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Federal student loans provide help for families looking to cover the cost of higher education. On average, tuition is $29,150 per year for public four-year, out-of-state schools, according to data from educational nonprofit College Board. That figure jumps to $41,540 for private schools.
Federal student loans come with many advantages, but itâs important to understand how the various types of federal loans differ before applying.
Direct subsidized loans are available if youâre attending an undergraduate program and can demonstrate a financial need. The government pays the interest on these loans while youâre in school at least part time. It continues to cover the interest for a six-month grace period after you leave school and during any deferment (a period in which you postpone your payments).
Direct unsubsidized loans are available to both undergraduate and graduate borrowers. Unlike subsidized loans, you donât need to demonstrate any financial need. The school determines how much you can borrow based on the overall cost of attendance and other aid youâre receiving. However, there are federal borrowing limits that weâll cover later on.
The government doesnât pay interest on these loans; thatâs your responsibility. Interest is added to the loan during times when payments arenât required (such as when youâre still in school), which can increase the total borrowing costs..
Direct PLUS loans â called Parent PLUS loans when made to parents of dependent students and Grad PLUS loan when made to graduate and professional students â are also types of unsubsidized loans. Direct PLUS loans cover the schoolâs predetermined cost of attendance, minus any other financial aid.
A credit check is required to get these loans, so if you donât have a strong score or a history of late payments, youâll have to meet additional requirements. Like with other direct unsubsidized loans, youâre entirely responsible for paying interest, which may be added to the principal loan amount during times when payments arenât required. This increases your overall borrowing costs.
Federal student loan borrowers can combine multiple federal student loans into a single loan with one monthly payment â at no cost. These loans have a fixed interest rate based on the average rate of all the loans being consolidated.
When comparing federal versus private student loans, consider the following advantages of borrowing from the government.
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.
Federal student loans are fixed-rate loans, meaning that the rate wonât change for the life of the loan. Interest rates on private loans can be fixed or variable, meaning they 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%. For direct unsubsidized loans for graduate students, the interest rate is 7.05% and for direct PLUS loans, itâs 8.05%.
If you borrow via private student loans, the lender will check your credit history and if you donât have a strong credit profile you may need a co-signer. But if you go the federal student loan route, there is no credit check (except for PLUS loans), so thereâs no need to worry about your credit history barring you from getting the loan or needing a co-signer.
Unless you get loan forgiveness, youâll need to pay back your loan no matter what kind you get. However, federal student loans come with a bit more flexibility than private student loans if you struggle to make payments. You donât have to start paying federal loans back until after you leave school, graduate or lower your enrollment status to less than part-time. While you can often defer payments on private student loans until youâre out of school, itâs not guaranteed.
Federal student loans also have deferment and forbearance options, allowing you to pause your payments (though some private plans may also have this, depending on the plan). These loans also allow you to use repayment plans to help pay off the loan, which include either fixed payments over a certain time period or can be tied to your income. With private loans, youâll have to check with lenders about which options are available. Plus, the government will pay interest on subsidized loans when the borrower is in school and during certain other periods.
If you donât make a payment on a federal student loan for at least 270 days, youâll go into default. With private loans, default timelines vary by lender and may be less than 270 days.
There is no cost and no credit check to consolidate federal student loans. If youâre consolidating private student loans, though, youâll likely undergo a hard credit inquiry, which could temporarily lower your credit score.
The government offers several options for loan forgiveness for federal student loans. The most common is Public Service Loan Forgiveness (PSLF). Private lenders donât typically offer forgiveness options; though, in some cases, loans from state agencies may be forgiven, according to the Department of Education.
When you apply for a federal student loan, youâll also fill out the Free Application for Federal Student Aid (FAFSA) form to determine how much aid you qualify for.
The government sets limits on how much money you can receive per year in federal student loans. Limits depend on which year of school youâre in and your dependency status.
The following table shows the annual loan limits for dependent undergraduate students, with the exception of dependent students whose parents cannot get Direct PLUS loans.
The following table shows the annual loan limit for independent undergraduates and dependent undergraduates whose parents cannot get direct PLUS Loans.
Applying for federal student loans is fairly simple (and free). Get started with these steps.
While the application process can be completed online, youâll need information about your familyâs finances. Collect documents like federal tax returns and bank statements before applying.
Submitting the FAFSA form is one of the most important steps in the process of getting student loans. Youâll need to fill out this form every year youâre enrolled in school. The federal FAFSA deadline is June 30, but each school and state has its own deadlines, so be sure to check early so you donât miss it. Before filling out your application, review our FAFSA guide.
Once you submit the FAFSA, youâll get a FAFSA submission summary â previously called the Student Aid Report (SAR) â which summarizes all the information you entered on the FAFSA. Make sure all the information is accurate and, if there are any errors, correct them. The federal deadline to make corrections is Sept. 14.
After youâre accepted to a school, youâll be offered an aid package based on the information you provided on your FAFSA. Carefully weigh your options, and choose the amount of aid that makes sense for you.
While federal student loans can be a solid way to help you pay for college, there are other options, including:
Federal student loans help make college accessible for many families. They come with advantages like fixed interest rates, flexible repayment options and a lower cost than private loans. Your dependency status and the program of study you enroll in will factor into your eligibility for various federal student loans.
You need to meet certain citizenship, academic and enrollment requirements to be eligible for federal student loans. Youâll also need to provide financial documentation if youâre applying for need-based aid as well as fill out the FAFSA form.
Federal student loan borrowing limits depend on your dependency status and school year. For a first-year undergraduate dependent, for example, the limit is $5,500; no more than $3,500 of that amount can be subsidized. You can find all the loan limits on the Department of Educationâs website.
Your FAFSA is used to determine other forms of financial aid you might qualify for, such as scholarships and work-study programs. You can also apply for scholarships and tuition payment plans through your school. If youâve exhausted other options, speak with your school about whether youâre eligible to apply for more student loans.
With subsidized loans, you wonât be charged interest while youâre in school or for six months after you leave. However, unsubsidized loans accrue interest as soon as you start receiving loan disbursements.
AP Buylineâs content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partnersâ links in this content. Learn more about our policies and terms here.
