Advertiser Disclosure

DollarGeek strives to provide you the utmost clarity on your personal finances. We look to provide you with as many resources as possible to make the best financial decisions, but our website does not present every financial company or product available on the market. Many of the offers that appear on the website are companies from which DollarGeek receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear) but it in no way affects our recommendations or advice, which are formulated through countless of hours of research. Please view our advertising policy page for more information.

Our team works hard to keep our rates and products up to date, but we do not guarantee any rates or terms on the website. The rates and terms you see on DollarGeek may be different than what you see on the providers website at any given time. Rates can also differ from your final rate and terms, which is based on a variety of factors such as your credit score and what the lender or financial services provider seeks fit.

Editorial Note: Opinions expressed here on DollarGeek’s website are ours alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

What You Need to Know About Federal Student Loans

Written By: DollarGeek

Written By: DollarGeek

Share on facebook
Share on twitter
Share on linkedin
Share on email
Share on facebook
Share on twitter
Share on linkedin
Share on email

Paying for college is no easy task. With tuition costs climbing at a fast pace, it can be difficult to pay for your college education without loans. If you need to borrow money for college, you should start by looking into federal student loans. They are the most flexible and lowest cost option for students loan borrowers.

To fully understand federal student loans and how they can help you pay for your college education read along.

What exactly are federal student loans?

Federal student loans are loans made by the federal government to help you pay for college. The government is essentially providing you with money to pay for your college education and you are promising to pay it back at a later date with interest.

To apply for a federal student loan you will have to fill out a FAFSA (Free Application For Student Aid) application. A FAFSA application will typically take you about 30 minutes to complete and you will have to fill one out yearly.

What types of federal student loans are there?

The U.S. Department of Education federal student loan program is called the William D. Ford Federal Direct Loan (Direct Loan) Program.

When you borrow money under this program you have four types of direct loans available:

  • Direct Subsidized Loans

These loans are specifically for undergraduate students with financial need. The U.S. Department of Education is the lender on this loan. What makes this an attractive option for borrowers is that you will not be charged interest on the loan while you’re in school. It’s important to note that this loan comes with borrowing limits. This loan is sometimes referred to as a Stafford loan.

  • Direct Unsubsidized Loans

For this loan financial need is not required and you don’t just have to be an undergraduate. Direct unsubsidized student loans can be used by undergraduate, graduate and professional degree students. Another differentiator with this loan is that you’ll be accruing interest on the loan while you’re in school – remember, it’s unsubsidized. This loan is sometimes referred to as a Stafford loan.

  • Direct PLUS Loans

Direct PLUS Loan’s are loans that are designed for parents of undergraduate students that need to pay for their child’s education costs. Graduate and professional degree students can also use a Direct PLUS Loan to pay for their own education. You can use a federal direct PLUS loan to cover your school’s total cost of attendance.

  • Direct Consolidation Loan

You can use this loan after you accumulate other federal student loans. The main purpose of a Direct Consolidation Loan is to combine all your federal student loans into one simple loan. Many borrowers choose to get a direct consolidation loan because they can have one easy monthly payment.

How much money can I borrow with federal student loans?

The amount you can borrow with federal student loans varies on if you’re an undergraduate, graduate, professional student or a parent.

Undergraduate Students: The maximum amount you can borrow as an undergraduate student each year, whether it’s a direct subsidized loan or direct unsubsidized loan, will range from $5,500 to $12,500 per year. It varies on what year you are in school and your dependency status.

Graduate or Professional Students: As a graduate or professional student, you are allowed to borrow up to $20,500 per year with a direct unsubsidized loan. It’s also important to know that a graduate or professional student can get access to another federal student loan called a direct PLUS loan. A direct PLUS loan can be used if you need to borrow beyond the federal unsubsidized loan limit. As a graduate or professional student, a direct PLUS loan should be one of your last federal student loan options (they tend to have a higher interest rate vs a direct unsubsidized loan).

Parent: As a parent of an undergraduate student, you can take a direct PLUS loan out to cover the costs for the remainder of your child’s college costs that isn’t covered by other financial aid. For example, if a student has exhausted all their federal direct subsidized and unsubsidized loan options, the parent can take out a direct PLUS loan to help cover the remaining costs. Remember, as an undergraduate student you are capped at how much money you can borrow on a direct subsidized and direct unsubsidized loan.

How much interest do I pay with federal student loans?

Interest rates on federal student loans are set by Congress through legislation, not the U.S. Department of Education.

The interest rates for federal loans disbursed between July 1, 2018, and June 30, 2019 look like this:

Direct Subsidized

 

5.05%

 

Direct Unsubsidized (Undergraduate degree)

 

5.05%

 

Direct Unsubsidized (Graduate or Professional degree)

 

6.60%

 

Direct PLUS (Graduate, Professional and Parents of Undergraduate Students)

 

7.60%

 

Who is eligible for federal student loans?

In order to get a federal student loan, borrowers must complete a FAFSA (Free Application for Federal Student Aid). When you complete your FAFSA, your school will use it to determine the aid you receive, including federal grants and loans. You cannot get a federal loan without completing the FAFSA.

In order to be eligible for federal aid (federal student loans), you have to complete and submit a FAFSA every year, no exceptions.

The application opens on October 1st of each year and the submission deadline will vary based on your school and state.

When applying for a federal student loan you won’t have to worry about a cosigner or guarantor for your debt. You also won’t have to worry about your credit score. The main requirement to borrow is that you’re attending an eligible college or university.

What is the repayment like?

While there are several federal student loan repayment plans, the most popular is the Standard Repayment Plan. This plan will have your loans paid off in 10 years. The Standard Repayment Plan might give you a higher monthly payment, but since you’re paying it off in a shorter amount of time you will save the most money because of interest.

If you need flexibility and can’t make the payments on the Standard Repayment Plan you can look into Graduated Repayment, Extended Repayment, or an Income-Driven Repayment. All the plans offer different options for student loan borrowers.

Pros of federal student loans

  • Typically have the lowest interest rates
  • You don’t need a credit check to get most federal loans
  • You don’t need a cosigner to get most federal loans
  • You have access to government repayment programs when paying back your loan

Cons of federal student loans

  • Limit to the amount you can borrow

Alternatives to federal student loans

While federal student loans are the best option for borrowers when taking out money for college, it sometimes isn’t enough to cover all of the costs.

A popular alternative to federal student loans are private student loans. Private student loans are offered to borrowers by private lenders like a bank or credit union.

Every borrower has a different circumstance, but a private lender can help you pay for college if you have run out of federal student loan options, grants or scholarships.

Conclusion

Paying for college isn’t an easy task, but if you’re going to have to borrow money, using up your federal student loan options makes the most sense. Every year you will have to fill out a quick FAFSA application to be eligible (usually only a 30 minute process). If the amount of money you need for college exceeds the federal student loan limits, make sure you’ve looked for grants and scholarships before you start shopping around for a private student loan.

Geek Out With Our Newsletter.

Get the most important news from the week with our Friday newsletter. Stay wise and up to date with DollarGeek.

Share on facebook
Share on twitter
Share on linkedin
Geeky Assistance

How much will you deposit into your savings account?

$

What is the APY on the savings account?

%

You can expect to earn this much in interest:

$331