What Are Federal Student Loans?

Resources to help you pay for college.

What is a federal student loan?

A federal student loan is money that you or your parents borrow from the government to pay for your education and repay later with interest. Interest is the cost of borrowing that money, paid in the form of a percentage of your total loan amount. A higher interest rate means you pay more over time.

What are the different types of federal student loans?

There are a few different types of federal student loans.

  • Federal Direct Subsidized Loans are need-based loans for undergraduate students. The amount you can borrow is determined by the total cost of the college and your family’s ability to pay as determined by the Free Application for Federal Student Aid (FAFSA®). There are benefits to subsidized loans, including the government paying for interest on the loan while you're still enrolled in school.
  • Federal Direct Unsubsidized Loans can be taken out by undergraduate and graduate students. Unsubsidized loans are not based on need, although you must file the FAFSA to be considered. Interest will be charged from the time you receive the loan and until it’s paid in full. You can choose to pay the interest while you’re in school or allow it to accumulate. However, allowing it to accumulate will increase the total amount you have to repay. 
  • Direct Parent Loans for Undergraduate Students are commonly referred to as Parent PLUS loans. These are loans that a parent can take out on behalf of their undergraduate student. Unlike federal subsidized or unsubsidized student loans, they require a separate application and approval process. 
  • Grad PLUS Loans are a type of PLUS loan for students in graduate school. They also require graduate students to submit the FAFSA and an additional application. 
  • Learn more about the different types of federal student loans by visiting the Federal Student Aid website.

What are the benefits of federal student loans?

Federal student loans have many benefits in comparison to private loans, including:

  • No credit check – Students are not required to have a credit score or credit history to qualify for Federal Direct Subsidized or Unsubsidized Loans. 
  • Fixed interest rates – Interest rates are fixed over the life of the loan, meaning that the rate won’t change while the loan is being repaid.
  • No cosigner – Most private loans require a cosigner, who will be responsible for paying back the loan if you cannot, but you can take out federal student loans without one.
  • Deferment – Deferment is a period of time when you’re not required to make payments on your student loans. Students with federal student loans are granted deferment while enrolled over half-time in college and for 6 months after you graduate or stop attending. You can also be granted deferment if you’re temporarily unable to make any payments to your loans after repayment starts. 
  • Different repayment options – Federal student loans provide several repayment plans, including options that allow you to lower your payments based on your income. Check out the different plans

How do I know if I am eligible for federal student loans?

Eligibility for federal student loans is based on your eligibility for federal student aid. U.S. citizens and eligible noncitizens who complete the FAFSA can qualify for federal student loans. If you can receive federal student loans, many colleges will include them in the financial aid offer. For more eligibility information, check out the Federal Student Aid website.

PLUS loans require an application, so your eligibility is dependent on that application being approved. Find out more information at studentaid.gov here.

How do I apply for federal student loans?

To be able to receive federal student loans, you must complete the FAFSA. If you’re offered Federal Direct Subsidized and Unsubsidized Loans on your financial aid offer and would like to accept it, you’ll need to complete the Master Promissory Note (sometimes called the MPN) and Loan Entrance Counseling on studentaid.gov. If you have not been offered a federal student loan but are interested in taking one out, you should contact your financial aid office to see if you’re eligible.

For parents and graduate students to apply for a PLUS loan, you should contact the college and submit an application, which will require some additional information.

What is the maximum amount I can borrow in federal student loans?

The maximum amount you can borrow in Federal Direct Subsidized and Unsubsidized Loans depends on the school year, dependency status, and college you’re attending. Find out more information on studentaid.gov.

The maximum PLUS loan amount you can borrow, as a parent of an undergraduate student or a graduate student, is the school’s cost of attendance (as determined by the school), minus any financial aid received.

What happens to my loans while I’m enrolled in college?
Your Federal Direct Subsidized and Unsubsidized Loans will be automatically deferred while you’re in college until 6 months after you graduate or otherwise stop attending. If you apply to borrow PLUS loans, you can choose to defer them directly on the application.

In addition to being deferred, subsidized student loans don’t accrue interest while you’re in school at least half the time. Unsubsidized student loans do accrue interest while in college. Even though you don’t need to make payments while enrolled, making payments toward the interest can help pay off your loans faster. Check out this article about how to manage student loan debt in and out of college.

How does repayment work?

Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment. However, if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, you have a six-month grace period before you’re required to start making regular payments. To figure out where you should be making your payments and for information about the different repayment plan options, talk to your loan servicer. You can find your loan servicer for federal loans on studentaid.gov

For many students, federal loans help make it possible to pay for college. Federal student loans are usually the best option for students who need to borrow to attend. Make sure to explore all of your borrowing options to ensure you’re setting yourself up for success while in college and after graduation.