What You Should Know About Federal Student Loans

Note: The information contained in this article is current as of July 1, 2026, and will be updated, as necessary, to reflect any significant legislative or regulatory changes to federal student loans.

Why Consider a Federal Student Loan?

College loans provided by the U.S. Department of Education have a few advantages over private loans from banks and other lenders.

1. Federal student loans have interest rates that are fixed for the life of the loan. Each year, the federal government resets the interest rates for new student loans. This means that loans disbursed to you in different years will likely have different interest rates, but each of those interest rates will not fluctuate or change for any reason. Interest rates for private loans can fluctuate based on market conditions.

2. Students do not need to begin making loan payments until six months after they graduate (this is called the “grace period”) or drop below half-time enrollment. For certain federal student loans (such as Direct Unsubsidized Loans described below), interest starts accruing immediately after disbursement, even while you’re still in school. Other federal student loans (specifically, Direct Subsidized Loans) do not accrue interest while you’re in school or during grace periods. Students can also postpone payments if they experience financial hardship. This is called deferment or forbearance.

3. Federal loans for undergraduates do not require a credit check. Most private loans require a credit check. Since many students might not have a credit history, loans requiring a credit check may require a co-signor or guarantor. Federal Direct PLUS Loans, which are available to parents, do require a credit check, but a parent's credit score won’t affect the interest rate of the loan.

4. Students who demonstrate financial need may qualify for interest subsidies. Students who demonstrate financial need may qualify for a Direct Subsidized Loan. The advantage of such a loan is that the government pays (or subsidizes) the interest that accrues on the loan while you’re in school. These loans are explained below.

What TYPES OF FEDERAL STUDENT LOANS Are Available?

The U.S. Department of Education offers the following four types of Direct Loans.

• Direct Subsidized Loans are available to eligible undergraduate students who demonstrate financial need. The interest that accrues on this type of loan while you’re in school is subsidized (paid by) the government, and then you’re responsible for it six months after you drop below half-time status or graduate.
• Direct Unsubsidized Loans are available to undergraduate, graduate, and professional students without regard to financial need. You are responsible for paying interest on this type of loan during all repayment periods even while you’re in school. You may apply for a deferment to temporarily pause payments while you’re in school and for six months after graduating or dropping below half-time enrollment. However, interest continues to accrue during the deferment period and is added to the principal loan amount.
• Direct PLUS Loans are federal loans available to parents of dependent undergraduate students dto help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but, unlike Direct Subsidized and Unsubsidized Loans, a credit check is required.
• Direct Consolidation Loans allow students to combine all their eligible federal student loans after graduation into a single loan with a single loan servicer and to make a single monthly payment.

How Much Can I Borrow?

There are limits on the loan amounts that you may receive each academic year (annual loan limits) as well as limits on the total amount you may receive for undergraduate and graduate study (aggregate loan limits).

The amount you can borrow may vary depending on what year you are in school and whether you are a dependent or independent student. For example

• Dependent undergraduate students can borrow up to $3,500 in Direct Subsidized loans and $2,000 in Direct Unsubsidized loans during their freshman year of college, for an annual limit of $5,500.

• Independent students can borrow up to $3,500 in Direct Subsidized loans and $6,000 in Direct Unsubsidized loans for an annual limit of $9,500. These limits are increased during sophomore, junior and senior years of college.

• As of July 1, 2026, parents who are eligible for Direct PLUS loans can borrow up to $20,000 per year and a lifetime maximum of $65,000 per student. Previously, parents could borrow up to the total cost of attendance. If you are a dependent student whose parents are ineligible for a Direct PLUS Loan, you may be able to borrow more than the limit on Direct Unsubsidized loans. Check with your college’s financial aid office for more information.

WHAT ARE THE INTEREST RATES ON FEDERAL STUDENT LOANS?

The interest rate on federal student loans is established annually by federal law and varies depending on the type of loan. Federal student loans are also subject to fees, which are deducted from the amount of the loan. Below are the interest rates and fees for Direct Subsidized loans, Direct Unsubsidized loans, and Direct PLUS loans first disbursed on or after July 1, 2026, and before July 1, 2027.