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Federal student loans can feel like both a blessing and a curse. For a lot of people, college would not be affordable without the help of federal student loans. After all, how many people really have an extra $20,770 lying around — the average annual cost to attend a four-year public college in your own state?

Federal student loans, also known as government loans, provide students with the money they need to pay their educational expenses upfront.

If you are planning to take out loans to pay for your college education, federal student loans should be the first type of loan that you consider, after you max out all your scholarship and grant options.

Here’s everything you should know:

Federal student loans vs private student loans

There are two basic types of student loans:

  • Federal student loans are those that are offered by the federal government
  • Private student loans are those that are offered by individual lenders, such as a bank or your local credit union

While either option could provide you with the money that you need, there are key differences between federal loans and private loans.

Federal student loansPrivate student loans
Interest rates, which are set by Congress, are typically lower than private student loans
Fixed interest rate, meaning rate won’t change during the repayment period
Interest rates vary based on your credit
Fixed interest rate, meaning rate won’t change during the repayment period
Fixed or variable interest rate. Variable interest rates can go up or down during repayment period
Approval typically does not depend upon credit history, with the exception of PLUS loans
Approval depends upon credit history
Flexible repayment terms, such as income-driven repayment plansTypically less-flexible repayment terms than federal student loans
Consumer benefits such as the ability to temporarily stop payments through deferment and forbearance, and support for the Public Service Loan Forgiveness program
May or may not have consumer benefits such as the ability to temporarily stop payments

Who can get federal student loans?

There are certain requirements necessary to be eligible for federal student loans. Among them:

  • Although there is no income cut-off to qualify for federal student aid, you must show that you have a financial need for help paying for college
  • You must be a U.S. citizen or an eligible noncitizen, such as a person who was granted U.S. permanent resident status
  • You must have a valid Social Security number
  • You must be registered with Selective Service, which would make you eligible to be drafted by the military if necessary if you are a male student
  • You must be accepted for enrollment at least half-time in an eligible degree program

How to apply for federal student loans

If you are classified as a dependent, you’ll need information about your parents’ or guardians’ assets and it could be helpful to have them sit down with you to fill out the form.

Make sure you have the following information at hand before you sit down to fill out the FAFSA:

  • Your Social Security number
  • Your parents’ or guardians’ Social Security numbers
  • Your driver’s license
  • Permanent resident cards if you or your parents are not U.S. citizens
  • Your parents’ tax records, such as Form IRS 1040 or documents used to fill out tax forms such as a W-2
  • Your own tax records if you’ve previously filed taxes
  • Records of untaxed income received by your family, such as veterans benefits or
  • Social Security benefits
  • Records of your family’s assets
  • The schools you intend to apply to

Once you’re ready to fill out the form, go to and click on ‘Start a New FAFSA.’

When filling out the FAFSA you’ll need to:

  • Look up the deadlines for completing the FAFSA
  • Create a Federal Student Aid ID (FSA ID), which you will then use every subsequent year that you file a FAFSA. If you are a dependent, your parent or guardian will also need to create an FSA ID
  • Fill in personal information such as your name and Social Security Number
  • List up to 10 schools that you want to receive your FAFSA information
  • Enter requested financial information for yourself and for your parents if you are a dependent
  • Sign and submit the form

Once you’ve filled out the FAFSA, you will receive what’s known as a Student Aid Report, or SAR. The SAR will include an Expected Family Contribution, which is a calculation that colleges use to determine how much financial aid a student is eligible for.

Filling out the FAFSA not only makes you eligible for federal student loans but it also makes you eligible for scholarships and grants, as well. Unlike student loans, scholarships and grants do not have to be paid back.

Ideally, you want to get as much free money as you can before you start taking out loans — so you should try to max out your scholarship and grants options first. Once you’ve exhausted your search for those, federal student loans should be the next option that you explore.

Types of federal student loans

The U.S. Department of Education administers the William D. Ford Federal Direct Loan Program, in which the government serves as a direct lender.

The government used to provide backing for the Federal Perkins Loan Program, in which the individual school served as the lender. Students who received loans under this program were required to show extreme financial need. Congress let the Perkins Loan Program expire, and no new Perkins loans have been made since September, 2017.

Under the Direct Loan program, there are a further four types of loans. Some are geared toward undergraduate students only, while others are geared toward graduate students and even the parents of students.

  • Direct Subsidized Loans go to undergraduate students who can prove financial need
  • Direct Unsubsidized Loans go to undergraduate, graduate and professional students who do not have to demonstrate financial need
  • Direct PLUS Loans are available for graduate and professional students, as well as for the parents of undergraduate students, to help pay for college expenses
  • Direct Consolidation Loans combine multiple student loans into one single loan

*Direct Subsidized Loans and Direct Unsubsidized Loans are often referred to as Stafford Loans or Direct Stafford Loans.

So if it turns out that you’ll need to borrow more money to pay for your education, you might have to look into other options.

Federal Loan Interest Rates

The interest rates for federal student loans are set by Congress.

Rates for new borrowers are recalibrated each year to match ups and downs in the government’s cost of borrowing, as reflected by yields on 10-year Treasury notes. On July 1, 2019 rates on federal student loans will fall for the first time in three years.

Interest rates for federal loans taken out between July 1, 2019 and June 30, 2020 are:

  • Direct Subsidized and Unsubsidized Loans to undergraduates: 4.53%
  • Direct Unsubsidized loans to graduate students: 6.08%
  • Direct PLUS loans to graduate students and parents of undergraduates: 7.08%

Although no longer offered, the interest rate for Perkins Loans was 5 percent, regardless of when the loan was taken out.

College financial aid counselors typically advise students to take out all of the low-cost federal loans they’re entitled to. But once students hit their limits on those loans, the higher interest rates on federal loans to graduate students and parent PLUS loans make private student loans worth considering.

What can I use federal student loans for?

Students loans are not just used for tuition. Rather, the money can be used for any qualified education expenses at the college that you attend — that includes room and board, fees, books, supplies, computer equipment and even transportation to and from school.

However, you should not use money from your student loans for other miscellaneous expenses such as entertainment, a new wardrobe, or a trip to Miami for spring break.

Whenever you take out a loan, it is wise to borrow only what you need. The same advice holds true for federal student loans.

Remember, this is not free money; you will have to pay it back with interest, and you may be paying it back for many years.

The less money you borrow, the easier it will be when it is time to pay the loans back. Before taking out federal student loans, it’s a good idea to use a student loan calculator to find out how much they will cost you over the life of the loan.

Tips for repaying your federal student loans

The best part about federal student loans is that they help you to get your education. Once you’ve received your degree, however, you must begin the business of paying the loans back.

That requires persistence and dedication, so it can be helpful to have a repayment strategy in place before you even start borrowing.

  • Identify your servicer: While the federal government provides the money for your federal student loans, the government does not bill you and collect your payments. Instead, the federal government assigns student loans to student loan servicers, companies that are responsible for collecting payments from borrowers
  • Set up an online account: As you pay back your student loans, your student loan servicer will be the company that you interact with. Go to your servicer’s website and open an online account, which will allow you to make payments and contact your servicer if you need to. Be sure to read through any correspondence that you receive about your student loans. On it, you should find information about your student loan servicer and how you can reach them. If you are unsure who your student loan servicer is, you can find out by accessing the U.S. Department of Education’s student aid database, the National Student Loan Data System (NSLDS)
  • Simplify the repayment process: One of the perks of adulthood is freedom, but that comes with financial responsibility. Find a way to make sure you send your student loan payments each month on time. If you have a habit of forgetting, you may be able to sign up for automatic withdrawals from your servicer

Is federal student loan consolidation right for you?

Many people graduate from college with more than one student loan and multiple loan servicers. That can be confusing since you may have to juggle different due dates and procedures for making payments. Some people find it helpful to simplify the process.

One way to do that is through federal loan consolidation, which allows you to combine all of your federal loans into one Federal Direct Consolidation Loan with one monthly payment.

The interest rate of the consolidated loan would be the weighted average of the rates of the individual loans. However, if you make this choice, be aware that you might lose benefits associated with the loan prior to the consolidation.

For example, if you have already made qualifying payments toward Public Service Loan Forgiveness through one of the loans you are consolidating, you would lose credit for them.

It’s important to note that federal loan consolidation is different from private loan consolidation.

Can you refinance federal student loans?

Another repayment strategy that might be worth considering is refinancing, particularly if you have good credit.

Federal student loans are not based on your credit. That means if you have a great credit score, you’ll pay the same interest rate as someone who has a terrible score.

While that can be a good thing if your credit needs improving, you can miss out on lower interest rates if you have stellar credit.

Refinancing your federal student loans into a private loan may allow you to get a lower interest rate if you have good credit. Another advantage is that you can consolidate multiple loans into one single payment.

However, there is a potential downside. Private loans don’t have many of the benefits that federal student loans have. As a result, you may lose federal benefits such as income-driven repayment or student loan forgiveness.

When are my federal student loans due?

Most federal student loans don’t have to start being repaid until after you’ve left school or are no longer enrolled in college at least half-time. Although parents who take out PLUS loans are generally expected to begin repayment immediately, they may request a deferment until after their child leaves school.

For those loans that aren’t due until you’ve left school, you typically get a six-month grace period before you have to make the first payment. So if you graduated in May, you might not have to make your first payment until November.

That gives you a few months to get settled into life after college and get a job. You’ll also have some time to put a budget together that allows you to make your student loan payments easily.

While you are in college, some of your federal student loans may continue to accrue interest. One of the benefits of Direct Subsidized Loans is that the federal government pays the interest on them while you are in school.

So if you have $5,000 in Direct Subsidized Loans, the balance will be $5,000 when you’ve finished school and have to start making payments.

However, Direct Unsubsidized Loans accrue interest while you are in school. That means if you don’t make any payments while you are in school your student loan balance will be higher when you finish school than it was when you started.

For that reason, it is a good idea to at least pay the interest on your Direct Unsubsidized Loans while you are in school if you can afford to do that.

Choosing a repayment program

  • The Standard Repayment Plan divides payments into a fixed amount that would enable you to pay the loan off in 10 years. However, if you can’t afford to make payments that would fall under the Standard Repayment Plan, there are other plans you can choose
  • Under the Graduated Repayment Plan, you would have payments that start off low but then gradually increase so that you ultimately end up paying the loans off in 10 years. This option might be appealing to someone who starts off with a low salary but knows that they will see pay increases down the road
  • The Extended Repayment Plan gives you a longer period of time to pay off the student loans. You would have 25 years to pay off the loans so you would have lower monthly payments. While it might sound good to have lower monthly payments, this option actually would cost you more money over time because the longer you take to pay off your student loans, the more interest you will pay
  • Other options are based on your income and are called income-driven repayment plans. The Pay As You Earn Repayment Plan (PAYE) and the Revised Pay As You Earn Repayment Plan (REPAYE) each have you make monthly payments that are equal to 10% or 15% of your discretionary income. The Income-Based Repayment Plan (IBR), the Income Contingent Repayment Plan (ICR) and the Income-Sensitive Repayment Plan all base the monthly payment on your income and family size. Each year, the monthly payment would be recalculated to reflect any changes to your income or family size

Whichever repayment plan you choose, keep in mind that your goal should be to spend as little money as possible. In other words, you want to pay off your debts sooner rather than later, so you should choose the most affordable repayment plan that will get you there.

That might require you to tighten up your budget so you can afford to put more money toward your student loans.

If you get a windfall, such as a tax refund or a bonus, consider using some of the money to pay down your student loans. You might also get a part-time job or do some freelance work to make extra money that can help you to pay off your federal student loans faster.

Federal student loan benefits

There are a number of federal student loan benefits that you can take advantage of. How happy would you be if you found out that you did not have to finish paying off your student loans? That dream could become a reality if you qualify for a student loan forgiveness program.

  • The Public Service Loan Forgiveness Program may be available to borrowers who work for a government agency or a nonprofit. Once you have made 120 qualifying monthly payments, you may be able to have the rest of your student loans forgiven
  • There are also student loan forgiveness programs for people that work in certain professions. For example, teachers may qualify for the Teacher Loan Forgiveness Program, which may allow them to have up to $17,500 in federal student loans forgiven if they work in public schools in low-income areas
  • Likewise, if you are a nurse, you may be eligible to have some of your student loans paid off if you work in communities where there is a high need for nurses, as part of the Nurse Corps Loan Repayment Program
  • You may also be able to get a discharge, which means you don’t have to finish paying off your student loans if you become permanently disabled. While no one likes to think about death, student loans are also discharged if the borrower dies. In the case of PLUS loans, the loan could be discharged upon the death of the borrower or the student whose education the loan was taken out for
  • Men and women who serve in the military also may be eligible for special benefits. The Servicemembers Civil Relief Act (SCRA) limits the interest rate servicemembers will pay on federal and private student loans to 6 percent while they are on active duty
  • You may also qualify for military service deferment, which lets you temporarily stop payments while you’re on active duty or for a period following active duty

What if I can’t repay my federal student loans?

Unfortunately, many people run into difficulties when it comes to paying off their student loans. In fact, 11.5% of students who started repaying their student loans between 2013 and 2014 defaulted on their student loans, according to the U.S. Department of Education.

Becoming delinquent or defaulting on your student loans can do a lot of damage to your financial future. Your credit score can take a hit, which could make it more difficult for you to qualify for loans in the future.

A low credit score can also lead to higher interest rates on credit cards and other loans. You may even be turned down for certain jobs because of a low credit score.

To avoid becoming delinquent on your student loans, consider the following tips:

When you are in the midst of making payments on your federal student loans, it can seem like you’ll never get to the day when you will be debt free. However, with time and dedication, you can pay off your federal student loans and build a thriving financial life.

About the author
Tamara Holmes
Tamara Holmes

Tamara E. Holmes is a personal finance writer for Credible. Her work has appeared in USA Today, Yahoo Finance, CNBC, Bankrate, and the Nasdaq.

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