What are some advantages of federal student loans select all that apply?

If you're considering student loans to help pay for your education, you're not alone⁠. But the more money you borrow now, the more you’ll have to spend on monthly payments after you graduate.

If you are going to school next year, make sure you fill out the FAFSA form and submit it as soon as it opens on October 1. Then minimize the amount you need to borrow by cutting costs, applying for grants and scholarships, and considering other options like working part-time or setting up a tuition installment plan.

1. Learn about different loan types

Most students have two main options for student loans: federal (government) loans or private loans from banks, credit unions, and other lenders. You should research all your options for federal loans, also known as Direct loans, before shopping around for private loans.

The types of loans are:

  • Direct Subsidized: A federal loan for undergraduate students. You don’t get charged interest while you’re in school. It is need-based, so whether you qualify depends on your FAFSA information.
  • Direct Unsubsidized: A federal loan that any undergraduate or graduate student can get (as long as you haven’t reached your lifetime borrowing limit). You are charged interest while you are in school. To cut costs, pay the interest as you go.
  • Direct PLUS: Federal loans for the parents of undergraduate students, or for graduate and professional students. You must pass a credit check to get these loans.
  • Private: Loans offered by banks or credit unions. You should shop around for the best offer you can find. Students generally need a parent or other family member to co-sign.

Depending on where you live and other factors, you may have other options. Some states provide low-cost education loans for residents. There are also nonprofits and other organizations that offer low-or zero-interest student loans, often within a specific city or state.

2. Explore your federal options first

For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay. (This may not be the case if you are a parent or graduate student considering federal PLUS loans, though.)

Here are some advantages of federal Direct loans:

  • Access: Most students are eligible for federal student loans. There is no credit check (except for Parent PLUS loans). You will not need a co-signer, which private loans typically require.
  • Lower interest rates: For most borrowers, federal loans offer lower interest rates than private loans.
    • If you qualify for subsidized loans, use them first. They are your cheapest option, since the government pays the interest while you’re in school.
  • Fixed interest rates: Federal loans have fixed interest rates, meaning the interest rate will never change. Interest rates on private loan are often variable, which means your interest rates and payments could go up over time.
  • Flexible repayment options: Federal borrowers have more options for reducing or pausing payments if they have trouble repaying their debt.

There are some downsides to federal student loans:

  • If you default on your loan by not making any payments for 270 days, then the government can garnish (take) all of your tax refund and/or part of your wages or Social Security income.
  • The amount of money you can borrow is limited. Freshmen can borrow up to $5,500; from your third year onward, the most you can borrow is $7,500.

Steps to getting a federal student loan

  • Make sure your FAFSA form is complete and submitted.
  • If you have selected a school, follow the instructions in the financial aid offer or ask the financial aid office. If you’re still applying to schools or waiting for, hang tight until you choose a school.
  • Before you can get the loan money, you must complete entrance counseling and sign a Master Promissory Note. Learn more from the Department of Education.

3. If you still need a private loan, shop around to find the best deal

First, make sure you need a private student loan. We urge you to be cautious because private loans are generally more expensive than federal loans and offer little flexibility if you have trouble making payments later on. Your private loan interest rate and monthly payment could change with little warning, and you will have fewer options for when and how much you repay.

However, private loans may be a reasonable option for some borrowers, especially if you have strong credit history. Private lenders may allow you to borrow larger amounts, depending on your need and credit history. If you shop around and can show ability to repay, you may be able to find low interest rates relative to certain federal loans.

Steps to getting a private student loan:

  • Talk to your school's financial aid office. Most lenders require a form from the school certifying that you need additional aid to cover the cost of attendance.
  • Line up a co-signer. Most private student loans require one unless the borrower has positive credit history. Co-signers are legally responsible for repaying the loan if the primary borrower doesn’t. You may want to consider loans that offer "co-signer release" after a certain number of on-time payments.
  • Shop around for lower interest rates and flexibility with repayment. Your credit score can take a hit from multiple credit applications, also known as “hard inquiries.” To reduce the impact, try to complete all applications within a 2-week period.
    • Some private lenders advertise very low interest rates, which only borrowers with the best credit will qualify for. Your actual rate could be much higher.
  • Don’t use a credit card. It can be a much more expensive way to finance your education. Credit cards do not provide the flexible repayment terms or borrower protections offered by federal student loans.

Learn about whether an ISA is the right decision for you.

The content on this page provides general consumer information. It is not legal advice or regulatory guidance. The CFPB updates this information periodically. This information may include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs.

A Federal student loan, also known as a government loan, allows students and parents/guardians to borrow money for college directly from the federal government.

After exploring federal loans, a private student loan can help if you still need more money to cover college expenses.

See our private student loans

There are several types of federal student loans, including:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans, of which there are two types: Grad PLUS Loans for graduate and professional students, as well as loans that can be issued to a student's parents, also known as Parent PLUS Loans.

These federal student loans are available through the Federal Direct Loan Program. Since federal loans offer different benefits than private student loans, you should always explore them first.

Learn more about the three types of federal student loans:

  • Direct Subsidized Loans are for students with demonstrated financial need, as determined by federal regulations. There is no interest charged while an undergraduate student is in school at least half-time, during deferment (a period when loan payments are temporarily postponed), or during grace (the period, usually six months after you graduate or leave school, before you begin to make principal and interest payments).
  • Direct Unsubsidized Loans are federal student loans that aren’t based on financial need. Your school determines the amount you can borrow based on the cost of attendance and other financial aid you receive. Interest is charged during all periods and may be capitalized (when unpaid interest is added to a student loan’s principal amount), at certain times during the loan period, which may increase your total federal loan cost.
  • Direct PLUS Loans are unsubsidized federal loans for parents of dependent students and graduate/professional students. PLUS loans can help pay for education expenses up to the cost of attendance (the amount of money your school estimates you’ll need to attend there one year), after your other financial aid is exhausted. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify. Interest is charged during all periods and may be capitalized at certain times during the loan period, which may increase your total federal loan cost. 

Federal student loan benefits

  • You have flexibility.
    Though any student loan—federal or private—is a legal agreement and must be paid back with interest, federal student loans generally offer more flexible options than private student loans. For example, with federal student loans, the borrower can change their repayment options even after the loan has been disbursed (sent to your school).
  • You can make payments based on your income.
    Some federal student loans allow for income-driven (or income-based) repayment plans for qualifying borrowers, which cap payments based on the borrower’s income and family size.
  • You don’t need a strong credit history to get federal student loans.
    Unlike with private student loans, federal student loans don’t require the borrower to have a strong credit history. This can be especially helpful for recent high school graduates who plan on attending college but haven’t had enough time to build up credit of their own.
  • You don’t need a cosigner.
    With most federal student loans, other than Direct PLUS Loans, the borrower’s credit is not considered, so it’s not necessary to apply with a cosigner.

Applying for federal student loans is free. All you need to do is complete the Free Application for Federal Student Aid (FAFSA®). In addition to determining eligibility for federal student loans, the FAFSA also determines whether you may qualify for other federal student aid like grants and work-study. You need to submit the FAFSA every year you’re enrolled in college to receive federal student aid.

The easiest and fastest way to file the FAFSA and check your eligibility for federal student loans is online. Your application will be processed within 3-5 days. You can also mail in a paper application, but processing it will take about 7-10 days.

Submitting the FAFSA is totally free. If you’re asked to pay, that means you’re in the wrong place.

After you submit the FAFSA, the government will send you a Student Aid Report (SAR), which gives you basic information about your eligibility for federal student aid.

The colleges you included on your FAFSA will have access to this information, and they'll use it to determine the amount of federal student loans, grants, and work-study you may qualify for.

The colleges you’re accepted to will send you a financial aid offer detailing the financial aid you are eligible to receive—including federal student loans, grants, and work-study.

The amount of federal aid you receive from each school can vary, just as the cost of attending each school varies.

Graduate students may qualify for aid from these federal student aid programs:

To find out if the school you’re interested in participates in the federal student aid programs, there’s a college search tool, hosted by the National Center for Education Statistics.