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 a great way to cover the cost of education for both undergraduate and graduate students, and they’re often a better choice than private loans, since they offer unique benefits like income-driven repayment plans. There are also loan programs available for parents who want to help cover the cost of education for their children.
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 loan snapshot
Undergraduate, graduate, parent
Undergraduate: Up to $57,500 aggregate
Graduate: Up to full cost of attendance
Undergraduate: 4.99% fixed
Graduate: 6.54% or 7.54% fixed
Standard term is 10 years
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.
- 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 different repayment plans with federal loans 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.
- 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, and aggregate maximums for their education are $31,000 or $57,500. As a result, you may need additional sources of funding to fully cover the cost of an education.
- 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 7.54 percent for parent PLUS loans, while many private lenders offer rates as low as 3 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 2022-23 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||4.99%|
|Direct Unsubsidized Loans (undergraduate)||N/A||4.99%|
|Direct Unsubsidized Loans (graduate)||N/A||6.54%|
|Direct PLUS Loans||N/A||7.54%|
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 Revised Pay As You Earn Repayment Plan and the Income-Contingent Repayment Plan.
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 firstname.lastname@example.org.
How to apply for a federal student loan
The first step in applying for federal student loans is completing 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. 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. From there, you can choose to accept some or all of the available federal loans.
How Bankrate rates federal student loans
|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.|
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.