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A Quick Guide to Federal Student Loans

This post is from a student, parent, or professional contributor. The opinions expressed by the author are their own and do not necessarily reflect the positions, viewpoints, or policies of Niche.

A neon sign in the window of a building at night. It says "Money $ To Loan"

A student loan (also known as an educational loan) is a sum of money loaned to a student for post-secondary education, which can be used to pay for expenses including but not limited to: tuition, room and board, student fees, textbooks, and student supplies. 

There are many things to keep in mind when deciding to take out a student loan, the first being your loan provider. There are two types of providers you can look into: federal and private. Today, we’ll talk about federal student loans.

Federal student loans, also known as Direct Loans, are loans funded by the federal government. Federal loans are given and determined based on your household’s annual household income, and details are typically included in your financial aid package issued by your university.

When taking out a federal student loan, payments will not be due until after you graduate, drop out, or change your enrollment status to less than full-time.

Interest rates for federal student loans are fixed and are often lower than what a private student loan would be and even lower than some credit card interest rates.

When taking out a federal student loan, you don’t need to get a credit check to qualify, with the exception of PLUS loans. For PLUS loans, Federal Student Aid will check your credit before determining whether you are eligible.

There are three kinds of federal student loans a student can be lended; Direct Stafford Loans, Direct PLUS Loans, and Direct Consolidation Loans. 

Direct Stafford Loans

Direct Stafford Loans are available to all US citizens as well as eligible non-citizens enrolled at least part-time in an undergraduate or graduate program.

No credit check or cosigner is required for a Direct Stafford Loan. Stafford Loans may be subsidized or unsubsidized.

Subsidized Stafford Loans are available to all undergraduate students who are in need financially, with the federal government paying interest rates while the student is in school.

While subsidized loans are available only for students who demonstrate financial need, unsubsidized Stafford Loans are available to undergraduate and graduate students regardless of financial need. The student is responsible for paying the interest but can defer payments while studying in school.

Direct PLUS Loans

Direct PLUS Loans are only available to parents and graduate or professional students who are deemed eligible to help cover up to the full cost of education.

A credit check will be required for this loan type to determine eligibility, and borrowers must not have a strong credit history.

Like federal student loans, the interest rate is fixed and may be lower than private loans. It may even be much lower than some credit card interest rates.

However, PLUS loans are not subsidized; so the signer on the loan will be responsible for all the interest on your loans.

Should You Take Out Student Loans?

Federal Consolidation Loans

Federal Consolidation Loans are the third and final form of federal educational loan. If you are currently in a grace period with current federal student loans or if you are on the path to repayment, you will have the option of consolidation.

Consolidation allows for the combination of multiple federal student loans into one loan. These loans can be spread out from every year you spent for your education.

Consolidation loans also allow for the option to extend your repayment period, which will reduce the amounts of your monthly payments so you pay less each month for a longer duration. 


So, how much money can you borrow? It depends on your current financial needs, along with your university, your current school year, and current living situations.

Yearly federal loan limits also are determined on whether you are a dependent or independent student. The more time you continue your education, the more money you will receive (typically, those who go onto graduate school tend to receive more federal student or federal PLUS loans).

However, there are some limits on the amount of subsidized versus unsubsidized loans a student can receive, in addition to a total amount of loans in themselves one can be allowed to receive. 

Typically, the rules for subsidized loans is as follows: 

Students can borrow:

up to $3,500 for their first year

up to $4,500 for their second year

up to $5,500 for their third year and beyond

no more than $23,000 total

Unsubsidized loans are a little different, however. There are different rules for dependent versus independent students. 

Dependent students can borrow:

up to $5,500 for their first year

up to $6,500 for their second year as undergraduates

up to $7,500 for their third year and beyond

no more than $31,000 overall

Independent students can borrow up to:

$57,500 for their undergraduate program

$138,500 for graduate and professional studies

If the total amount borrowed over the course of your education reaches your total loan limit, additional federal educational loans can no longer be borrowed.

However, by repaying some of the loans to bring your total balance below the allowed limit, you can borrow more loans until you reach your limit again. 

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