Federal loans are a great way to help pay for college, but they can get confusing. As per the experts at Lantern by SoFi, “Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you.”
We break down the different federal student loans you might consider borrowing to make things easier.
Direct Subsidized Loans
Subsidized loans are a great option for students who demonstrate financial need, as they help reduce your total loan costs by up to $3,500 per year. They’re also not based on your credit history and can be used at any eligible school.
With this type of subsidized loan, you don’t have to repay the interest accrued while you’re in school or during any grace period (these periods are generally six months long). Interest only begins to accrue after you graduate from college or drop below half-time enrollment status (enrollment less than half-time).
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to undergraduate and graduate students who have not yet earned their first bachelor’s degree. These loans are the most popular option for college students since they do not require financial need or a credit check. You are responsible for paying the interest while you are in school.
Undergraduates can borrow up to $5,500 per academic year (or $6500 if enrolled at least half time). Graduates may also borrow up to $20,500 total if they meet eligibility requirements (including being enrolled at least half time).
Direct PLUS Loans
Direct PLUS Loans are available to parents of students who need additional funds to pay for college expenses and graduate students. These federal loans have a fixed interest rate and no fees or origination charges, so they’re easy on your wallet. Even better? You can apply for an increase in the amount you borrow during the course of repayment.
To qualify for this type of loan, you must be a U.S. citizen or eligible non-citizen with good credit history and income sufficient enough to make payments on time each month. Note that if you’re married but file separately from your spouse (which means he/she has separate tax returns), he/she cannot cosign your application.
Parent PLUS loans have higher limits than Grad PLUS loans: $34,000 versus $20,500, respectively—but it’s worth noting that if both parents want one parent to take out a Parent PLUS loan while the other takes out a graduated student loan instead (to keep things simple), then there are still strict limits in place about how much either parent can borrow outside their own income sources; those limits are determined by how much money each person earns individually during their working years
Federal Perkins Loans
Federal Perkins Loans are low-interest loans awarded to students with exceptional financial needs. The loans have a fixed interest rate of 5%, which is the lowest rate you can get for federal student loans. Federal Perkins Loans are the most common type of federal loan for college students who demonstrate financial need and qualify for one or more other types of aid.
Federal Perkins Loans have several restrictions: You must be enrolled in an undergraduate program at least half-time (at least 6 credits per semester) or full-time (9 credits per semester), and you must be making satisfactory academic progress towards your degree or certificate.
There are many different types of federal loans for college students. The key is to find the one that fits your needs and financial situation. If you have trouble repaying, you have the option to refinance your student loan. It might lower your interest rate and monthly payments.