What You Should Know About Federal Student Loans

Key takeaways

A federal student loan is money you borrow from the U.S. government and must pay back with interest. Unlike many private loans, federal loans have fixed interest rates and flexible repayment options, and most do not require a credit check.
There are three kinds of federal student loans: direct subsidized, direct unsubsidized, and direct PLUS loans.
Eligibility for federal student loans is determined by your enrollment status and FAFSA form, and included in your financial aid letter.

When you submit the Free Application for Federal Student Aid (FAFSA) and get a financial aid letter from a school, you might see that you have been offered federal student loans.

This letter offers money that does not have to be repaid — grants, scholarships, and an earnable work-study amount — along with money that does, including loans. The loan amount indicates your borrowing eligibility; you are not required to borrow it.

Still, after aid and scholarships won before arriving on campus, you might decide to take out a federal student loan to meet the cost of attendance. You are not alone: 42.8 million student borrowers have federal student loan debt, according to the Education Data Initiative.

Here are some of the things you should know about federal student loans. As you plan ahead, you can also use our calculator to estimate your monthly loan repayments.

What are federal student loans?

Student loans can be private or federal. Private loans are offered by banks, other financial institutions, and even some schools. Federal loans are offered by the U.S. government, and there are three kinds: direct subsidized, direct unsubsidized, and direct PLUS loans.

Federal student loans can offer several advantages over private loans, according to the Office of Federal Student Aid.

For example, you do not need a cosigner to take out a federal loan, and (with the exception of Direct PLUS loans) you do not need a credit score, either. This allows students to take out loans in their name even though many might have a limited or nonexistent credit history. By contrast, private lenders often require a credit check, so students may need another adult to act as a cosigner.

Federal student loan interest rates are “fixed,” meaning that the rate at which you must pay interest on the amount you borrow — the “principal balance” — will not change, whereas interest rates on private loans may fluctuate.

Federal loans may also offer more flexible repayment options than private loans, and even forgiveness in some cases.

See this FSA chart for a fuller comparison of federal and private loans.

If you are considering borrowing, it is important to keep up with the news about student loans. After 2026, new borrowers face a $257,000 lifetime aggregate limit on all federal student loans, which includes undergraduate and graduate loans, according to Forbes. Also, management of federal student loans is set to move from the U.S. Department of Education to the U.S. Department of the Treasury.

Determining which loan is best for you will depend on your circumstances, including your financial need as determined by the FAFSA, the amount of funds you are awarded by your institution, and other scholarships, such as merit-based awards or full-tuition scholarships.

Frequently asked questions about federal student loans

What are direct subsidized loans?

Direct subsidized loans are available to undergraduate students who demonstrate financial need.

These loans are “subsidized” because the U.S. Department of Education pays the interest on your loans while you are enrolled in school (at least half-time), for the first six months after you graduate, and during periods of temporary postponement (known as deferment, which means a payment pause where interest does not accrue). You will have to pay interest accrued at other periods.

You do not have to make payments while you are in school.

How much you can borrow varies by your school’s cost of attendance, your grade level, and whether you are financially dependent, as well as the aggregate lifetime limit.

What are direct unsubsidized loans?

If you are not eligible for direct subsidized loans, you can take out direct unsubsidized loans.

Direct unsubsidized loans are available to undergraduate, graduate, and professional students regardless of financial need.

As with direct subsidized loans, you do not need to make payments on unsubsidized loans while you are in school, for the first six months after you graduate, or during some periods in which payment is postponed.

However, you are responsible for paying interest on your loans for all periods. This means that interest will accrue for you during periods when you are not making payments (a payment pause known as forbearance).

The amount you can take out also varies by your school’s cost of attendance, your grade level, and whether you are financially dependent.

There is a borrowing limit on loans for graduate and professional school taken out after July 1, 2026.

What are direct PLUS loans?

Parents are eligible to take out loans to help cover their children’s educational expenses. These are known as direct PLUS parent loans, and in most cases they have an annual loan limit and an aggregate loan limit, according to Federal Student Aid.

Graduate PLUS loans are discontinued. New graduate and professional students looking to take out loans are eligible for direct unsubsidized loans. Borrowers with Graduate PLUS loans taken out before July 1, 2026 should contact Federal Student Aid.

What are the borrowing conditions for federal student loans?

You must be enrolled in a relevant degree program. Except in the case of direct subsidized loans, students do not need to demonstrate financial need.

Students enrolling in graduate programs after 2026 can borrow up to $20,500 per year and $100,000 in total in direct unsubsidized loans. Students in professional degrees like medicine and law can borrow up to $50,000 a year with a $200,000 total, according to U.S. News.

If you are planning on attending graduate school after college and considering undergraduate loans, it might be important to bear the graduate loan caps in mind when deciding how much to borrow.

What are the repayment options for federal student loans?

Loans need to be paid back with interest, typically in monthly payments.

Federal student loans let borrowers enroll in income-driven repayment plans, which allow them to repay their loans in proportion to their income and family size. After many years in repayment — typically, 20 to 25 years — borrowers are eligible for loan forgiveness.

After July 1, 2026, that period may be longer for new borrowers — over 30 years, according to Forbes.

There are multiple income-driven repayment plans available. The Saving on a Valuable Education (SAVE) Plan is discontinued; borrowers should contact Federal Student Aid if they enrolled in the SAVE Plan to consider moving to a new plan.

Check with Federal Student Aid about other repayment options, including applying for consolidation.