Whether you’re a parent, graduate student, or undergraduate student, you’ll need to review your options and decide which type of loan 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)
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: Beyond these differences, direct subsidized and unsubsidized loans are very similar. They both offer 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 4.99%. The interest rate for the same loans is a little higher for graduate or professional borrowers at 6.54%. These interest rates are valid for loans first disbursed between July 1, 2022 and July 1, 2023. There are also loan fees on subsidized and unsubsidized loans. If the loan was disbursed on or after Oct. 1, 2019, but before Oct. 1, 2020, then the fee is 1.059% of the loan amount. If it was disbursed on or after Oct. 1, 2020, but before Oct. 1, 2023, then the fee is 1.057% of the loan amount. They’re also subject to the borrowing limits listed below.
Limits for Dependent Students
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 7.54% for loans that were disbursed between July 1, 2022, and July 1, 2023. Loan fees also differ depending on when the PLUS loan was disbursed. If the loan was disbursed on or after Oct. 1, 2021, but before Oct. 1, 2023, the fee is 4.228% of the loan amount. You can take out loans that cover the cost of attendance after any financial aid you receive. The cost of attendance is determined by the school. 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. They can qualify for ICR and PSLF without needing to consolidate their 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 your personal income, household or family income, and details about your individual and family assets. Both parents and dependent students need to fill out a FAFSA each year.
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.
Direct subsidized loans, also known as subsidized Stafford loansDirect unsubsidized loans, also known as unsubsidized Stafford loansParent or graduate PLUS loans, also known as called direct PLUS loans
