What Is a Federal Student Loan?

Federal student loans are financial aid money that the government offers. They are included in a student's financial aid and must be repaid with interest. You must complete the Free Application for Federal Student Aid (FAFSA) form to get a federal loan. Once you get your financial aid package, you can accept some or all of your student loan amount.

Scholarships and grants are the best options because they do not have to be repaid. In terms of student loans, federal loans are the better option as they include many benefits that private loans do not have, like fixed interest rates, forgiveness, and repayment plans. Federal student loans have standardized, fixed interest rates, meaning the rate stays the same throughout the loan term.

The interest rate is fixed and is often lower than private loans. You also don’t need to get a credit check to qualify for federal student loans, unlike private loans, where your interest rate is based on your credit history. In terms of repayment, loan payments for federal student loans aren’t due until after you graduate, leave school, or change your enrollment status to less than half-time. They also have an extensive grace period before starting monthly payments.

There are large amounts of student loan debt in the United States, so it can be helpful to consider other financial aid options. On Bold.org, we have plenty of scholarships that students can apply for so they don't have to deal with student debt.

Additionally, if you have more financial need than scholarships or grants can cover, you may qualify for a subsidized loan where the government pays the interest on the loan while you’re in school. Federal student loans also have an income-driven repayment plan that bases your loan payments on your income. Federal student loans also offer forgiveness for undergraduate and graduate students.

In 2022, the federal government and the Department of Education announced a forgiveness plan that could forgive $10,000 for eligible students and up to $20,000 for Pell Grant recipients. While federal student loans have many benefits for students, it is also important to consider how difficult repaying loans can be.

What are examples of federal student loans?

There are three kinds of federal loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. These federal student loan programs each have different eligibility.

Direct Subsidized Loans are federal loans where the government pays the interest while you’re in school, meaning that the student doesn't have to pay anything on the loan while they're in school. These loans are based on financial need.

Direct Unsubsidized Loans, on the other hand, are loans where you have to pay interest while still in school. Demonstrated financial need is not required to qualify for unsubsidized federal loans.

Direct Plus Loans are for parents or graduate and professional students. The U.S. Department of Education gives Direct PLUS Loans to schools participating in the Direct Loan Program. Though the interest rate for Direct Plus Loans is higher than direct subsidized and unsubsidized loans, Parent or Grad Plus Loans can have better rates than private loans

If you need to borrow more money than the federal government gave you, your options might include private student loans or private scholarships.

What is the difference between federal and private student loans?

Federal student loans are issued by the federal government. Private student loans are given out by private organizations, typically banks, credit unions, and state-based or state-affiliated organizations.

Unlike private loans, federal student loans do not take credit history into account. Federal loan programs are mostly based on financial need rather than financial merit. So if you or your parent do not have great credit or a high income, you can still get federal student loans.

Private student loans are generally more expensive than federal student loans because of interest rates. Unlike federal student loans which have fixed, standardized interest rates, private student loans can have fixed or variable interest rates. You can get a lower interest rate on private student loans if you have excellent credit.

Federal student loans also offer forgiveness and repayment options like income-driven repayment plans that are not typically offered with private loans. Private loans have options to avoid going into default, like deferment or forbearance, but federal student loans offer more flexible repayment and forgiveness for students.

Before you take out a private student loan, make sure that you consider all of your other financial aid options, like scholarships, grants, and federal student loans.

Do you have to pay back federal student loans?

Yes, federal student loans have to be repaid, but if you struggle to pay back a federal loan, there are many ways to defer or reduce payment.

Repayment plans for federal student loans can significantly help you deal with monthly payments for student loans. By switching to an Income-Driven Repayment Plan (IDR), your monthly student loan payment is set at an amount that is intended to be affordable based on your income and family size.

If you’re in a short-term financial bind, you may qualify for a deferment or a forbearance. Deferment involves temporarily postponing payment on a loan during which interest generally does not accrue. Forbearance is when your monthly loan payments are temporarily suspended or reduced. You can discuss deferment or forbearance with your loan servicer.

How can I avoid paying federal student loans?

While you cannot stop paying for federal student loans, there are forgiveness programs that you can apply to so you can avoid paying some or all of your student loans.

If a government or not-for-profit organization employs you, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. The PSLF program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time in public service.

Suppose you're a full-time teacher for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency; you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans.

Frequently asked questions about federal student loans

Who is eligible for federal student loans?

The general eligibility requirements to get federal student loans are as follows, having financial need, being a U.S. citizen or eligible noncitizen, and being enrolled in an eligible degree or certificate program at your college or career school.

How much federal loan can a student get?

If you’re an undergraduate, the maximum amount of Direct Subsidized and Direct Unsubsidized Loans you can borrow each academic year is between $5,500 and $12,500. This amount depends on your year in school and your dependency status.

If you're a graduate/professional student, you can borrow up to $20,500 in Direct Unsubsidized Loans each academic year. Graduate students can also get Direct Plus Loans, which can be as much as the cost of attendance with other financial aid.

How long do you have to pay off federal student loans?

Most student loans are paid off or forgiven within 10 to 30 years. If you have a Standard or Graduated Repayment Plan, your loans will be paid off within ten years. Other repayment plans, like the Extended Repayment Plan, require you to pay off your loans within 25 years. For Income-Driven Repayment Plans, any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 or 25 years.

Now that you have learned a bit about federal student loans, find out if student loans are tax deductible.