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Federal Student Loans: 2024 Review

Updated on November 13, 2023
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At a glance

Bankrate 2024 Awards Winner: Best student loan for undergraduates

4.6
Rating: 4.6 stars out of 5
Bankrate Score
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Repayment Options
Rating: 4.6 stars out of 5
4.6
Affordability
Rating: 4.4 stars out of 5
4.4
Customer Experience
Rating: 4.8 stars out of 5
4.8

About Bankrate Score

The U.S. Department of Education is the largest provider of student financial aid in the nation. It offers federal student loans that can help cover the cost of tuition, fees, books and even housing. These loans are often a better choice than private loans, since they offer unique benefits like income-driven repayment plans and access to student loan forgiveness programs.

Moneybag
Loan amount $5,500 to $12,500
Rates
APR from 5.50%
Clock Wait
Term lengths 10 to 30 years
Federal student loans are best for most borrowers.
See rates
On lender's site

Federal student loan features

Federal student loans are administered by Federal Student Aid, which is a part of the U.S. Department of Education. These loans include several important features, such as fixed interest rates that are the same for all borrowers, plus terms and conditions that are set by law.

There are three types of loans available through the Federal Direct Loan Program: Direct Subsidized Loans, Direct Unsubsidized Loans and Direct PLUS Loans. Borrowers can also combine existing federal loans by taking out a Direct Consolidation Loan.

Federal Student Loans: in the details

Pros and cons of federal student loans

When using federal student loans, there are many financial benefits and protections available that are not offered with private student loans. But there are also a few drawbacks to consider.

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Pros

  • Credit history is not a factor: With private student loans, your credit score and finances determine your interest rate. With federal student loans, each loan type has one fixed rate that is offered to all borrowers, regardless of finances.
  • No co-signer needed: In most cases, you will not be required to have a co-signer to obtain a federal student loan. This is especially useful for undergraduates, who almost always need a co-signer to get a private student loan.
  • Generous forbearance and deferment: Federal student loans offer several types of forbearance and deferment for borrowers who are undergoing hardship. These programs may last for several years and are easy to apply to. With private lenders, on the other hand, these options may be hard to find.
  • Variety of repayment options. There are many repayment plans if a standard repayment schedule doesn’t fit your financial circumstances. Options include repayment plans based on your income and payment plans that start your payments low and increase them over time.
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Cons

  • Lower loan amounts: Most federal student loans have lower borrowing limits than private loans. Undergraduates can borrow only up to $5,500 or $9,500 in their first year depending on their dependency status. Aggregate maximums for their education are $31,000 or $57,500.
  • Borrowers with good credit may find better rates elsewhere: Borrowers with an established credit history and a good credit score may find that it’s cheaper to take out a private student loan. This is especially true for parents; the federal student loan rate is 8.05 percent for parent PLUS loans, while some private lenders offer rates as low as 4.99 percent.
  • Relatively short grace period: Federal student loans come with a grace period of six months after you graduate or drop below half-time enrollment. Some private lenders extend this grace period to nine or even 12 months, which is more forgiving.

Federal student loan requirements

Applicants must meet certain requirements in order to obtain a federal student loan. Borrowers must:

  • Be a U.S. citizen or eligible noncitizen.
  • Have a Social Security number, with some exceptions.
  • Be enrolled or accepted in an eligible degree or certificate program at least half time.
  • Maintain satisfactory academic progress as defined by their school.
  • Have a high school diploma or GED, have completed a high school education through homeschooling or have enrolled in a career pathway program.

Who is this loan good for?

Federal student loans are best for most borrowers. These loans are one of the only options for borrowers who have no credit history and who would like to borrow money without the assistance of a co-signer, and the ability to enroll in income-driven repayment plans clearly sets them apart from private loans.

Opting for federal student loans also makes sense if you plan to go into public service, as you can apply for Public Service Loan Forgiveness (PSLF). Those who plan to seek employment with U.S. federal, state, local or tribal governments or for nonprofit organizations may be eligible for loan forgiveness after 10 years of income-based payments.

Interest rates and terms

Below are the interest rates for each type of federal student loan for the 2023-24 school year. You may be able to get a discount of 0.25 percent for setting up autopay, but that discount is not reflected below.

Loan product Variable rate Fixed rate
Direct Subsidized Loans N/A 5.50%
Direct Unsubsidized Loans (undergraduate) N/A 5.50%
Direct Unsubsidized Loans (graduate) N/A 7.05%
Direct PLUS Loans N/A 8.05%

Fees and penalties

All federal Direct Loans include an origination fee. The fee is a percentage of the total loan amount and is taken out of your loan disbursement. However, you’re still responsible for repaying the entire amount you borrowed, not just the amount you received after fees.

Currently, the loan fee for Direct Subsidized Loans and Direct Unsubsidized Loans is 1.057 percent. The loan fee for Direct PLUS loans is 4.228 percent.

Repayment terms and grace period

Borrowers are not required to begin repaying federal student loans until six months after graduating or dropping below half-time enrollment. The standard repayment plan is 10 years; however, you may select one of several alternative repayment plans:

  • Graduated Repayment Plan: Payments begin low and then increase every two years for 10 years (or 10 to 30 years for Direct Consolidation Loans).
  • Extended Repayment Plan: Fixed or graduated payments are made for up to 25 years. Borrowers must have at least $30,000 in Direct Loans to qualify.
  • Income-driven repayment plans: Payments are based on your income and family size and are made for 20 or 25 years. Examples include the Pay As You Earn Repayment Plan, the Saving on a Valuable Education Plan and the Income-Contingent Repayment Plan.

How to apply for a federal student loan

Here are the steps to apply for a federal student loan.

  1. Complete FAFSA. Fill out and submit the Free Application for Federal Student Aid (FAFSA). This form, which is available online, is used by schools to calculate how much aid you qualify to receive, including grants, work-study and student loans.
  2. Review financial aid offer. After you fill out the FAFSA and you’re accepted to a school, that school will send you a financial aid award letter letting you know what aid you qualify for.
  3. Accept amount. Next, select some or all of the available federal loans.

Customer service

Those who have questions about the loans available through the Department of Education can call 800-433-3243 to speak with a Federal Student Aid representative. Questions can also be answered via email by contacting studentaid@ed.gov.

  • No, the majority of federal student loans don't require a credit check. PLUS loans require a credit check for adverse credit history.

How Bankrate rates federal student loans

Overall Score 4.6
Repayment Options 4.6 While there are only a few types of federal student loans, there are many customizable repayment options.
Affordability 4.4 Federal student loans may have higher rates than private student loans, and they do charge an origination fee. However, rates are not determined by credit score.
Customer Experience 4.8 The U.S. Department of Education has a dedicated student aid app and online access, and borrowers can set up automatic payments.

Methodology

The Bankrate team evaluated over a dozen lenders to select our top picks for the best student loans. To do this, Bankrate considers 14 factors, including loan amounts, fees, repayment terms and options, as well as fixed and variable APR ranges. Then, lenders are rated using our vetting system known as the Bankrate Score, which focuses on three main categories.

  • Availability: We looked at minimum and maximum loan amounts, as well as the lender’s eligibility requirements, co-signer option, degrees covered and state availability. Lenders that offered the most flexibility as well as nationwide servicing and that offered financing for a variety of programs ranked higher in this section.
  • Affordability: Fixed and variable interest rates, fees, penalties and discounts were measured in this category. Lenders with the lowest rates, fewer fees and multiple discounts got the higher scores.
  • Customer experience: Our team looked at the ease of the application process, as well as online account management tools, customer support hours, app availability, repayment options and grace periods offered by the lenders. This allowed us to determine the lenders’ ability to satisfactorily serve customers.

Editorial disclosure: All reviews are prepared by Bankrate.com staff. Opinions expressed therein are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in the review is accurate as of the date of the review. Check the data at the top of this page and the lender’s website for the most current information.