The Complete Guide to Federal Student Loans

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It’s no secret that the cost of college has skyrocketed to all-time highs. But when you’re planning your university career, those numbers become much more personal. Now, it’s up to you to create a strategy to pay for tuition, books, and room and board.

To afford your education, you’ll likely need student loans to cover at least some of the cost. There are many different forms of loans, but when it comes to paying for college, federal student loans usually offer the most flexibility and lowest costs to students.

Find out which federal student loans are available to you and what makes them so beneficial.

Types of federal student loans

Currently, there’s only one federal loan category that’s distributing new loans: the William D. Ford Federal Direct Loan Program. Within that program, there are different loans designed for specific school levels and incomes.

1. William D. Ford Federal Direct Loan Program (Stafford loans)

The William D. Ford Federal Direct Loan Program is the largest federal student loan program. It’s made up of four different loan types (the first two of which are sometimes referred to as Stafford loans):

  1. Direct subsidized loans: These loans are designed for undergraduate students with financial need. You can borrow up to a certain amount each year to pay for school. Unlike the other loans in this program, you’re not charged interest on the loans while you’re in school.
  2. Direct unsubsidized loans: Unsubsidized loans can be used by undergraduate, graduate and professional degree students. Like subsidized loans, they also come with borrowing limits. But unlike their subsidized counterparts, interest accrues on these loans while you’re in school.
  3. Direct PLUS loans: A federal direct PLUS loan is for parents of undergraduate students paying for their child’s education, or for graduate or professional degree students paying for their own education. You can use a federal direct PLUS loan to cover your school’s total cost of attendance.
  4. Direct consolidation loans: If you have other forms of federal loans, you can consolidate them into one loan (and one monthly payment) with a direct consolidation loan. Also, if your federal loans are ineligible for Public Service Loan Forgiveness (PSLF), you can consolidate them with a direct consolidation loan to qualify.

2. Federal Perkins Loan Program

In the past, federal Perkins loans could be used by undergraduate, graduate and professional degree students with financial need. But the program expired in September 2017, so the government will no longer issue new Perkins loans.

Previously, Perkins loans were a smart choice because they had lower interest rates than other loans. Eligible borrowers could get a Perkins loan at 5.00% interest.

But not everyone qualified for the Perkins loan, as eligibility was dependent on your financial need and the availability of funds at your chosen university. Also, there was a cap on the amount you could borrow. Undergraduate students could borrow up to $27,500 in their lifetime, while graduate students couldn’t borrow more than $60,000.

For those who took out Perkins loans in the past, the school you attended is the lender of the loan, so you make your payments to the school (or to a servicer the school appointed).

Federal loan interest rates

While private loan interest rates are determined by market conditions, the U.S. Congress sets the interest rates for federal student loans. But it determines the rates based on legislation linked to the financial markets.

Interest rates can vary from year to year, but your rate is locked once the lender disburses the loan. It cannot be changed unless you pursue student loan refinancing.

The interest rates for federal loans disbursed between July 1, 2018, and June 30, 2019, are as follows:

  • Direct subsidized: 5.05%
  • Direct unsubsidized (undergraduate degree): 5.05%
  • Direct unsubsidized (graduate or professional degree): 6.60%
  • Direct PLUS: 7.60%

Eligibility requirements

To get a federal student loan, borrowers must complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is what schools and states use to determine the aid you receive, including federal grants and loans. You cannot get a federal loan without completing the FAFSA.

The FAFSA has to be completed and submitted every year for you to remain eligible for federal aid. Even if nothing about your situation has changed, you still need to submit it again.

You can complete the FAFSA online. The application opens on Oct. 1 each year, and submission deadlines vary based on your school and state. It’s a good idea to complete it as soon as possible each year.

Federal student loans don’t require a cosigner or guarantor for your debt, and you can qualify for most federal loans even if you have poor credit. The main requirement to borrow is that you’re attending an eligible college or university.

Benefits of federal loans

federal student loans guide

Federal student loans have certain perks that can make it easier to manage your debt if you’re struggling to afford your payments or if you lose your job.

1. Income-driven repayment plans

If you can’t afford the minimum payment on your loan, you might be eligible for an income-driven repayment (IDR) plan.

There are four kinds of IDR plans:

Under IDR, the lender sets your payment as a percentage of your discretionary income. If you experience big life changes, such as a pay decrease or the birth of a child, your payment will go down, too. Some people can even qualify for a “payment” of $0 with an IDR plan.

After 20 to 25 years of making qualifying payments, the government forgives the remaining balance of your loan. The discharged balance is taxable as income, but having your loans eliminated can be worth it in some instances.

An IDR plan can be a good short-term solution if you’re struggling with an entry-level salary or have a long-term approach to managing your debt. But because you’re stretching your repayment period over two decades or more, you’ll likely pay more in interest over the life of your loan.

2. Deferment and forbearance

If you can’t keep up with your payments, you might qualify for deferment or forbearance. These options allow you to pause payments on your loan without penalty. If you lose your job or became seriously ill, you can delay making payments while you recover.

The two are very similar, with the main difference being eligibility and the length of time involved. (Deferment can run up to three years, while forbearance is usually for a year or less.) While deferment and forbearance are not ideal, they can be useful when facing an emergency that makes managing your loan payments difficult.

3. Student loan forgiveness programs

Some student loan forgiveness options are only available to those with federal student debt. If you work in public service, for example, the government offers programs that allow your loans to be forgiven.

Those who work for nonprofit organizations or the federal or state government may be eligible for the PSLF program. If you hold a qualifying job for 10 years and make qualifying payments, you could have the remaining balance of your debt forgiven.

Similarly, various federal loan forgiveness programs for teachers could mean big savings on student debt. Depending on your eligibility, you could have part or all of your loans forgiven after teaching for one to five years in a qualifying role.

4. Student loan discharge programs

With private loans, if your school lied to you about your chances of a successful career, the university closed or you became disabled, you still have to make payments on your loan. They are not eligible for discharge, so you’re usually stuck with them no matter what.

Federal loans are different. There are several discharge programs that the government designed to protect borrowers. For example, if you become permanently disabled, the government might forgive your loans through total and permanent disability discharge. If your school closes while you’re still pursuing your degree, you could be eligible for a closed school discharge.

Hopefully, you’ll never have to rely on one of these discharge programs. But if something awful happens, it’s good to know about the safety nets available for federal student loans.

Private student loans

If you’ve exhausted your federal aid options and still need more money to pay for school, private student loans are another option. Private student loans are issued by a bank, credit union or private company, instead of by the government. The interest rates, repayment terms and rules of your loans will depend on the lender.

To get a private student loan, you need to have an established credit history, a solid income and a good credit score. If your income or credit score isn’t high enough, a lender may require you to have a cosigner — someone who will be responsible for payments if you fall behind.

With federal loans, the interest rates are fixed for the length of your loan. But some private loans can have variable interest rates, which can fluctuate over time. That means your payment can increase if interest rates rise.

Private loans are also ineligible for federal loan benefits, such as access to IDR plans or PSLF. If you run into financial hardship while you’re repaying your loan, speak to your loan servicer about your options.

Because of the wide variety of private student loans out there, it’s important to shop around to find the best lender for your situation.

Taking out loans for school

Trying to figure out how to pay for school can be overwhelming, but federal student loans can be a useful tool to finance your education. Thanks to lower interest rates and more repayment benefits than with private loans, you can better manage your student loan debt going forward.

To reduce your need for federal or private loans, research and apply for scholarships and grants to help limit your education costs.

Kat Tretina contributed to this article.

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1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

(1)All rates shown include the auto-pay discount.  The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 11/08/2019. Variable interest rates may increase after consummation.

2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

3 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at
  3. Aggregate loan limits apply.
  4. Lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest interest rate offered on the Discover Undergraduate Loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.50% as of July 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit for more information about interest rates.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).

  1.  Rates are as of July 1, 2019 and include auto-pay discount. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment. Variable rates may increase after consummation.

5 Important Disclosures for Citizens.

Citizens Disclosures

Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of November 1, 2019, the one-month LIBOR rate is 1.80%. Variable interest rates range from 2.90% – 11.16% (2.90% – 11.01% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.

Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school. 

Please Note: International Students are not eligible for the multi-year approval feature.

Undergraduate, Graduate, and Parents

Visit College Ave

3.12% – 10.54%*,2Undergraduate and Graduate

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Undergraduate and Graduate

Visit Discover

3.52% – 9.50%4Undergraduate and Graduate

Visit CommonBond

2.90% – 11.16%5Undergraduate and Graduate


Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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