Ultimate Guide to Federal Student Loans

Direct Subsidized Loans are a type of federal student loan specifically created to assist undergraduate students with financial need to cover their college expenses.

One of the distinct features of Direct Subsidized Loans is that the government covers the interest payments while you are enrolled in college at least half-time, during the grace period following graduation, and during deferment. This advantage makes Direct Subsidized Loans a more cost-effective solution as they will incur less interest over the life of the loan in comparison to other student loan options.

More: The difference between subsidized and unsubsidized loans.

Direct Unsubsidized Loans are a type of federal student loan available to both undergraduate and graduate students, regardless of their financial need.

In contrast to Direct Subsidized Loans, the government does not cover the interest payments on Direct Unsubsidized Loans while you are in school or during deferment. You are responsible for paying the interest that accrues on the loan. You can choose to pay the interest as it accrues, or you can allow it to accumulate and be capitalized (added to the loan balance), increasing the total amount to be repaid.

More: The difference between subsidized and unsubsidized loans.

Parent PLUS loans are a type of federal student loan designed to help parents pay for their children’s undergraduate education, regardless of the family’s financial need. Parent PLUS loans are available to undergraduate students who have exhausted their federal student loan eligibility under other loan programs, such as Direct Subsidized and Unsubsidized Loans.

Compared to Direct Subsidized and Unsubsidized Loans, parent PLUS loans have higher interest rates and less flexible repayment options. Parent PLUS loans also have higher borrowing limits — parents can borrow the full cost of attendance, minus any other financial aid received.

More: Everything you need to know about Parent PLUS loans.

Grad PLUS loans are a type of federal student loan designed to help graduate and professional students pay for their education. Grad PLUS loans are available to graduate and professional students who have exhausted their federal student loan eligibility under other loan programs.

Compared to Direct Subsidized and Unsubsidized Loans, grad PLUS loans have higher interest rates and less flexible repayment options. Grad Plus loans also have higher borrowing limits — students can borrow the full cost of attendance, minus any other financial aid received.

More: Everything you need to know about Grad PLUS loans.

Perkins Loans are a type of federal student loan, specifically for undergraduate and graduate students with exceptional financial need. These loans are provided by the school and have a low-interest rate, with a maximum amount that can be borrowed annually based on your financial need, cost of attendance, and other financial aid received. Perkins Loans also offer loan cancellation benefits for certain professions such as teachers and public servants.

The authority for schools to make new Federal Perkins Loans ended on Sept. 30, 2017.

To receive a federal student loan, you must meet the following criteria:

– Be a U.S. citizen or eligible non-citizen

– Have a valid Social Security number

– Have a high school diploma or equivalent, such as a GED certificate

– Be enrolled in or accepted to a recognized degree or certificate program

– Maintain satisfactory academic progress

The Free Application for Federal Student Aid (FAFSA) allows you to apply for federal student aid to cover college expenses such as tuition, books, and housing. The U.S. government and many colleges use the FAFSA to determine your eligibility for scholarships, grants, loans, and work-study programs.

Completing the FAFSA is the first step for anyone pursuing higher education. Be sure to submit the FAFSA each year you’re in college – it typically only takes 30 minutes to complete once you have all the necessary information ready.

Submit the FAFSA at StudentAid.gov.

After submitting the FAFSA, you will receive a Student Aid Report, which tells you the amount and type of federal aid you are eligible for. You should start to receive financial aid award letters from the schools that accepted you sometime in the spring.

It is important to thoroughly review and compare your financial aid offers before making a decision on which college to attend. Accept the aid from the school that’s best for you and inform them of other sources of aid (such as grants or scholarships) you expect to receive. If there’s still a gap, you may need to explore private loan options to cover any remaining college expenses.

More: Ultimate guide to figuring out your financial aid package.

If you’ve exhausted all other forms of financial aid (including grants, scholarships, work-study, and federal loans) and determined that you need more money to pay your college expenses, you may want to consider private student loans.

Private student loans are provided by private lenders, such as banks, credit unions, and state agencies. Private student loans usually require an income and credit check.

Sparrow’s free search engine helps you search and compare private student loans from multiple lenders through a single form.

More: Best private student loans.

Direct Subsidized Loans are available to undergraduate students who have financial need.

To apply for a Direct Loan, you must first complete and submit the Free Application for Federal Student Aid (FAFSA) form.

Your school determines the amount you can borrow. There are limits on the amount of Direct Subsidized Loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits).

More: Student loan limits: how much can you borrow in student loans?

Repayment options for Direct Subsidized Loans include the following:

1.) Standard Repayment Plan: A fixed monthly payment for up to 10 years.

2.) Graduated Repayment Plan: Payments start low and increase every two years, up to 10 years.

3.) Extended Repayment Plan: Fixed or graduated payments over a period of up to 25 years.

4.) Income-Based Repayment (IBR) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: Monthly payments are based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

Borrowers should consider their income and financial goals when selecting a repayment plan, and should also keep in mind that some plans may result in paying more interest over time compared to others. It is also possible to switch repayment plans if necessary.

More: How to select the best federal student loan repayment option.

The interest rates for Direct Subsidized Loans first disbursed on or after July 1, 2022 and before July 1, 2023 are:

– Undergraduate borrowers: 4.99%

– Graduate or professional borrowers: N/A

The U.S. Department of Education pays the interest on a Direct Subsidized Loan:

1.) while you’re in school at least half-time,

2.) for the first six months after you leave school (referred to as a grace period), and

3.) during a period of deferment (a postponement of loan payments).

Yes, there is a loan fee on all Direct Subsidized Loans and Direct Unsubsidized Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed:

– Loans first disbursed on or after Oct. 1, 2019 and before Oct. 1, 2020: 1.059%

– Loans first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2023: 1.057%

Note: Loans first disbursed prior to Oct. 1, 2019, have different loan fees.

Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.

To apply for a Direct Loan, you must first complete and submit the Free Application for Federal Student Aid (FAFSA) form.

Your school determines the amount you can borrow. There are limits on the amount of Direct Unsubsidized Loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits).

More: Student loan limits: how much can you borrow in student loans?

Repayment options for Direct Unsubsidized Loans are similar to those for Direct Subsidized Loans and include:

1.) Standard Repayment Plan: A fixed monthly payment for up to 10 years.

2.) Graduated Repayment Plan: Payments start low and increase every two years, up to 10 years.

3.) Extended Repayment Plan: Fixed or graduated payments over a period of up to 25 years.

4.) Income-Based Repayment (IBR) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: Monthly payments are based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

It’s important to note that with Direct Unsubsidized Loans, the borrower is responsible for paying the interest that accrues while they are in school, during the grace period, and during any deferment or forbearance periods. Borrowers can choose to pay the interest as it accrues, or they can allow it to accumulate and be capitalized (added to the loan balance), increasing the total amount to be repaid. It is also possible to switch repayment plans if necessary.

More: How to select the best federal student loan repayment option.

The interest rates for Direct Unsubsidized Loans first disbursed on or after July 1, 2022 and before July 1, 2023 are:

– Undergraduate borrowers: 4.99%

– Graduate or professional borrowers: 6.54%

You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.

Yes, there is a loan fee on all Direct Subsidized Loans and Direct Unsubsidized Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed:

– Loans first disbursed on or after Oct. 1, 2019 and before Oct. 1, 2020: 1.059%

– Loans first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2023: 1.057%

Note: Loans first disbursed prior to Oct. 1, 2019, have different loan fees.

To receive a parent PLUS loan, you must:

1.) be the biological or adoptive parent (or in some cases, the stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school;

2.) not have an adverse credit history (unless you meet certain additional requirements); and

3.) meet the general eligibility requirements for federal student aid

Note: Grandparents (unless they have legally adopted the dependent student) and legal guardians are not eligible to receive parent PLUS loans, even if they have had primary responsibility for raising the student.

To apply for a parent PLUS loan, go to the online Direct PLUS Loan Application for Parents.

Important: Most schools require you to apply for a Direct PLUS Loan online, but some schools have different application processes. This site has a list of schools that participate in the Direct Loan Program. When you select your child’s school from the list, the site will tell you if the school has a different application process. In that case, check with the school’s financial aid office to find out how to request a parent PLUS loan.

Note: Before applying for a parent PLUS loan, make sure your child has filled out the FAFSA form.

The maximum PLUS loan amount you can borrow is the cost of attendance at the school your child will attend minus any other financial assistance your child receives. The cost of attendance is determined by the school.

More: Student loan limits: how much can you borrow in student loans?

Parent PLUS loans have a few repayment options:

1.) Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.

2.) Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increases over time.

3.) Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.

4.) Income-Contingent Repayment Plan: You make payments that are set based on your income (typically 10-20% of your income). With an income-contingent repayment plan, you will likely pay more over the life of the loan in comparison to the standard repayment plan. Note that you will only qualify for income-contingent repayment if you consolidate your parent PLUS loans.

More: How to select the best federal student loan repayment option.

For Direct PLUS Loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54%. This is a fixed interest rate for the life of the loan.

You are responsible for paying the interest on parent PLUS loans during all periods.

Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed.

– Loans first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022: 4.228%

– Loans first disbursed on or after Oct. 1, 2022, and before Oct. 1, 2023: 4.228%

Note: Loans first disbursed before Oct. 1, 2021, have different loan fees.

To receive a grad PLUS loan, you must

1.) be a graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate;

2.) not have an adverse credit history (unless you meet certain additional eligibility requirements); and

3.) meet the general eligibility requirements for federal student aid.

The maximum PLUS loan amount you can borrow is the cost of attendance (determined by the school) minus any other financial assistance you receive.

More: Student loan limits: how much can you borrow in student loans?

Grad PLUS loans are eligible for the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and all income-based plans.

1.) Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.

2.) Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increase over time.

3.) Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.

4.) Income-Based Repayment (IBR) Plan: You make monthly payments based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: You make monthly payments based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: You make monthly payments based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

Note: You do not have to make any payments on your grad PLUS loan while you’re still enrolled in school. You will also have a 6-month grace period following graduation where you won’t have to make payments. However, interest will accrue on your grad PLUS loan as soon as it’s disbursed.

More: How to select the best federal student loan repayment option.

For Direct PLUS Loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54%. This is a fixed interest rate for the life of the loan.

You are responsible for paying the interest on grad PLUS loans during all periods.

Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed.

– Loans first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022: 4.228%

– Loans first disbursed on or after Oct. 1, 2022, and before Oct. 1, 2023: 4.228%

Note: Loans first disbursed before Oct. 1, 2021, have different loan fees.