Federal student loans, whether they are in the student name or the parent name, are borrowed money that must be repaid with interest. Students should consider Federal Direct Subsidized and Unsubsidized Loans prior to turning elsewhere for loans. To see if you qualify for federal education loans, complete the Free Application for Federal Student Aid (FAFSA). 

Federal Subsidized and Unsubsidized Loans

Based on loan benefits and availability, students should consider federal subsidized and unsubsidized loans first to borrow for secondary education.  Subsidized loans are awarded to undergraduate students who can prove financial need whereas unsubsidized loans are not based on financial need.  The federal government pays the interest on all Direct Subsidized Loans while the student is in school, during the grace period after leaving school, and during any periods of deferment thereafter.  For unsubsidized loans, students are responsible for repaying all of the interest that accrues during school, although payments are not required will student is in school.    

Rate for 2021/22 academic year: 3.73% for undergraduate students, 5.28% for graduate students. Rates are fixed and are set every May for the upcoming academic year. 

Fees: 1.057% as of Oct 1, 2020

Eligibility: U.S. Citizen/Permanent residents; full/part-time undergrad/grad student; need-based

Amount: For dependent students: 1st year - $5,500 (no more than $3,500 can be subsidized), 2nd year - $6,500 (no more than $4,500 can be subsidized), 3rd year and beyond - $7,500 (no more than $5,500 can be subsidized). Dependent undergraduate student may not borrow more than $31,000 over all years (no more than $23,000 of this amount may be in subsidized loans). For independent students: 1st year - $9,500 (no more than $3,500 can be subsidized), 2nd year - $10,500 (no more than $4,500 can be subsidized), 3rd year and beyond - $12,500 (no more than $5,500 can be subsidized). Independent undergraduate students may not borrow more than $57,500 over all years (no more than $23,000 of this amount may be in subsidized loans). Graduate/Professional Students: Borrow up to $20,500 in unsubsidized funds per year. Cannot borrow more than $138,500 for all years. 
 
Repayment Term: Up to 10 years 

Grade Period: 6 months

How to apply: Complete the FAFSA by your school's specified deadline.

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Federal PLUS Loans

Description: Loan for parents and graduate students funded and administered by the U.S. Dept. of Education.

Rate: Fixed at 6.28% for the 2021/22 academic year. Rates are fixed and are set annually in May for the upcoming academic year. 

Fees: 4.228% as of Oct 1, 2020

Eligibility: U.S. Citizen/permanent resident; parent of full/part-time, parent of dependent undergraduate student; graduate student. A credit check is required. 

Amount: Up to the difference between college costs and financial aid received.

Repayment Term: Up to 10 years for a standard repayment term. Loan repayment begins within 60 days after final disbursement. Parents can choose to defer payments until up to 6 months after the student leaves school or drops below half-time status. Interest accrues during this period and can be paid monthly, quarterly, or will be capitalized. Payments can be deferred for graduate students until graduation. Forbearance options are also available.

Minimum payment: $50/month

How to apply: Submit the FAFSA by your school's deadline. You will also need to complete an application, known as a Master Promissory Note, to accept your award.

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Next topic: Applying for Financial Aid