your loans and theconsequences of default. Late fees may beadded if your payments are late, and your delinquency will be reported to one or morenational credit bureaus.Default occurs when you become 270 daysdelinquent in making payments on your loans. If you default:
The entire unpaid amount of your loanbecomes due and payable.
We will report your default to nationalcredit bureaus.
We may sue you, take all or part of your federal tax refund or other federalpayments, and/or garnish your wages sothat your employer is required to sendus part of your salary to pay off your loan.
We will require you to pay reasonablecollection fees and costs, plus courtcosts and attorney fees.
You will lose eligibility for other federalstudent aid and assistance under mostfederal benefit programs.
You will lose eligibility for loandeferments.
Grace Period
You will receive a six-month grace period onrepayment of each Direct Subsidized Loanand Direct Unsubsidized Loan that youreceive. Your six-month grace period beginsthe day after you stop attending school or drop below half-time enrollment. You do nothave to begin making payments on your loanuntil after your grace period ends.If you are called or ordered to active militaryduty for more than 30 days from a reservecomponent of the U.S. Armed Forces, theperiod of your active duty service, including
Page 3 of 4Direct Loan Servicing Center: 800-848-0979 ~ www.dl.ed.gov 

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