Types of Federal Student Loans

Federal loans, or officially known as The United States government provides the William D. Ford Federal Direct Loan Program, the main and largest federal loan program. Under the Department of Education, there are three types of federal student loans available. You and your parents should carefully weigh the pros and cons before choosing. You want to find what’s best for your family’s specific and unique financial needs.

A group of students sitting together in front of one laptop, with a few students standing behind them.

Direct Subsidized Loans

Direct subsidized loans are only for students who display and prove financial need. To be eligible for the loan, you must attend school half time, be enrolled in a degree or certificate program, and be an undergraduate, graduate, or professional student.

Under these loans, the school decides the amount you will receive from the government. It is based solely on financial need. Loans tend to be from $5,500 to $12,500 annually for undergraduates. Your year can also affect the amount you receive. Students can only borrow these loans for 150% of the program’s completion estimate. For example, if you are in a 4 year Bachelor’s degree program, you may only apply and receive direct subsidized loans for 6 years.

However, there is a major bonus for this option. As long as you remain in school for half-time, the Department of Education will cover your interest. This continues during a 6 month grace period after leaving the school or if you request a deferment (postponement of payments).

Direct Unsubsidized Loans

Direct unsubsidized loans are similar to the previous choice except you do not have to prove financial need. Your school will also determine the loan amount in this case. It is based on tuition and any other financial aid you may already be receiving.

While you do not have to display your family’s financial need to receive a direct unsubsidized loan, interest begins to accumulate immediately. If this interest is not paid during school years, the amount adds to the principal loan and also accrue interest.

To be eligible for a direct unsubsidized loan, you must be an undergraduate, graduate, or professional student that is attending school at least half-time. Amounts received are similar to subsidized loans: $5,500 to $12,500.

Direct PLUS Loans

Direct PLUS loans are more directed towards parents of undergraduates as well as graduates and professional students. They help you pay for educational costs not covered under any other financial aid.

To be awarded a Direct PLUS loan, parents or students must have good standing credit, be attending higher education at least half-time, and meet eligibility requirements for federal aid. The max a borrower can receive depends on the cost of the school while subtracting any other financial aid that was already awarded.

Parents also have the ability to request deferments for current students and may ask for a grace period for up to 6 months after the student graduates, leaves the school, or stops attending half-time.

Other Federal Student Loans Options

Also available through the Department of Education are Direct Consolidation Loans and the Federal Perkins Loan Program. Direct consolidation gives you the option of combining all of your federal student loans under a single servicer. While consolidation simplifies your loan repayment, you may end up paying more in the long run due to interest.

The Federal Perkins Loan Program contains federal loans for students with exceptional financial needs. However, the loan is provided by your chosen school, not the government, and not all schools participate in the program. Money granted will depend on availability and your financial need.

Students and parents can apply for federal loans at FAFSA.com, which must be reapplied for each year. Every family’s financial situation is different. It is important to carefully weigh your options before choosing a loan program to pursue. Explore the various types of federal student loans! While private loans are also available, federal loans tend to have lower interest rates, often don’t require credit checks, and don’t need a cosigner. They also provide flexible repayment plans that usually don’t have to be repaid until after graduation.

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