Direct Loans

Direct loans are any loans by a lender that do not include a third party. This allows the lender to have more discretion in who he or she gives loans to. Lots of times, direct loans refer specifically to student loans. Students can use them when first going to college or after they graduate if they want to consolidate. In order to apply, you must fill out the Free Application for Federal Student Aid, or FAFSA.

You don't apply with a bank unless you want a private loan. The FAFSA is the only form you have to fill out for all student loans. These loans are given by the government. The government uses the money that it gets from regular Treasury auctions. When you repay the loan, you are paying the government. Therefore, the loan will never be sold.

Repaying Your Loan

You have four options when you repay your student loans. They are standard, extended, graduated and income contingent. The standard repayment plan consists of set monthly payments over a preset period of time. This payment plan is usually shorter than the other three, thus resulting in less interest paid. With the extended plan, you can stretch the loan out over a number of years, usually between 12 and 30.

The graduated plan is good for people who get out of school and aren't making a lot of money right away. With this plan, your monthly payments start out low and increase every two years. If your income tends to waver over time, you might want to opt for the income contingent plan. As your income goes up and down, so do your monthly payments.