Introduction to Federal Student Loans

If you are planning to pursue higher education in the United States, you may have heard of federal student loans. These are loans that are funded by the federal government and have some advantages over other types of loans, such as lower interest rates, flexible repayment options, and eligibility for forgiveness or cancellation programs. However, federal student loans also have some limitations and responsibilities that you should be aware of before borrowing them. In this article, we will explain what federal student loans are, the different types of federal student loans, how they work, the benefits of federal student loans, who qualifies for federal student loans, and how to apply for federal student loans. 

What Are Federal Student Loans?

Federal student loans are loans that are made by the U.S. Department of Education to help students pay for their education at eligible colleges, universities, or trade schools. Unlike grants or scholarships, which do not have to be repaid, federal student loans must be repaid with interest over a period of time after you graduate or leave school. The amount of money you can borrow depends on your level of study, your financial need, and the cost of attendance at your school. You can use federal student loans to pay for tuition, fees, books, supplies, room and board, transportation, and other education-related expenses. 

What Are the Different Types of Federal Student Loans?

There are three main types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Each type has different eligibility criteria, interest rates, loan limits, and repayment terms. 

Direct Subsidized Loans

These loans are based on your financial need as determined by your school. The federal government pays the interest on these loans while you are in school at least half-time, during a grace period of six months after you leave school, and during periods of deferment (when you temporarily postpone your payments due to certain circumstances). These loans are available to undergraduate students only. 

Direct Unsubsidized Loans

These loans are not based on your financial need. You are responsible for paying the interest on these loans from the time they are disbursed until they are paid in full. You can choose to pay the interest while you are in school or let it accrue and be added to the principal amount of your loan. These loans are available to both undergraduate and graduate students. 

Direct PLUS Loans

These loans are made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. These loans require a credit check and have a higher interest rate than Direct Subsidized or Unsubsidized Loans. The borrower is responsible for paying the interest on these loans from the time they are disbursed until they are paid in full. 

How Do Federal Student Loans Work?

To receive federal student loans, you must first complete the Free Application for Federal Student Aid (FAFSA). The FAFSA collects information about your income, assets, family size, and other factors that affect your ability to pay for college. Based on this information, your school will determine your financial need and offer you a financial aid package that may include grants, scholarships, work-study, and federal student loans. You can accept or decline any part of the offer. 

If you accept federal student loans, you will have to sign a Master Promissory Note (MPN), which is a legal document that states your promise to repay the loan and its terms and conditions. You will also have to complete entrance counseling, which is an online session that explains your rights and responsibilities as a borrower. Your school will then disburse the loan funds to your account or directly to you.

You will have a grace period of six months after you graduate or leave school before you have to start repaying your federal student loans. During this time, you will receive information from your loan servicer (the company that handles the billing and other services for your loan) about your repayment options and how to make payments. You can choose from several repayment plans that vary in terms of monthly payment amount, duration, and eligibility for forgiveness or cancellation programs. You can also change your repayment plan at any time if your situation changes.

You must make your payments on time every month to avoid defaulting on your loan, which can have serious consequences such as damaging your credit score, losing eligibility for future financial aid, facing collection actions or lawsuits, and having your wages or tax refunds garnished. If you have trouble making payments, you can contact your loan servicer to request deferment or forbearance (temporary suspension or reduction of payments due to certain circumstances) or apply for income-driven repayment plans (which adjust your payments based on your income and family size). You can also consolidate your federal student loans into one loan with a fixed interest rate and a single monthly payment. 

What Are the Benefits of Federal Student Loans? 

Federal student loans have some advantages over other types of loans, such as: 

  • Lower interest rates: The interest rates for federal student loans are fixed and generally lower than the rates for private loans, which can vary depending on your credit history and other factors. 
  • No credit history required: Federal loans typically do not require a credit history, making them accessible to students without established credit. 
  • No cosigner required: Unlike private loans, federal student loans usually do not need a cosigner, allowing students to secure loans independently.
  • Flexible repayment options: You can choose from several repayment plans that suit your financial situation and goals and change your plan at any time. You can also defer or forbear your payments if you face economic hardship or other challenges.
  • Deferment and forbearance options: Borrowers can potentially temporarily suspend or reduce their loan payments during periods of financial hardship through deferment or forbearance. 
  • Forgiveness or cancellation programs: You may qualify for forgiveness or cancellation of some or all of your federal student loans if you work in certain public service or teaching professions, or if you meet other criteria. You can also discharge your federal student loans if you become permanently disabled or die.
  • No prepayment penalty: You can pay off your federal student loans ahead of schedule without any penalty or fee. 

Who Qualifies for Federal Student Loans?

To qualify for federal student loans, you must meet the following criteria: 

  • Be a U.S. citizen or an eligible noncitizen (such as a permanent resident or a refugee). 
  • Have a valid Social Security number (unless you are from the Republic of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau). 
  • Have a high school diploma or a recognized equivalent (such as a GED certificate or a homeschool completion credential). 
  • Be enrolled or accepted for enrollment as a regular student in an eligible degree or certificate program at an accredited school that participates in the federal student aid programs. 
  • Maintain satisfactory academic progress in your course of study. 
  • Not be in default on any federal student loan or owe an overpayment on any federal grant. 
  • Demonstrate financial need for Direct Subsidized Loans (but not for Direct Unsubsidized or Direct PLUS Loans). 

How To Apply for Federal Student Loans

To apply for federal student loans, you must follow these steps: 
 

1. 

Complete the FAFSA online at fafsa.gov as soon as possible after when it opens each year. You will need to provide information about your income, assets, family size, and other factors that affect your ability to pay for college. You will also need to list the schools that you are interested in attending. 

2. 

Review your Student Aid Report (SAR), which is a summary of the information you provided on the FAFSA. You will receive it by email or mail within a few days after submitting the FAFSA. Check for any errors and make corrections if needed. 

3. 

Compare the financial aid offers from the schools that you are accepted to. You will receive an award letter from each school that details the types and amounts of financial aid that they are offering you, including grants, scholarships, work-study, and federal student loans. You can accept or decline any part of the offer. 

4. 

Accept the federal student loans that you need and want. You will have to sign a Master Promissory Note (MPN) and complete entrance counseling for each type of loan that you accept. Your school will then disburse the loan funds to your account or directly to you. 


While navigating the complexities of financing higher education may seem daunting, understanding the benefits and eligibility criteria of federal student loans can empower you to make informed decisions about your financial future. By leveraging these resources wisely, you can pave the way for a brighter academic journey and a more secure financial foundation in the years ahead. 

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