Federal student loans are financial aid options for students. The federal government provides these loans through the US Department of Education. Federal student loans, like any loan you may borrow, must be repaid with interest. The good news is that these loans offer lower interest rates and better repayment options than private student loans. Be sure to take full advantage of these programs before using other financing options to pay for your higher education.
There are federal student loans for undergraduates, graduates, professional students, and parents of dependent undergrad students. These loans may include Direct Student Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Plus Loans for Parents, and Direct Plus Loans for Parents and Professional Students.
Many federal student loans only have a fixed interest rate that doesn’t change over time. The interest rates may vary depending on the loan type. Federal student loans also have origination fees. The fee is calculated as a percentage of the loan amount. So the amount you borrow could be more than the actual amount that you will receive.
Federal Student Loan Programs
|Direct Student Loans||Direct Student Loans are made in the name of the student, based on need (only the subsidized portion), does not require a credit check (it’s guaranteed and backed by the government rather than credit/income/assets, etc.) and does not have to be repaid until after the student graduates, leaves school or stops attending on at least a half-time basis. Schools that participate in federal student aid programs offer Direct Student Loans “directly” through the federal government. These federal student loans were formerly known as Stafford loans.|
|Federal Direct Subsidized Student Loan||Available only to undergraduate students with financial need, subsidized loans do not accrue interest while the student is enrolled on at least a half-time basis.|
|Federal Direct Unsubsidized Student Loan||Available to both undergraduate and graduate students regardless of financial need. Interest is charged during the in-school period and can eiher be paid proactively or deferred until the student is no longer enrolled on at least a half-time basis.|
|Federal Perkins Loan||The Perkins Loan has a fixed interest rate of 5% and repayment doesn’t begin until 9 months after a student stops attending at least half time or graduates. The school’s financial aid office determines eligibility for Perkins. Only the neediest of undergraduates and graduate students will receive Perkins.|
|Federal Direct PLUS Loans for Parents||Direct PLUS Loans for Parents are made in the name of a parent. While they do require a credit check, the credit criteria to obtain a PLUS are generally not as stringent as they are for other types of consumer loans since they are based on federal requirements. Repayment of a PLUS loan begins after the loan is fully disbursed. PLUS loans disbursed on or after 7/1/2008 may have payments postponed while the student is in school at least half-time, however interest will still accrue. Be sure to read your loan disclosure and contact your servicer if you would like to postpone the payment on your PLUS loan. Again, schools offer PLUS through the federal government; they are no longer available through private lenders or banks.|
|Federal Direct PLUS Loans for Graduate and Professional Students||The Direct Graduate PLUS is just like the PLUS for parents except that it is made in the name of a graduate or professional student. However, the student must apply for the maximum annual limit of Direct Unsubsidized Student Loan before applying for the Graduate PLUS. It is important to remember that Direct PLUS Loan for Graduate and Professional Students requires payment within 60 days after the loan is fully disbursed. Deferment options are available while you are still attending school at least half-time. Note: Servicers usually will automatically place Grad PLUS loans in deferment.|
|Federal Direct Student Loan Consolidation||A Direct Consolidation Loan enables borrowers to combine all of their federal student loans into one federal loan consolidation is for student borrowers who are in repayment status or parent borrowers who wish to extend the repayment period on their current PLUS loans and obtain a fixed interest rate for those loans which might have a variable interest rate. You can combine all of your eligible federal student loans into one loan with a Direct Consolidation Loan. Consolidating also locks the interest rate you pay on your loan. In addition, by consolidating you can possibly lower your payments by extending the length of the repayment period for your loan. However, with the extended term, you will end up paying more in interest over the life of the loan.|
Applying for Federal Student Loans
Any student interested in federal student loans may complete a FASFA document to determine eligibility. In addition to meeting loan eligibility, you must not owe a federal financial aid refund or be in default on any federal student loan to qualify. You must meet the eligibility requirements to receive federal financial aid and must not be in default on any federal student loan or owe a refund of federal financial aid.
You will also have to sign a Master Promissory Note and complete a loan entrance interview session in person or online. Your school will provide you with this information and tell you what steps you need to take.
What are the Interest Rates of Federal Student Loans?
Many federal student loans only have a fixed interest rate that doesn’t change over time. The interest rates may vary depending on the loan type.
Are There Any Fees for Federal Student Loans?
Yes. Federal student loans have origination fees. The fee is calculated as a percentage of the loan amount. So the amount you borrow could be more than the actual amount that you will receive.
Other Factors to Consider
Most students end up needing to finance some portion of their education. Always maximize your use of funds you do not have to repay such as federal financial aid, institutional grants, scholarships, 529 plans, tuition remission, prepaid tuition plans, etc. Even if you or your family have very high income, you can still receive low cost federal student loan including an Unsubsidized Direct Student Loan and the Direct PLUS Loan for Parents. Graduate students can receive both the Unsubsidized Student Loan and Direct PLUS Loan for Graduate and Professional Students. To see all the ways you can use to pay for college, review our Financial Aid Flowchart
Of course, if you still need funding to pay for college beyond what you receive in free money and federal student loans, you can always pursue a private student loan.