Federal student loans: what you need to know

Types of federal student loans

There are different types of federal student loans:

Direct Loans (previously known as Stafford Loans)

Direct PLUS Loans

Direct Consolidation Loans

Direct Loans

Direct Loans were previously known as Stafford Loans and are available to US citizens and eligible noncitizens enrolled at least half-time in an undergraduate or graduate program. No credit check or cosigner is required.

Direct Loans may be subsidized or unsubsidized.

Direct Subsidized Loans are available to undergraduate students who demonstrate financial need, and the government pays the interest while they’re enrolled in school at least half the time and during their grace period and deferment.

Direct Unsubsidized Loans are available to undergraduate and graduate students regardless of financial need. The student is responsible for paying all of the interest but can defer payments while in enrolled in school at least half-time.

Direct Loans have fixed interest rates and origination fees. There are also limits to how much you can borrow, both annually and in total.

Direct PLUS Loans

Direct PLUS Loans are available to parents of dependent students and to graduate or professional students to help cover up to the full cost of education, less any other financial aid. A credit check is required for this loan type. But even if you have adverse credit history, you still may be able to receive a PLUS loan if you meet additional requirements.

Federal Consolidation Loans

Once you are in grace or repayment for your federal student loans, you have the option of consolidation. Consolidation allows you to combine multiple federal student loans into one loan so that you have a single monthly payment. Consolidation may affect your current interest rate, repayment period, total cost of the loan, and other loan factors. Visit the federal government’s Direct Consolidation Loan Application for more information.

Considerations when applying for federal student loans

Federal students loans have certain features that can be helpful to consider as you make a plan for paying for college. Some considerations include:

Fees. Federal loans have origination fees that are a percentage of the loan. This fee is subtracted from the loan before it’s disbursed, which means you receive less than you are borrowing.

Repayment programs. Once you graduate, you have several repayment program options from the Standard Repayment Plan that spread your payments over 10 to 30 years, to income-based plans like Pay as You Earn (PAYE) and Revised Pay as You Earn (REPAYE). Each plan has its own borrower and loan type eligibility, monthly payment, term period, and other requirements.

No need for credit history. Unlike private student loans, borrowers don’t need a credit history to be eligible for subsidized and unsubsidized federal student loans.

Loan forgiveness options. Federal student loans have forgiveness options for borrowers who fit certain criteria, including successfully making a certain number of payments through PAYE or REPAYE. There are also programs like Teacher Loan Forgiveness and Public Service Loan Forgiveness. Borrowers will need to meet certain requirements to qualify.

All student loans, including private loans, have specific terms unique to them. Reading the fine print, asking questions, and making an informed decision can help you choose the right loan for you.

How to apply for federal student loans

To determine if you may be eligible for federal student loans, complete the FAFSA each year you are in school. The FAFSA application opens on October 1 each year. Since some aid is first come, first served, it can be a good idea to complete the FAFSA as soon as you can. There is an additional step for PLUS Loans for Parents, so check with your school for their process.

We recommend you maximize grants, scholarships, and other free financial aid before taking student loans. If you need to borrow, compare federal and private student loans options and choose the loans that best fit your needs.