In a nutshell
Federal student loans provide assistance to families trying to cover the costs of higher education. The average tuition fee for an out-of-state, four-year public school is $29,150 a year, according to data from the College Board. For private schools, that figure jumps to $41,540.
- Like scholarships and grants, federal student loans are a way to ease the costs of college for students and their families.
- The U.S. government offers these loans to eligible families.
- Federal student loans offer several advantages over private loans, including lower interest rates and more flexibility with repayment.
Related: Student Loan Guide
Types of Federal Student Loans
Federal student loans have many benefits, but it's important to understand the differences between the different types of federal loans before applying.
Direct Subsidized Loans
If you're enrolled in an undergraduate program and can demonstrate financial need, you can get Direct Subsidized Loans. The government pays the interest on these loans while you're studying at least part-time. The government continues to cover the interest during the six-month grace period and deferment period after you graduate (the period when you postpone payments).
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to both undergraduate and graduate borrowers. Unlike subsidized loans, you don't have to demonstrate financial need. The school will determine how much you can borrow based on your total tuition costs and any other aid you receive. However, there is a federal borrowing limit, which we'll discuss later.
The government doesn't pay the interest on these loans — that's your responsibility. Interest accrues on your loans during periods when you don't have to make payments (like while you're in school), which can increase your overall borrowing cost.
Direct PLUS Loan
Direct PLUS Loans (called Parent PLUS Loans when offered to parents of dependent students and Graduate PLUS Loans when offered to graduate or professional students) are also a type of interest-free loan. Direct PLUS Loans cover a school's stated cost of attendance, excluding other financial aid.
A credit check is required to obtain these loans, so if you don't have a good credit score or a history of late payments, you'll need to meet additional requirements. As with other Direct Unsubsidized Loans, interest payments are entirely your responsibility, and interest may accrue on your principal during any period when no payments are required. This increases your overall borrowing costs.
Direct Consolidation Loan
Federal student loan borrowers can consolidate multiple federal student loans into one loan with one monthly payment, without any fees. The interest rate on these loans is fixed based on the average interest rate of all the loans being consolidated.
Federal Student Loan Benefits
When comparing federal student loans to private student loans, consider these advantages of borrowing from the government.
Generally inexpensive
Private student loans are funded by private organizations like schools, banks, and credit unions, and often have higher interest rates and fees than federal student loans.
Fixed interest rate
Federal student loans are fixed-rate loans, which means the interest rate remains the same for the life of the loan. Private loans have interest rates that can go up or down depending on market conditions.
The interest rate for Direct Subsidized and Unsubsidized Loans for undergraduate students disbursed between July 1, 2023 and July 1, 2024 is 5.50%. The interest rate for Direct Unsubsidized Loans for graduate students is 7.05%, and the interest rate for Direct PLUS Loans is 8.05%.
No credit history or guarantor required
If you take out a private student loan, the lender will check your credit history and may require a cosigner if your credit profile is not good. However, if you choose a federal student loan, no credit check will be conducted (except for PLUS loans), so you don't have to worry about not being able to get a loan or needing a cosigner because of your credit history.
More flexible payments
Unless you receive loan forgiveness, you still have to pay back any type of loan you take out. However, federal student loans offer a bit more flexibility than private student loans if you're struggling to make payments. You don't have to start paying back your federal loans until you leave school or drop your enrollment to part-time or lower. Private student loan payments can often be deferred until you leave school, but this isn't guaranteed.
Federal student loans also have the option of forbearance or deferment, which allows you to pause payments (though some private plans may also have this option, depending on the plan). These loans also allow you to pay off your loans using a repayment plan. Repayment plans include fixed payments for a set period of time or payments that are tied to income. For private loans, you should check with your lender to see what options are available to you. Additionally, the government pays interest on subsidized loans while the borrower is in school and for certain other periods of time.
Time to default is long
If you miss a payment on your federal student loan for more than 270 days, you're in default. For private loans, the default timeline varies by lender and can be less than 270 days.
Integration without credit check
There's no cost to consolidate federal student loans and no credit check is required. However, if you consolidate private student loans, you'll likely be subject to a hard credit check and your credit score may temporarily drop.
More loan forgiveness options than private lending
The government offers several options for loan forgiveness on federal student loans. The most common is Public Service Loan Forgiveness (PSLF). Private lenders don't typically offer forgiveness options, but loans from state agencies may also be forgiven, according to the Department of Education.
What are the eligibility requirements for federal student loans?
To qualify for a federal student loan, you must:
- Be a U.S. citizen or eligible foreign national.
- Have a social security number.
- Being accepted into or enrolled in an eligible school.
- Maintain “Satisfactory Academic Progress” as defined by the school.
- If you're applying for a need-based loan, demonstrate financial need.
When you apply for federal student loans, you also fill out the Free Application for Federal Student Aid (FAFSA) form to determine how much aid you may be eligible for.
Federal student loan borrowing limits
The government places limits on the amount you can receive in federal student loans each year. The limits vary depending on your years of study and your dependent status.
The following table shows the annual loan limits for dependent undergraduate students, excluding dependent students whose parents cannot obtain a Direct PLUS loan.
The following table shows the annual loan limits for independent undergraduate students and dependent undergraduate students whose parents are unable to obtain a PLUS loan directly.
How to Apply for Federal Student Loans
Applying for a federal student loan is super easy (and free!) Follow these steps to get started.
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The application process can be completed online, but it does require information about your family's financial situation. Before you apply, gather documents such as your federal tax returns and bank statements.
Fill out the FAFSA
Filing the FAFSA form is one of the most important steps in the process of getting a student loan. You'll need to fill out this form every year you're in school. The federal FAFSA deadline is June 30, but each school and state has its own deadlines, so be sure to check early before you miss out. Before filling out your application, review our FAFSA guide.
Double-check your work
After you submit your FAFSA, you will receive a FAFSA Filing Summary (formerly known as a Student Aid Report (SAR)), which summarizes all the information you entered on the FAFSA. Please review that all information is accurate and correct any errors. The federal deadline to make corrections is September 14th.
Selecting an aid package
If you are accepted into a school, you will be offered an aid package based on the information you provided on the FAFSA. Consider your options carefully and choose the aid amount that is right for you.
Alternatives to Federal Student Loans
Federal student loans are a surefire way to pay for college, but there are other options, including:
- Subsidy: These are usually based on financial need and do not have to be repaid.
- scholarship: Like grants, scholarships do not need to be repaid and are awarded based on need and academic merit.
- Work-Study Programs: In addition to loans, the federal government also offers part-time jobs to students in need of financial assistance.
- Support from your employer: If you continue to work while attending school, which is more common for graduate or professional students, your employer may cover some of your education costs.
- Revenue Sharing Agreement: These contracts allow you to attend school for free or receive financial assistance in exchange for paying a percentage of your income to the institution for a set period of time. We recommend that you carefully review this type of contract before signing it.
AP Byline Director
Federal student loans help make college affordable for many families. They offer benefits like fixed interest rates, flexible repayment options, and lower costs than private loans. Your dependent status and the program of study you enroll in affect your eligibility for various federal student loans.
Frequently Asked Questions (FAQ)
How do I qualify for federal student loans?
To qualify for federal student loans, you must meet certain citizenship, academic, and enrollment requirements, and if you're applying for need-based aid, you'll need to submit financial documentation and complete the FAFSA form.
What is the maximum amount I can borrow on a federal student loan?
Federal student loan limits vary by dependent status and year of study. For example, for a first-year college dependent, the limit is $5,500. Of that, no more than $3,500 will be subsidized. All loan limits are available on the Department of Education website.
How do I apply for additional financial aid?
The FAFSA is used to determine other types of financial aid you may be eligible for, such as scholarships and work-study scholarship programs. You may also be able to apply for scholarships and tuition payment plans through your school. If you've exhausted other options, talk to your school about whether you're eligible to apply for more student loans.
What is the difference between subsidized and unsubsidized loans?
Subsidized loans don't accrue interest while you're in school or for six months after you graduate, but unsubsidized loans accrue interest as soon as you start making payments on the loan.
