The Most Popular Federal Student Loan Programs

Federal student loan rates are often low, making borrowing more affordable

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Federal student loans are one of the best options for borrowing to attend school. They not only offer low fixed interest rates but also provide maximum flexibility in repayment options. You can change your payment method as needed, have generous options for pausing payments via deferment or forbearance, and can opt for income-driven repayment plans that cap what you pay as a percentage of your income after finishing your education. 

If you're attending school and want to take advantage of the benefits federal student loans provide, learn about the most popular federal student loan programs to help you determine which option is right for you. 

Types of Federal Student Loans

Your options for federal student loans include:

  • Direct subsidized loans (also called subsidized Stafford loans)
  • Direct unsubsidized loans (also called unsubsidized Stafford loans)
  • Parent or graduate PLUS loans (also called direct PLUS loans)

The federal government used to offer Perkins loans to low-income undergraduate or graduate students who demonstrated exceptional financial need. Perkins loans are no longer originated and have not been issued since Sept. 30, 2017. 

Direct Subsidized and Unsubsidized Loans

Direct subsidized and unsubsidized loans are also known as Stafford loans. Direct subsidized loans are the most affordable type of federal financial aid. These loans are available only to undergraduate students who show financial need, with each school determining the amount students are eligible for, up to annual and aggregate limits. They are the least expensive option because the government covers the cost of interest while student borrowers are in school, as well as when loans are deferred after graduation.

Direct unsubsidized loans are similar to direct subsidized loans, but there are three key differences:

  1. Unsubsidized loans are available regardless of financial need
  2. They are available to graduate students as well as to undergrads
  3. The government does not cover the cost of interest while borrowers are in school

Beyond these differences, direct subsidized and unsubsidized loans are very similar. They both offer low fixed interest rates, flexible repayment options including income-driven plans, and they are available regardless of credit score.

The interest rate on subsidized and unsubsidized loans for undergraduate borrowers is the same at 2.75%. The interest rate for the same loans is a little higher for graduate or professional borrowers at 4.30%. These interest rates are valid through July 1, 2021. There are also loan fees on subsidized and unsubsidized loans. If the loan was disbursed on or before Oct. 1, 2017, but before Oct. 1, 2018, then the fee is 1.066% of the loan amount. If it was disbursed on or before Oct. 1, 2018, but before Oct. 1, 2019, then the fee is 1.062% of the loan amount. Subsidized and unsubsidized loans disbursed before Oct. 1, 2017, have different loan fees.

They're also subject to the borrowing limits listed below.

Limits for Dependent Students

Academic Year Subsidized Loan Limit Unsubsidized Loan Limit Combined Loan Limit
First-year undergraduate $3,500  $2,000  $5,500
Second-year undergraduate $4,500  $2,000  $6,500
Third- and subsequent-year undergraduate  $5,500  $2,000  $7,500
Graduate or professional students N/A N/A N/A
Total aggregate loan limit  $23,000  $8,000  $31,000

Limits for Independent Students and Dependent Students Whose Parents Don't Qualify for PLUS Loans

Academic Year Subsidized Loan Limit Unsubsidized Loan Limit Combined Loan Limit
First-year undergraduate $3,500 $6,000 $9,500
Second-year undergraduate $4,500 $6,000 $10,500
Third- and subsequent-year undergraduate $5,500  $7,000 $12,500
Graduate or professional students N/A $20,500 $20,500
Total aggregate loan limit $23,000  $34,500 $57,500

The combined aggregate loan limit for independent graduate or professional students is $138,500, which comprises $65,500 in subsidized loans and $73,000 in unsubsidized loans. That includes all federal loans received for undergraduate study.

Direct PLUS Loans

Direct PLUS loans are available only to graduate students and to parents of undergraduate students. Unlike direct subsidized loans, the credit score does matter in that you cannot qualify for PLUS loans with an adverse credit history, as defined by the U.S. Department of Education criteria. However, if you meet that requirement, you will pay the same low-interest rate as all other borrowers, regardless of your credit score. 

Direct PLUS loans are more expensive than direct subsidized or unsubsidized loans because the interest rate and origination fee are higher. The interest rate on direct PLUS loans is 5.30% through July 1, 2021. Loan fees also differ depending on when the PLUS loan was disbursed. If the loan was disbursed on or after Oct. 1, 2018, but before Oct. 1, 2019, the fee is 4.248% of the loan amount. If the loan was disbursed on or after Oct. 1, 2019, but before Oct. 1, 2020, then the fee is 4.236% of the loan amount. PLUS loans disbursed before Oct. 1, 2018, have different fees.

However, the borrowing limit is also higher—you can take out loans up to the school-certified cost of attendance. 

For many borrowers, direct PLUS loans may still be cheaper than private student loans, so it’s important to compare the two

There is still flexibility in repayment options, too, although less so for parent PLUS loans as parents become eligible for the Income-Contingent Repayment (ICR) Plan and Public Service Loan Forgiveness (PSLF) only if they consolidate their loans. That's not the case for graduate borrowers who have the same repayment options with PLUS loans as with other types of direct loans. 

How to Apply for Federal Student Loans

To apply, you'll simply need to complete your Free Application for Federal Student Aid (FAFSA) for each year you want to borrow. This can be done online with basic financial information such as personal income and household income (if you're a dependent) and details about your individual and family assets. Both parents and dependent students need to fill out a FAFSA each year.

Applying for federal student loans is easy as long as you meet basic requirements, including enrolling, or planning to enroll, at least half-time at an eligible school. 

Alternatives to Federal Student Loans

Although federal student loans can be the most affordable way to borrow for school, they are not your only option for paying for your education. Alternatives may include:

  • Scholarships and grants: Available from schools, federal, state, and local governments, and private institutions, these should be exhausted first because they don't have to be paid back.
  • Private student loans: These come from banks, online lenders, and credit unions. They can be more expensive than federal loans but are a good option if you've maxed out your eligibility for federal aid. 

To make sure you keep your borrowing costs as low as possible, always compare all your options and never borrow more than you need to pay for the essentials like tuition and basic living expenses.

Article Sources

  1. Federal Student Aid. "Perkins Loans."

  2. Federal Student Aid. "Subsidized and Unsubsidized Loans."

  3. Federal Student Aid. "PLUS Loans."

  4. Federal Student Aid. "Federal Interest Rates and Fees."

  5. Federal Student Aid. "Are Direct PLUS Loans Eligible for Public Service Loan Forgiveness (PSLF)?"