Federal Direct Student Loans

Federal Direct Student Loans are low-interest loans that the student takes out and the student repays. These loans are either subsidized or unsubsidized. Subsidized loans are the preferable loan because they do not accrue interest while a student has in school status. Unsubsidized loans begin accruing interest from the time they are initially disbursed.

Federal Direct Student Loan Details

To receive a Federal Direct Loan a student must complete the FAFSA and be enrolled at least half-time (6 credits). Most students qualify for a combination of subsidized and unsubsidized loan funds.

To qualify for a subsidized loan a student has to have documented need based on their EFC and Cost of Attendance (COA). Unsubsidized loans are not need-based so are only limited by the COA.

A student's eligibility for either loan can be reduced if they receive additional aid which reduces the documented need or further meets the COA.

Students' borrowing limits are based on their grade level and dependency status and, in limited cases, their program.

  Dependent Independent* Maximum
Freshman $5,500 $9,500 $3,500
Sophomore $6,500 $10,500 $4,500
Junior/Senior $7,500 $12,500 $5,500
Post-Bacc** $7,500 $12,500 $5,500
Grad/Professional N/A $20,500 $0

*Dependent students whose parents are denied the Federal Direct PLUS Loan can receive the higher loan amounts available to independent students.

**Post-baccalaureate students who are pre-majors in the nursing program can only receive aid for one 12-month period of time. If they are a dependent student, their annual limit is $2,625. If they are independent, the maximum is $8,625, with no more than $2,625 being subsidized.

If a student advances to a grade level with a higher annual loan limit during the academic year, the student may be eligible for the difference in limits. For example, at the end of the spring term a dependent student achieves junior status. They would be able to borrow an additional $1000 in the summer term. Students who want the increased loan eligibility must submit a request to the financial aid office.

Pharmacy students who do not already have a bachelor's degree are considered to be undergraduates in the first two years of their program and graduate students for the third and fourth year of their program. Pharmacy students with a bachelor's degree are treated as graduate students for all four years of the program.

Students in the Master's of Public Health and the Doctorate of Clinical Psychology programs can borrow $33,000 per year. Students pursing a Doctorate in Pharmacy can borrow $33,000 per year if they are receiving aid as a graduate student, as detailed in the paragraph above.

Only the certificate programs listed below, all offered at Missoula College, have been approved for federal financial aid. The annual loan limit is based on the published length of the program. If a student has borrowed the annual limit but has not finished the program, they are not eligible to borrow more until the start of the next academic year (autumn term).

The following programs are one term in length and have a maximum of $2,750 for dependent students and $4,750 for independent students, with a maximum of $1,750 being subsidized:

  • Construction Helper
  • CyberSecurity
  • Electrician Helper
  • Energy Auditor
  • Health Information Technology
  • Medical Claims Service Specialist
  • Precision Machine Technology - CTS
  • Recycling Technology

The following programs are two terms in length and have a maximum of $5,500 for dependent students and $9,500 for independent students, with a maximum of $3,500 being subsidized:

  • Business Media Design
  • Carpentry
  • Computer Aided Design (CAD)
  • Computer Support
  • Construction Management
  • Customer Relations
  • Electronics Technology
  • Energy Technology
  • Facilities Management
  • Green Buliding
  • Heavy Equipment Operations
  • Hospitality
  • Medical Reception
  • Pharmacy Technology
  • Precision Machine Technology - CAS
  • Recreation Power & Equipment
  • Sales & Marketing
  • Welding Technology

The Culinary Arts program is a year and a half in length. In the first two terms of the program the annual loan limit is $5,500 for dependent students and $9,500 for independent students. In the third term, the maximum is $3,250 for dependent students and $5,250 for independent students.

Lifetime borrowing limits (i.e. aggregate limits) are based on a student's dependency status and degree level.

Undergrad/Post Bacc.
$31,000 $23,000
Undergrad/Post Bacc.
$57,500 $23,000
Grad/Professional $138,500* $65,500*

* Undergraduate Loans included in aggregate total.

Students in the Master's of Public Health, Doctorate of Clinical Psychology and the Doctorate in Pharmacy programs have aggregate limits of $224,000.

Students who first borrow Federal Direct Subsidized Loan funds in 2013-2014 or later are subject to a time limit, based on the length of their program measured in terms, for which they can receive subsidized loans. Once a student's time in school has exceeded 150% of their academic program length they will be no longer be eligible for Federal Direct Subsidized Loan funds and they lose the subsidy on existing Federal Direct Subsidized Loans.

For example, a student admitted to a two-year program can only receive Federal Direct Subsidized Loan funds for six semesters. The time limit is a lifetime limit but only counts semesters that subsidized funding is received. So if a student completed an associate's degree in two years, for which they received Federal Direct Subsidized Loans, and decided to pursue a second associate's degree, they would only have one year of subsidized eligibility left at the two-year level. This same student could continue on for a bachelor's degree instead, but would be limited to 8 more semesters of subsidized loans.

The interest rate on Federal Direct Student Loans varies each year. The interest rate for a loan taken in any given year is fixed for the life of that specific loan.

Interest on an unsubsidized loan accrues from the time of disbursement. Subsidized loans do not accrue interest until the student ceases to be enrolled half-time, or begins repayment (dependent on the terms in force when the loan was taken out).

Students can make interest only payments to keep interest accrual to a minimum. If a student does not pay the interest before entering repayment, the interest will be capitalized, meaning the interest will be added to the principal. Then the student will be paying interest on their interest.

Academic Year Interest Rate
Undergraduates Graduates
2020-21 2.75% 4.30%
2019-20 4.53% 6.08%
2018-19 5.045% 6.595%
2017-18 4.45% 6.00%
2016-17 3.76% 5.31%

Direct student loans have an original fee which are taken out of each disbursement.

Currently, the fee is equal to 1.059% of the disbursement. So if a student borrowed $1000 they would receive $989, but they would owe back $1000.

A student who borrows $25,000 at an average interest rate of 5% and uses the standard repayment schedule (120 equal payments) will have monthly payments of $265. When the loan is paid in full after 10 years they will have paid a total of $31,820.

To receive a customized loan repayment schedule, which shows multiple repayment options, a student can access the US Department of Education's Repayment Estimator.

All students who are first time borrowers of Federal Direct Student Loans must complete a Federal Direct Master Promissory Note (MPN).

The MPN is a legally binding agreement to repay the loan. The MPN is completed at StudentLoans.gov. Students will need to log in using their FSA ID.

First-time borrowers of a Federal Direct Student Loan must complete entrance counseling before they can receive their first loan disbursement.

Entrance counseling teaches students about their rights and responsibilities as student borrowers. The counseling is completed online at StudentLoans.gov and should take approximately 20 to 30 minutes to complete. Students will need to log in using their FSA ID.

Returning or transfer students who have an outstanding loan do not need to complete this requirement.

Generally, a Federal Direct Student loan will be for the full academic year, the money being disbursed in two payments, half each term.

When the funds are disbursed they are used to pay the balance owed to the school first. If there are excess funds they will be paid to the borrower as a refund to help cover educational expenses not charged by UM.

Repayment of Federal Direct Student Loans begins six months after a student ceases to be enrolled at least half-time (6 credits). This six month period of time is known as a grace period.

If a student begins attending before the full six months has transpired, then when they cease enrollment again, they will have a full grace period.

If a student begins repayment on their student loans and then returns to school at least half-time, their existing loans will go into deferment (payment suspended). However, when they cease enrollment again, repayment will begin immediately as they have already used the grace period on those loans. Any new loans borrowed will have a grace period.

Though there are multiple repayment options, the standard plan requires that the student pay a minimum of $50 a month and have the loan paid off in ten years.

Students who are having difficulty making payments should contact their loan servicer as there are many options available to prevent a student from going into default on their student loans. Students can find the contact information for their loan servicers (some students have multiple servicers) by logging into NSLDS.ed.gov using the FSA ID.

UM's Financial Education Program is available to assist students with loan repayment issues. If a student is having difficulty getting cooperation from their loan servicer they can contact the US Department of Education's Loan Ombudsman's Office.

Information about a student's loan is submitted to the National Student Loan Data System (NSLDS). Schools, lenders, servicers and guarantors authorized by the US Department of Education have access to the information in NSLDS.

Students and parent borrowers can also access the information recorded in NSLDS using their FSA ID.