What Are The Types Of Federal Student Loans?

In the U.S, most student loans are federal student loans. This type of loan has the federal government and the U.S Department of Education as the lender, offering better terms and benefits than private student loans. The terms and benefits vary depending on the type of loan. Therefore, it is essential to know the types of federal student loans available, including the criteria for eligibility. 

Furthermore, before borrowing for college or graduate school, it is advisable to know the terms and benefits each loan offers because you have to pay back with interest. When applying for federal student loans and aids, you must complete the Free Application for Federal Student Aid (FAFSA) every year.

This article discusses three types of federal student loans available

Direct Subsidized Loans

Undergraduate students who have demonstrated their financial needs are eligible for direct subsidized loans. The information you provide on the FAFSA is used in determining a formula to calculate your financial need. The terms of a direct subsidized loan are slightly better than other federal loans because the federal government covers interest during certain periods like half the time you’re enrolled in school, the six months grace period after leaving school, and deferment periods.

Currently, interest rates on direct subsidized loans are 2.75%, fixed over the loan lifetime. However, there is an origination fee of 1.057% on loans between Oct. 1, 2020, and Oct. 1, 2021. Although you do not need a credit check, the unsubsidized loans you’re eligible to receive each academic year and in total is limited. This limit is dependent on your year in school and if you’re a dependent or independent student.

Direct Unsubsidized Loans

Direct unsubsidized and subsidized loans are different. The key difference is that for unsubsidized loans, the borrower is responsible for all interest accrued even when the loan is not in active repayment. Both undergraduate and graduate students can apply for unsubsidized loans, and the eligibility is not based on financial need.

For undergraduates, unsubsidized and subsidized loans have the same origination fee, interest rates, and repayment eligibility. For graduates and professional students, unsubsidized loans have a higher interest rate of 4.3%

You don’t have to repay the loans half the time you’re enrolled in school and during your six-month grace period after leaving school. However, the interest keeps accruing, and you have to pay it when your loans enter repayment. Furthermore, you don’t need a credit check, and the loan borrowing limit depends on whether you’re a graduate or undergraduate student and an independent or dependent student.

Direct PLUS Loans

Direct PLUS loans are also known as Grad PLUS loans when offered to graduates or professional students and Parent PLUS loans when offered to parents of dependent undergraduate students. The loans are suitable for filling the gap between the attendance costs and available resources, should you need more money to pay for your education after borrowing your maximum limit on subsidized and unsubsidized loans. 

Although a credit check is necessary, borrowers with adverse credit history can still qualify as co-signers. Direct PLUS loans have a current fixed interest rate of 5.3%, and the origination fee is 4.228% for loans between Oct. 1. 2020 and Oct. 1, 2021

Furthermore, Grad PLUS loans do not accrue interest even when you don’t make payments while in school at least half the time and during the six-month grace period after leaving school. For parent PLUS loans, borrowers can apply for deferments and are otherwise expected to make payments immediately.


Students need loans to finance their education. With the different types of federal student loans available, it is important to do your research before choosing the one that suits your needs.