Figuring out how to pay for your college education is, at best, overwhelming.

The terminology can be confusing, there are forms to fill out and options to compare. If you completed the Free Application for Federal Student Aid (FAFSA®), then you may have received federal student loans as part of your financial aid award package. These student loans are provided by the government — not private lenders — to help students and parents pay for college. This guide can help you understand the different types of federal student loan so you can feel more confident about making a decision.

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  • Your Complete Guide to Understanding Federal Student Loans

  • Federal Student Loans

    Federal student loans are designed to cover the gap between cost of attendance and other financial aid. To be eligible for federal student loans, you’ll need to complete the Free Application for Federal Student Aid (FAFSA®).

  • Direct Subsidized and Unsubsidized Loans, Also known as Stafford Loans

  • Direct Subsidized Loans

    How do you qualify?

    • For undergraduate students

    • Based on financial need

    • Determined by family income

  • Direct Subsidized Loans

    What are the rates and fees?

    • Rate: 5.05% fixed

    • Fee: 1.066%

    • Government pays the interest while in school

  • Keep in mind rates are for loans with a first disbursement on or after July 1, 2018, and before July 1, 2019. Fees are for loans with a first disbursement on or after October 1, 2017, and before October 1, 2018.

  • Direct Subsidized Loans

    When does repayment start?

    • 6 months after graduation (or less than half-time enrollment)

    • Plans range from 10 to 25 years

  • Direct Subsidized Loans

    How much can you borrow?

    • $3,500 as a freshmen

    • $4,500 as a sophomore

    • $5,500 as a junior, senior and any remaining undergraduate years

  • Direct Unsubsidized Loans

    How do you qualify?

    • For undergraduate and graduate students

    • Not based on financial need

  • Direct Unsubsidized Loans

    What are the rates and fees?

    • Rate: 5.05% fixed for undergraduates

    • Rate: 6.60% fixed for graduates

    • Fee: 1.066%

    • Government does not pay the interest while in school

  • Keep in mind rates are for loans with a first disbursement on or after July 1, 2018, and before July 1, 2019. Fees are for loans with a first disbursement on or after October 1, 2017, and before October 1, 2018.

  • Direct Unsubsidized Loans

    When does repayment start?

    • 6 months after graduation (or less than half-time enrollment)

    • Plans range from 10 to 25 years

  • Direct Unsubsidized Loan

    How much can you borrow?

    • Amounts vary for dependent and independents

    • See StudentAid.ed.gov for details and aggregate limits

  • Direct Perkins Loans

  • Direct Perkins Loans

    How do you qualify?

    • For undergraduate, graduate and professional students

    • Based on exceptional financial need

    • Available at qualifying institutions

  • Direct Perkins Loans

    What are the rates and fees?

    • Rate: 5.00% fixed for undergraduates

    • Fee: 0%

    • Government pays the interest while in school

  • Direct Perkins Loans

    When does repayment start?

    • 9 months after graduation (or less than half-time enrollment)

    • Plans vary by school

  • Direct Perkins Loans

    How much can you borrow?

    • $5,500 as an undergraduate ($27,500 total)

    • $8,000 as a graduate or professional student ($60,000 total, including undergrad)

  • Direct Parent and Grad PLUS Loans

  • Direct Parent and Grad PLUS Loans

    How do you qualify?

    • For parents of dependent undergraduate students

    • For graduate and professional students

    • Pass a credit check

    • Not based on financial need

    • Apply at StudentLoans.gov

  • Direct Parent and Grad PLUS Loans

    What are the rates and fees?

    • Rate: 7.60% fixed

    • Fee: 4.264%

    • Government does not pay the interest while in school

  • Keep in mind rates are for loans with a first disbursement on or after July 1, 2018, and before July 1, 2019. Fees are for loans with a first disbursement on or after October 1, 2017, and before October 1, 2018.

  • Direct Parent and Grad PLUS Loans

    When does repayment start?

    • Parents can request in-school deferment

    • Students begin repaying 6 months after graduation (or less than half-time enrollment)

    • Plans range from 10 to 25 years

  • Direct Parent and Grad PLUS Loans

    How much can you borrow?

    • Annual cost of attendance minus other financial aid

    • No aggregate loan limits

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There are a few different types of federal student loans available:

  • Direct Subsidized and Unsubsidized Loans
  • Perkins Loans
  • Direct PLUS Loans for graduate students and parents

To determine your eligibility for any federal student loans, you’ll need to first complete the FAFSA.

Direct Subsidized and Unsubsidized Loans

Sometimes known as Stafford Loans, subsidized and unsubsidized loans have fixed-interest rates. To qualify, you must be degree-seeking and enrolled at least half-time at a participating institution.

Direct Subsidized Loans

How do you qualify?
Subsidized loans are awarded to undergraduate students based on financial need, which is determined by your family’s income as reported on the FAFSA.

What is the interest rate?
The interest rate is fixed at 5.05 percent with a first disbursement on or after July 1, 2018, and before July 1, 2019. The government pays the accruing interest while you’re in school.

Are there any fees?
For loans with a first disbursement on or after October 1, 2017, and before October 1, 2018, there is a 1.066 percent origination fee. This fee is deducted from each loan disbursement, so you’ll ultimately receive less than you borrow.

When do you pay back these loans?
You will be required to start paying back your loans six months after you are no longer enrolled in school at least half-time. Repayment plans range from 10 to 25 years. See Studentaid.gov for more details.

How much can you borrow annually?
For both dependent and independent students:

  • $3,500 as a freshmen
  • $4,500 as a sophomore
  • $5,500 as a junior, senior, and for any remaining undergraduate years

Direct Unsubsidized Loans

How do you qualify?
Unsubsidized loans, which are available to both undergraduate and graduate students, are not based on financial need, but you still need to complete the FAFSA to be eligible.

What is the interest rate?
The interest rate is fixed at 5.05 percent for undergraduate students and 6.60 percent for graduate students with a first disbursement on or after July 1, 2018, and before July 1, 2019. Unlike Direct Subsidized Loans, you are responsible for paying the interest that accrues while you are in school, so you may want to consider making in-school payments.

Are there any fees?
For loans with a first disbursement on or after October 1, 2017, and before October 1, 2018, there is a 1.066 percent origination fee. This fee is deducted from each loan disbursement you receive, so you’ll ultimately receive less than you borrow.

When do you pay back these loans?
You will be required to start paying back your loans six months after you are no longer enrolled in school at least half-time. You can choose to make in-school payments, which will help reduce the overall cost of the loan. Repayment plans range from 10 to 25 years. See Studentaid.gov for more details.

How much can you borrow annually?
For dependent students:

  • $5,500 in Direct Loans combined, no more than $3,500 in Direct Subsidized loans as a freshman
  • $6,500 in Direct Subsidized and Direct Unsubsidized loans combined, with no more than $4,500 in Direct Subsidized loans as a sophomore
  • $7,500 in Direct Subsidized and Direct Unsubsidized loans combined, with no more than $5,500 in Direct Subsidized loans as a junior, senior and for any remaining undergraduate years

For independent students:

  • $9,500 in Direct Subsidized and Direct Unsubsidized loans combined, with no more than $3,500 in Direct Subsidized loans as a freshman
  • $10,500 in Direct Subsidized and Direct Unsubsidized loans combined, with no more than $4,500 in Direct Subsidized loans as a sophomore
  • $12,500 in Direct Subsidized and Direct Unsubsidized loans combined, with no more than $5,500 in Direct Subsidized loans as a junior, senior and for any remaining undergraduate years
  • $20,500 each year as a graduate student

There is also an aggregate loan limit. Between Direct Subsidized and Direct Unsubsidized loans, dependent undergraduate students are capped at $31,000, independent undergraduate students at $57,500 and independent graduate students at $138,500, including amounts borrowed as an undergraduate.

Perkins Loans

How do you qualify?
Perkins Loans are low-interest subsidized loans for undergraduate, graduate and professional students who demonstrate exceptional financial need and attend qualifying institutions. Check with your school’s financial aid office to see if it participates.

What is the interest rate?
The interest rate is fixed at 5.00 percent, regardless of the first disbursement date. The government pays the accruing interest while you’re in school.

Are there any fees?
There are no origination fees for Perkins Loans.

When do you pay back these loans?
You’ll need to start paying back Perkins Loans nine months after you are no longer enrolled in school at least half-time. Since repayment plans vary by school, check with yours for more detailed information.

How much can you borrow annually?

  • $5,500 as an undergraduate
  • $8,000 as a graduate or professional student

There is also an aggregate loan limit. Undergraduate students are capped at $27,500 and graduate students at $60,000, including amounts borrowed as an undergraduate.

Direct Parent and Grad PLUS Loans

How do you qualify?

Direct Parent PLUS Loans are available to parents of dependent undergraduate students who want to help their children pay for college. Biological, adoptive and stepparents are all eligible to apply.

The Grad PLUS Loan is a federal student loan for those attending graduate and professional school.

For both, a credit check is required for approval, and you’ll need to fill out an application at StudentLoans.gov in addition to completing the FAFSA.

What is the interest rate?
The interest rate is fixed at 7.60 percent for loans with first disbursements on or after July 1, 2018, and before July 1, 2019.

Are there any fees?
For loans with a first disbursement on or after October 1, 2017, and before October 1, 2018, there is a 4.264 percent origination fee. This fee is deducted from each loan disbursement, so you’ll ultimately receive less than you borrow.

When do you pay back these loans?
For Parent loans, unless you request in-school deferment, repayment will begin immediately after your student receives the final loan disbursement (even if your child is still in school).

For Grad loans, you will be required to start paying back your loans six months after you are no longer enrolled in school at least half-time. You can choose to make in-school payments, which will help reduce the overall cost of the loan.

Repayment plans range from 10 to 25 years. See Studentaid.gov for more details.

How much can you borrow annually?
The limit is the full annual cost of attendance (as determined by the school) minus any other financial aid the student receives. There are no aggregate limits for PLUS loans.

Are there other requirements if you choose to accept a federal loan?

You will have to sign a Master Promissory Note, which is a legal document stating your commitment to repay your loans. You’ll also have to attend a mandatory online entrance counseling session, where you’ll learn about financial resources to help pay for college, how to manage your loans, and your rights and responsibilities. 

What if you fall behind on the monthly payments for your federal loan?

It is possible to consolidate federal loans, which opens up repayment plans that stretch up to 30 years. There are also loan forgiveness programs (find a full list on the Federal Student Aid website) that could discharge or reduce your loan (teachers and those who work in public service are eligible for loan reductions). Income-driven repayment options, such as a pay-as-you-earn plan, can also help. Finally, federal loans have deferment and forbearance options determined upon meeting certain eligibility requirements and submitting the appropriate request.

Sources:
Jan Miller, President/Student Loan Consultant, Miller Student Loan Consulting, LLC
Trends in Student Aid 2016
U.S. Department of Education

FAFSA is a registered service mark of the U.S. Department of Education.