Federal Direct Loan Interest Rebate
The U.S. Secretary of Education has authorized an up-front interest rebate on all Federal Direct Loans as a repayment incentive. Up-front means that the borrower receives the benefit now, while the student is in college. This interest rebate is at the discretion of the U.S. Secretary of Education.
The Federal Direct Loan net amount (after the loan fee is withheld) is increased by this interest rebate on the condition that when loan repayment begins, the borrower makes their first 12 payments on-time. If the borrower does not meet this requirement, the amount of the interest rebate is added to the principal of the loan during repayment.
Example: A student borrows a $3,500 Federal Direct Subsidized Stafford Loan for the 2011-2012 academic year. Subtract from $3,500 the 1.0% loan fee ($35) and add the 0.5% interest rebate ($17.50). The net amount of loan funds the student will receive is $3,482.50.
The Federal Direct Loan Servicer will mail, to the borrower, a disclosure statement indicating the exact loan terms.