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Student Loans

Federal Student Loans

Federal student loans are funded by the U.S. Department of Education and are available to students who complete the Free Application for Federal Student Aid (FAFSA).

These loans generally don’t require a credit check, proof of income, or a cosigner. But as with most loans, you’ll need to repay them, including interest. Here’s everything you need to know about federal student loans if you plan to apply.

Types of federal student loans 

The William D. Ford Federal Direct Loan Program makes new federal student loans. Direct Loans have several variations, depending on your financial need, level of education, and other factors. 

Loan typeWho is it for?
Direct SubsidizedUndergraduates with financial need
Direct UnsubsidizedUndergraduates, graduates, and professional students
Parent PLUSParents of dependent undergraduate students with no adverse credit history
Grad PLUSGraduate and professional students with no adverse credit history
Consolidation LoanMost borrowers with federal student loans

Check out our student loan repayment guide and learn more about how student loans work.

Direct Subsidized Loans

What to know
Eligible borrowersUndergraduate students with financial need
Interest rate5.50%
Origination fee1.057%
Grace period6 months

Direct Subsidized Loans are for undergraduate students with clear financial need as determined by the FAFSA. The amount of a Direct Subsidized Loan cannot exceed the total financial need of each student.

With Direct Subsidized Loans, the government pays the interest on the loans while you are enrolled at least half-time in school, during your six-month grace period after graduation, and during any period of deferment.

Direct Unsubsidized Loans

What to know
Eligible borrowersUndergraduate, graduate, and professional students
Interest rate5.50% (undergrad), 7.05% (graduate & professional degrees)
Origination fee1.057%
Grace period6 months

Direct Unsubsidized Loans aren’t need-based like Direct Subsidized Loans, and the government doesn’t pay any interest accrued during deferment and while you’re in school. During these periods, interest will continue to accumulate unless you make payments.

The amount you can borrow with a Direct Subsidized Loan is based on the total cost of attendance, minus other financial aid received, up to the federal student loan limits

Parent PLUS Loans

What to know
Eligible borrowersParents of dependent undergraduate students with no adverse credit history
Interest rate8.05%
Origination fee4.228%
Grace periodGenerally no grace period, but parents may request deferment for 6 months after the child leaves school

Parent PLUS Loans are a type of PLUS Loan for parents of dependent undergraduate-level students enrolled at least half-time at an eligible school. Borrowers must be the biological, adoptive, or step-parents. Guardians are not eligible.

While most federal student loans don’t require a credit check, Parent PLUS Loans do. The Department of Education will check your credit to ensure you have no adverse items on your credit reports.

Grad PLUS Loans

What to know
Eligible borrowersGraduate and professional students with no adverse credit history
Interest rate8.05%
Origination fee4.228%
Grace period6 months

Graduate students attending school at least half-time may qualify for a Grad PLUS Loan. To be eligible, you must be enrolled in an advanced degree or a professional certificate program.

As with Parent PLUS Loans, a credit check is required with Grad PLUS Loans. You must also meet other eligibility requirements for receiving financial aid from the Department of Education.

Consolidation Loans

What to know
Eligible borrowersMost borrowers with federal student loans
Interest rateWeighted average of federal loans being consolidated rounded up to the nearest eighth of a percentage
Origination feeNone
Grace period60 days after the loan is disbursed
(If any of the loans are in their grace period, you may request to delay repayment until it is up)

Direct Consolidation Loans are for borrowers with several federal student loans who want to combine them into one. You might also qualify for different repayment plans or loan forgiveness in the future with a Direct Consolidation Loan.

You won’t need a cosigner or a credit check to consolidate federal student loans, but doing so could result in a higher interest rate than if you kept the loans separate. 

Federal Perkins Loan Program

Perkins Loans were another popular federal student loan offered before September 30, 2017. These loans had low rates and were available to undergraduate and graduate students with exceptional financial need.

Federal student loan borrowing limits

Federal student loans come with limits based on your year of attendance, your dependency status, and other financial aid received for education. Here’s a quick overview.

Year in schoolDependent limitIndependent limitSubsidized limit
1st-year undergrad$5,500$9,500$3,500
​2nd-year undergrad$6,500$10,500$4,500
3rd-year undergrad$7,500$12,500$5,500
Grad & professional students$20,500None

The current aggregate loan limit for dependent students is $31,000, with no more than $23,000 in Direct Subsidized Loans. Independent undergraduate students can borrow $57,500, with no more than $23,000 in Direct Subsidized Loans. Graduate and professional students can borrow $138,500, with no more than $65,500 in subsidized loans. Aggregate limits for graduate and professional students include undergraduate loans.

If you’ve reached your federal student loan limit, private loans can fill the gap. Check out our guide to the best private student loans to learn more about your options.

How do you repay federal student loans?

Federal student loan borrowers can choose from multiple repayment plans, including the standard 10-year, graduated, and extended repayment plans.

  • Standard: Fixed repayments over a 10-year term. This is the most straightforward option, but monthly payments can be high depending on your loan balance.
  • Graduated: Graduated repayments that start low and then increase every few years. 
  • Extended: Fixed or graduated repayments over a 25-year term. Monthly payments can be low, but you’ll pay more interest with a longer term.

Income-driven repayment plans are also an option and could reduce your monthly payment to as low as $0. Four income-driven repayment plans are available.

  • Saving on a Valuable Education (SAVE) Plan: Monthly payments are 10% of discretionary income.
  • Pay As You Earn (PAYE) Repayment Plan: Monthly payments are 10% of discretionary income and won’t exceed your Standard plan payments.
  • Income-Based Repayment (IBR) Plan: Monthly payments are 10% or 15% of your discretionary income and won’t exceed your Standard plan payments.
  • Income-Contingent Repayment (ICR) Plan: Monthly payments are 20% of your discretionary income or the amount you’d pay with a fixed repayment plan over 12 years. 

Some borrowers might also qualify for student loan forgiveness after making a set number of monthly payments.

Who qualifies for federal student loans? 

To qualify for federal student loans, you must meet certain eligibility criteria:

  • Be a U.S. citizen or eligible non-citizen
  • ​Have a valid Social Security number
  • ​Be enrolled or accepted for enrollment as a student with an eligible degree or certificate program, at least half-time
  • ​Maintain academic progress in college
  • ​Show you are qualified to obtain a college degree or career school education
  • Be up-to-date with payments on current federal student loans

Anyone enrolled at least half-time at an eligible college or university can apply for federal student loans, provided that they haven’t borrowed the maximum limit and meet eligibility criteria.

You could lose your eligibility for federal loans in certain circumstances, including:

  • Failure to maintain satisfactory academic performance
  • Increase in parental income
  • Decrease in course load, dropping you below half-time enrollment

Private student loans may be the next-best option if you don’t have a feasible way to get your federal aid back.

How to apply for federal student loans

Getting federal student loans is a simple process, but it begins with understanding the eligibility requirements listed above. Here are the additional steps to apply:

1) Confirm federal aid eligibility

Confirm your school meets the federal student aid program requirements on the U.S. Department of Education’s Federal Student Aid website. 

2) Complete the FAFSA

Once you’ve determined your school is eligible, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). You can do this online, but you’ll need to create an FSA ID if you don’t already have one.

Once you’re logged into the FAFSA site, select your academic year, confirm whether you’re a student or parent, and then complete the required information. 

First, you’ll need to enter basic personal and demographic information and then share information about your chosen school. Next, answer questions about dependency status and your parents, if applicable. Then, provide specific financial information, including tax return data.

Sign and submit the form. If you prefer not to complete the FAFSA online, a paper version is available.

3) Review and accept your award letter

Submitting the FAFSA sends your application to your preferred schools. The individual financial aid offices at those schools determine the amount of federal student aid you’re eligible for.

Once your school calculates your federal student aid, you’ll get an award letter detailing the amounts. Time frames for receiving award letters can vary by school.

Determine which school’s award letter you’d like to accept, and inform the financial aid office. Your chosen school will tell you when the aid is paid out and if any additional paperwork is required, such as entrance counseling or a signed promissory note.

How much should you take out in federal student loans?

While it’s possible to borrow the full amount of available federal student loans each year, it isn’t necessarily the best choice if you can use scholarships, grants, or savings to pay for college. Here are factors to consider as you decide how much to borrow. 

What is your cost of attendance?

Figuring out your cost of attendance (COA) can be helpful. Your COA is an estimate of your college costs each year. This figure includes tuition, fees, books, on-campus housing, and more. 

To calculate it, determine the net college cost based on your situation—for example, you’re an undergrad living in on-campus housing. Colleges typically provide this cost, or multiple net costs based on different scenarios, on their financial aid sites. 

You’ll then subtract your student aid index (SAI), formerly your expected family contribution. Your SAI includes any of your or your parents’ income and savings that will go toward school. The formula looks like this: 

Net college cost – SAI = Total COA / 4 years of school = Annual COA

Here’s an example. In this case, our estimated annual COA would be $13,750. 

  • Net college cost = $100,000
  • SAI = $45,000

100,000 – 45,000 = 55,000 / 4 years = 13,750

How will you repay your loans?

You’ll also need to consider loan repayment. To determine your earning potential, be sure to research your first- and second-year income potential in your chosen field. This resource from the National Association of Colleges and Employers offers a first look at expected starting salaries by industry.

Once you’ve estimated your future salary, you can plan ahead for eventual federal student loan repayment. Estimate your monthly repayment obligation here.

Federal student loans vs. private student loans

Borrowers often turn to federal student loans before private student loans because federal loans offer unique benefits.

Federal student loansPrivate student loans
Typically have lower interest ratesTypically have higher interest rates
Fixed ratesFixed or variable rates
Friendly repayment assistance programsCan’t easily pause your payments

Lower interest rates

Federal student loans have low fixed interest rates that Congress sets annually, and private student loans can have fixed or variable rates. Individual lenders determine rates for private student loans. 

Fixed-rate loans have predictable payments that won’t change, but variable-rate loan payments can change with the broader market, so your payments could increase or decrease along with your rate.

Deferment and forbearance protections

With deferment, you can delay your federal student loan payments for a set time—because you’re in school at least half-time or are facing financial hardship. Subsidized Loans won’t accrue interest while in deferment, but other loans will. 

Forbearance also lets you suspend student loan payments but only due to financial hardship. Interest typically accrues during forbearance and can capitalize or compound when you enter repayment.

Good credit is not required

Most federal student loans don’t require good credit, so they’re a terrific option if you have limited or bad credit. By contrast, you may need good credit or a cosigner with strong credit to qualify for a private student loan at competitive rates.

Who services federal student loans? 

Although the Department of Education funds federal student loans, it does not act as a direct servicer once loans are dispersed or begin repayment.

Instead, the government has selected several private companies to collect payments and provide borrowers with help along the way.

You should be able to access your loan information in the National Student Loan Data System (NSLDS) regardless of your servicer.

Here is a list of federal student loan servicers and their information:

Servicer nameContact information
NelnetWebsite or call 1-888-486-4722
NavientWebsite or call 1-888-272-5543
MOHELAWebsite or call 1-888-866-4352
HESC/EdFinancialWebsite or call 1-800-337-6884
Granite State – GSM&RWebsite or call 1-888-556-0022
OSLA ServicingWebsite or call 1-405-556-9224

Federal student loan alternatives

While federal student loans provided by the Department of Education are our top choice for funding education due to their flexible repayment options and potential for forgiveness, you might need to explore other forms of financial aid, too. 

Here’s a summary of the options.

Type of aidHow to applyRepayment
ScholarshipSchools, private foundations, & orgsNone 
GrantFAFSA or schools & nonprofitsNone
Work-studyFAFSA & your college’s financial aid officeNone (funds earned as wages)
Private loanBanks; requires a credit checkMust repay with interest

The first three options can reduce the need for borrowing:

  • Scholarships are funds you don’t need to repay. They can cover various costs, including tuition, room, and board. Scholarships can be merit-based, need-based, or based on specific criteria, such as membership in certain groups or communities.
  • Grants are similar to scholarships. They are typically provided by governments, educational institutions, and private organizations.
  • Work-study: This program provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses. The work is often related to their field of study or benefits the community.

These sources of aid reduce the amount you need to borrow. After maximizing federal student loans and the above sources, if you still have a funding gap, we recommend considering private student loans. 

These are from private lenders and often require a good credit score or a cosigner. They might offer competitive rates but typically lack the flexible repayment options and protections that federal loans provide. See our recommendations for the best private student loans.