Direct student loans are paid directly from the U.S. government to the student, without a "middleman" in between. As of this year, 2010, the government has passed into law that non-private student loans will be administered directly by the government. In the recent past, many colleges and financial institutions were involved in schemes that pushed students into signing up for student loans with "preferred" lenders.
In actuality, the only ones to receive benefits out of these arrangements were the colleges and financial institutions, certainly not the students themselves. By cutting out the banks and financial institutions out of the picture, it is a win-win situation for both students and the federal government. Previously, the federal government still backed the loans administered by banks, so it simply added another layer of bureaucracy and costs to the process. By administering the loans directly themselves, it makes for considerable savings.
There are two main programs with direct student loans. The first is Stafford Federal Loans and the second is Perkins Federal Loans. The Stafford Loans come in two forms: subsidized and unsubsidized. Subsidized Stafford Loans are income-based, and the government pays the interest on the loans while the student is attending classes at least half-time and for six months after graduation. Unsubsidized Stafford Loans accrue interest while the student is still in school.
Perkins Federal Loans are income-based, and generally go to the most needy students. These loans have a nine-month grace period after graduation and the government pays the interest while the student attends classes.
