When scholarships and grants do not cover your total cost of education, the next type of financial aid you should seek is a federal student loan. Federal student loans are education loans guaranteed against default by the federal government. Unlike private student loans, federal student loans are not credit-based, and therefore do not require a credit check.
A school can offer federal student loans through one of two programs—Federal Direct Student Loan Program (FDSLP) or Federal Family Education Loan Program (FFELP). For FDSLP, loans are disbursed by the federal government. FFELP loans are disbursed by a lender (i.e., bank, credit union, savings and loan association, or specialty education finance company). Many lenders offer federal student loans through FFELP, but the U.S. government determines the maximum loan amount that can be borrowed, and the maximum interest rates and fees the lenders can charge borrowers. The interest rates and fees associated with federal student loans are often lower than those associated with private student loans. Therefore, you should always apply for federal loans first.
The two most common types of federal loans are Stafford loans and PLUS loans. There are two kinds of Stafford loans—Subsidized Stafford loans and Unsubsidized Stafford loans. The government pays the interest accrued on Subsidized Stafford loans while the student is in school. These loans are awarded based on financial need. On Unsubsidized Stafford loans, the borrower is responsible for paying back the interest accrued while the student is in school. These payments can be deferred, however, while the student is in school. Unsubsidized Stafford loans are not need-based. One borrower can receive both a Subsidized and an Unsubsidized Stafford loan for the same academic period.
| Year in school | Maximum Stafford loan amount |
|---|---|
| Freshman | $3,500 |
| Sophomore | $4,500 |
| Junior | $5,500 |
| Senior | $5,500 |
| Graduate student | $20,500 (only $8,500 can be subsidized) |
PLUS loans (Parent Loans for Undergraduate Students) can be taken out by parents to help cover the cost of their dependent child's undergraduate education.* Typically, PLUS loans are borrowed to pay for education-related expenses not covered by scholarships, grants, and federal student loans. Parents can borrow up to the total cost of education minus any financial aid accepted.
You can apply for a federal loan by submitting a Free Application for Federal Student Aid (FAFSA). The FAFSA is available online and in paper form. Learn more at FAFSA.ed.gov.
Federal aid is awarded on a first-come, first-served basis, so it is best to submit the FAFSA as soon as possible after January 1. The FAFSA is free, and you are not obligated to accept any aid that is awarded. So everyone, regardless of their financial situation, should apply for federal aid.
To learn more about federal student loans visit FinAid.org.
*Graduate students can borrow PLUS loans to cover their own education-related expenses.