Where federal student loans come from and how to request them
Federal student loans are issued by the U.S. Department of Education, not by banks or private lenders. To request them, you fill out the Free Application for Federal Student Aid (FAFSA), which opens October 1 each year. The FAFSA asks about your income, assets, family size, and school enrollment status. The Department of Education uses this information to calculate how much federal aid you may receive.
After you submit the FAFSA, your school's financial aid office receives the results and sends you a financial aid package. This package lists all the aid available to you — grants, loans, and work-study — along with the loan amounts and terms. You then choose which loans to accept. Accepting a loan means signing a promissory note that commits you to repay it with interest after you leave school.
The entire process is free. The Department of Education does not charge you to file the FAFSA or to receive a loan. If someone asks you for money to help you get a student loan, that is a scam.
Key Takeaways
- The FAFSA opens October 1 each year and is the single document you need to request federal student loans from the Department of Education.
- Your school's financial aid office receives your FAFSA results and creates a package showing what loans and grants you may receive.
- You sign a promissory note to accept a loan, which is a legal agreement to repay the money after you graduate or leave school.
- Federal loans have fixed interest rates set by Congress, while private loans have rates that vary by lender and your credit history.
- Repayment does not begin until six months after you graduate, leave school, or drop below half-time enrollment.
Types of federal student loans and what each one costs
The Department of Education offers four main types of federal loans. Direct Subsidized Loans are for undergraduate students with financial need. The government pays the interest while you are in school. Direct Unsubsidized Loans are available to both undergraduate and graduate students regardless of need, but interest accrues (builds up) while you are in school, meaning you owe more when repayment starts.
Direct PLUS Loans are for graduate students and parents of undergraduate students. These loans have a higher interest rate than subsidized or unsubsidized loans and require a credit check. Direct Consolidation Loans combine multiple federal loans into one, which simplifies repayment but may extend the time you spend paying back the debt.
Interest rates on federal loans are set by Congress and change each year. As of 2024, rates vary between roughly 5 and 8 percent depending on the loan type, but these rates change annually. Your school's financial aid office will tell you the exact rate for the loans in your package. Private student loans, issued by banks and other lenders, have rates that depend on your credit score and can be much higher.
How much you can borrow each year
The amount you can borrow in federal loans depends on your year in school, whether you are a dependent or independent student, and whether your parents are able to take out PLUS loans. Dependent undergraduates (those whose parents claim them on taxes) can borrow between $5,500 and $7,500 per year in Direct Subsidized and Unsubsidized Loans combined. Independent undergraduates can borrow more — between $9,500 and $12,500 per year.
Graduate students can borrow up to $20,500 per year in Direct Unsubsidized Loans. Parents and graduate students can also borrow through Direct PLUS Loans, which have no annual limit other than the cost of attendance at your school minus any other aid you receive.
Over your entire education, there are also lifetime borrowing limits. Dependent undergraduates cannot borrow more than $31,000 total in Direct Subsidized and Unsubsidized Loans. Independent undergraduates have a limit of $57,500. Graduate students have a limit of $138,500. These limits reset if you change schools or return to school after time away.
Steps to request a federal student loan
Start by creating a Federal Student Aid (FSA) ID at studentaid.gov. This ID is your username and password for all federal student aid accounts. You will need a Social Security number and a valid email address. Next, complete the FAFSA at fafsa.gov. The form asks for your tax information from the previous year, so have your tax return or IRS transcript ready.
After you submit the FAFSA, the Department of Education sends your results to your school. Your school's financial aid office then creates your aid package and sends it to you, usually within two to four weeks. Review the package carefully — it shows the loan amounts, interest rates, and terms. If you want to accept the loans, sign the promissory note through your school's financial aid portal or in person at the financial aid office.
Once you sign, the school certifies the loan amount and sends it to the loan servicer. The servicer disburses (sends) the money to your school, which applies it to tuition, fees, and room and board. Any leftover money is returned to you, usually by check or direct deposit. This entire process from FAFSA submission to money in your account typically takes four to eight weeks.
Private student loans and when to consider them
Private student loans come from banks, credit unions, and online lenders, not from the Department of Education. You apply directly to the lender, and approval depends on your credit score and income. Private loans have variable or fixed interest rates that are usually higher than federal rates, and they do not offer the same protections — for example, no income-driven repayment plans or loan forgiveness programs.
Most financial aid advisors recommend exhausting federal loan options before turning to private loans. Federal loans offer fixed rates, flexible repayment, and forgiveness programs that private loans do not. However, if you have borrowed the maximum in federal loans and still need money for school, a private loan from a credit union or established lender may be your only option. Always compare interest rates and terms across multiple lenders before choosing.
If you take out a private loan, you are responsible for interest that accrues while you are in school. Some private lenders offer in-school deferment (postponement of payments), but you still owe the interest. Read the promissory note carefully and understand the interest rate, monthly payment, and repayment term before you sign.
What happens after you graduate or leave school
Federal loans enter a grace period of six months after you graduate, leave school, or drop below half-time enrollment. During this time, you do not have to make payments. Subsidized loans do not accrue interest during the grace period, but unsubsidized and PLUS loans do — meaning your balance grows.
After the grace period ends, you must choose a repayment plan. The standard plan is 10 years of fixed monthly payments. Income-driven plans stretch repayment over 20 to 25 years and base your monthly payment on your income. If your income is very low, your payment may be $0, though interest still accrues. You select your repayment plan through your loan servicer's website or by calling them.
Your loan servicer is the company that collects your payments and manages your account. The Department of Education assigns you a servicer when your loan is disbursed. You can find your servicer's name and contact information at studentaid.gov by logging in with your FSA ID. If you do not choose a repayment plan, your loans automatically enter the standard 10-year plan.
Common mistakes to avoid when taking out student loans
Do not borrow more than you need. The money you borrow is not free — you must repay it with interest. Many borrowers take out the maximum loan amount available and then struggle with debt after graduation. Borrow only what you need for tuition, fees, books, and living expenses.
Do not skip the FAFSA because you think you will not may have access to for aid. The FAFSA determines your need for all types of aid, including loans. Even if your family has income, you may still be offered loans. The only way to know is to complete the form.
Do not ignore your loan documents. Read the promissory note before you sign it. Understand the interest rate, the repayment term, and what happens if you miss a payment. Keep copies of all documents you sign and save your loan servicer's contact information.
Do not assume private loans are the same as federal loans. Private loans have fewer protections and higher interest rates. Use them only after you have borrowed the maximum in federal loans.
Frequently Asked Questions
Can I get a student loan if I have bad credit?
Federal loans do not require a credit check, so bad credit does not disqualify you. Private loans do require a credit check, and bad credit may result in a higher interest rate or denial. If you need a private loan and have bad credit, ask a creditworthy family member to cosign.
What if I do not graduate — do I still have to repay the loan?
Yes. Repayment begins six months after you leave school for any reason — graduation, withdrawal, or dropping below half-time enrollment. The reason you left does not matter. You owe the money regardless.
Can I borrow money for living expenses, or only for tuition?
You can borrow for the full cost of attendance, which includes tuition, fees, books, room and board, and transportation. Your school calculates this amount, and you can borrow up to that total. Any leftover money after tuition and fees are paid goes to you.
What is the difference between a subsidized and unsubsidized loan?
With a subsidized loan, the government pays the interest while you are in school. With an unsubsidized loan, interest accrues while you are in school, and you owe it when repayment starts. Unsubsidized loans cost more over time because of the accrued interest.
Can I change my repayment plan after I start repaying?
Yes. You can switch repayment plans at any time by contacting your loan servicer. If your income drops or your circumstances change, an income-driven plan may lower your monthly payment. There is no penalty for changing plans.