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Federal student loans are a popular way to pay for college — mainly because of their low, government-mandated interest rates. Undergraduate student loans issued before July 1, 2021, come with a 2.75% fixed interest rate — which is tough to beat.
Here’s what you’ll learn in this federal student loans review:
- Federal student loan interest rates: 2006-2021
- Overview of federal student loans
- Federal student loans vs. private student loans
- Federal loans are eligible for repayment plans that private loans aren’t
- How to apply for federal student loans
Overview of federal student loans
Federal student loans are a type of student loan backed by the U.S. government. There are three main types of federal student loans:
- Direct Subsidized Loans: These loans are available only to undergraduate students with financial need. One of the biggest benefits of subsidized loans is that the government covers the interest while you’re in school and during your grace period.
- Direct Unsubsidized Loans: Undergraduate, graduate, and professional students can qualify for unsubsidized loans, regardless of financial need. Unlike subsidized loans, you’ll have to pay all the interest on unsubsidized loans — even while you’re in school.
- Direct PLUS Loans: PLUS loans are available to parents, graduate, and professional students. Keep in mind that these loans come with a higher interest rate than other federal student loans.
| Loan type | Who qualifies? | Interest rates (2022-23) | Loan limits |
|---|---|---|---|
| Direct Subsidized Loans | Undergrad students with financial need | 4.99* | $3,500 to $5,500 per year |
| Direct Unsubsidized Loans | Undergrad, graduate, and professional students | Undergrad: 4.99%* Graduate and professional: 6.54%* | Dependent undergrad: $5,500 to $7,500 per year ($31,000 total limit) Independent undergrad: $9,500 to $12,500 per school year ($57,500 total limit) Graduate and professional: $20,500 per year ($138,500 total limit) |
| Direct PLUS Loans | Parents, graduate students, and professional students | 7.54%* | Cost of attendance minus any other financial aid received |
| *Federal student loan rates for the 2022-23 academic school year. | |||
Federal student loans can be repaid through the standard repayment plan, which comes with 10 years of fixed payments. You also have the option to sign up for graduated repayment with payments that grow over time or for an extended 25-year repayment plan.
If you can’t afford your federal student loan payments, there are also four income-driven repayment plans available.
Learn More: Subsidized vs. Unsubsidized Student Loans
Subsidized student loans
Subsidized loans are part of the Federal Stafford Loans program and are available to undergraduate students with financial need. Your financial need is estimated based on your Expected Family Contribution (EFC), which is how much your family is expected to pay toward your education. To get this number, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA). There’s no credit check required.
- First year: $3,500
- Second year: $4,500
- Third year: $5,500
- Future years: Up to the $23,000 total in subsidized loans
Unsubsidized student loans
Unlike subsidized student loans, you don’t need to show financial need to qualify for unsubsidized student loans. There’s no credit check required either.
The borrowing limits are also different for undergraduate and graduate students. Here are the borrowing limits that come with unsubsidized loans:
| Year in school | Dependent undergrad students | Independent students |
|---|---|---|
| Year 1 | $5,500 | Undergrad: $9,500 Graduate or professional: $20,500 |
| Year 2 | $6,500 | Undergrad: $10,500 Graduate or professional: $20,500 |
| Year 3 | $7,500 | Undergrad: $12,500 Graduate or professional: $20,500 |
| Future years (Total borrowing limits) | Up to $31,000 | Undergrad: Up to $57,000 Graduate or professional: Up to $138,500 |
Also see: FAFSA for Graduate School: What You Should Know
Federal PLUS loans
PLUS loans are available to parents, graduate students, and professional students. While they come with federal protections, PLUS loans cost more than Direct Subsidized and Unsubsidized Loans because of their higher interest rates. PLUS loans also have a high origination fee.
A credit check is required to apply for a PLUS loan, too. Keep in mind that if you have excellent credit, you might be able to qualify for a private student loan with a lower interest rate.
Because PLUS Loans have the highest rates and fees of any federal loans, it can be a good idea to compare PLUS loans with private loans to see who offers the better loan for your situation.
Credible makes comparing private student loans easy — you can check your rates with multiple private student loan lenders in two minutes, all without affecting your credit score.
Check Your Private Student Loan Rates
Other federal student loans
Perkins Loans
Federal Perkins Loans are subsidized loans that were available until Sept. 30, 2017. Students with exceptional financial need were able to take out a Perkins Loan directly from their school.
Learn More: Everything You Need to Know About the Perkins Loan
Federal student loans vs. private student loans
There are differences between federal and private student loans that are important to remember. For example, federal student loans offer benefits that private student loans don’t. Here are a few of them:
- Interest subsidies: Some federal student loans come with generous subsidies that cover the interest while you’re in school. With private student loans, interest begins to accrue as soon as the loan is disbursed.
- Repayment plans: With federal student loans, you have access to income-driven repayment plans, which can lower your monthly payment depending on your household income. These aren’t available with private student loans
- Student loan forgiveness: If you’re able to meet the requirements, you might qualify for federal student loan forgiveness after a period of time (depending on the type of forgiveness). Private student loans don’t qualify for federal forgiveness programs.
Although federal student loans offer these protections, they might not fully cover your cost of college. In fact, many students end up with a combination of federal and private student loans to cover their tuition and other expenses.
If you decide that a private student loan is right for you, remember to consider as many lenders as possible to get the best deal. You can do this easily with Credible — and you only have to fill out one application instead of multiple forms.
Checking rates will not affect your credit
Federal loans are eligible for repayment plans that private loans aren’t
With private student loans, you’ll have to pay according to the agreed terms for the entire life of the loan. Unless you refinance, these terms are unlikely to change. But with federal student loans, you have some flexibility when it comes to how you repay your balance.
Here are some of the federal student loan repayment options:
- Graduated repayment plan: Payments start small and grow over the 10-year repayment period.
- Extended repayment plan: Fixed or graduated payments that pay off your loan within 25 years.
- Revised Pay As You Earn (REPAYE): Payments are capped at 10% of your discretionary income, and the remaining balance is forgiven after 20 to 25 years of on-time payments.
- Pay As You Earn (PAYE): Payments are capped at 10% of your discretionary income, and the remaining balance is forgiven after 20 years of on-time payments. You must have a high debt load relative to your income to qualify for this plan.
- Income-Based Repayment (IBR): Payments are capped at 10% or 15% of your discretionary income, and the outstanding balance is forgiven after 20 to 25 years of on-time payments.
- Income-Contingent Repayment (ICR): Payments are capped at 20% of your discretionary income, and your balance is forgiven after 25 years of on-time payments.
How to apply for federal student loans
There are several important steps to apply for federal student loans. Here’s a rundown on how to apply for federal student loans:
- Gather family financial information: Start by gathering your financial information, and information from your parents if you’re a dependent undergraduate student.
- Complete the FAFSA and review your SAR: Fill out the FAFSA online. Within two weeks of completing it, you’ll get a Student Aid Report (SAR) that explains your financial aid eligibility.
- Review your financial aid award: You’ll get a financial aid award letter from your school, which outlines the financial aid you qualify for. If you have any questions, reach out to your school’s financial aid office.
- Sign and accept your federal student loans: Once you’ve reviewed everything and understand your financial aid package, you can sign and accept your federal student loans. You might need to coordinate with your school’s financial aid office for acceptance and disbursement.
