Everything You Should Know About Federal Student Loans

Ginger Abbot

Feb 25, 2023

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Students face a conundrum between forgoing a college education and settling for a low-wage job with few growth opportunities or dishing out money they don’t have for a degree. Currently, the average college tuition is $35,551 annually — an expensive investment for some families.

Many students look for ways to offset college costs by applying for scholarships, grants and federal student loans. However, navigating the process is often time-consuming and complicated. 

Here’s everything you need to know about federal student loans for a college education.

Types of Federal Student Loans

Unlike scholarships and grants, which students don’t have to repay afterward, federal student loans help students cover the costs of obtaining a degree with the requirement that they pay it back after graduation.

The U.S. Department of Education has four types of federal student loans available as follows:

  • Direct subsidized loans: For undergraduate students in need of financial assistance for their college education
  • Direct unsubsidized loans: For undergraduate, graduate and professional students not based on needing financial aid
  • Direct PLUS loans: For graduate and professional students and undergraduate students’ parents to pay for college expenses not covered by other financial aid
  • Direct consolidation loans: Enables students to combine all of their federal loans into one with a single lender

Eligibility Requirements

To receive federal financial aid, students must meet the following eligibility requirements:

  • U.S. citizen or maintain status as an eligible non-citizen
  • Social security number
  • Accepted to an accredited college degree or certificate program
  • Maintain at least part-time enrollment status
  • Uphold satisfactory academic progress throughout their college career
  • Demonstrate that existing federal student loans aren’t in default
  • Agree to use financial aid money solely for college purposes
  • Provide proof of financial need

Even if you don’t believe your or your parents’ income meets the threshold for federal student loans, they’re worth applying for anyway.

Borrowing Limits

Although federal student loans significantly help students pay for school, there is a capped amount they can borrow.

Your borrowing limit depends on whether you’re a dependent, how far you are in your college program, and the type of loan you take out. Undergraduate students can borrow a maximum amount from $9,500 to 12,500 yearly or no more than $57,500. 

Meanwhile, students pursuing a master’s degree can borrow up to $138,500 total, which includes how much they took out during their undergraduate studies.

Students should visit their school’s financial aid office for guidance about their current federal loan package and finding additional aid, such as scholarships and private grants.

Applying for Federal Student Loans

You can apply for federal student loans by submitting the Free Application for Federal Student Aid (FAFSA) on the official government website. Filling out the FAFSA form online is a relatively straightforward process.

After creating an account on FAFSA.gov, you should begin compiling the necessary documents, including the following:

  • Your social security number — dependents must also provide their parents’ social security numbers
  • Driver’s license
  • Alien Registration number for non-citizens
  • All federal tax information, documents, and returns, including W-2 forms
  • All records of untaxed income, such as interest income, veteran benefits, and untaxed income
  • Any information on savings and checking accounts, investments, and business assets

You can log into your FAFSA.gov account to complete the form and submit the supplemental documents.

Federal Student Loan Forgiveness

Loan forgiveness means students no longer need to repay a portion of their federal student loans. For instance, the Public Service Loan Forgiveness (PSLF) Program wipes out whatever balance remains on direct loans once you’ve made 120 consecutive payments while working full-time.

Another type of payment cancellation is the Teacher Loan Forgiveness, in which full-time teachers who’ve taught for five consecutive years in low-income public schools could be eligible for up to $17,500 in loan forgiveness.

In response to economic straits following the COVID-19 pandemic, the Biden-Harris Administration signed off on a plan to forgive up to $20,000 in student loans for low-income and middle-class families. However, the administration’s student debt relief initiative has been blocked until the Supreme Court decides whether or not to allow the forgiveness program to continue.

Repayment Options

Students have flexible options to repay their federal student loans. Initially, all loans go into the Standard Repayment Plan, but students can transfer to another plan if they prefer.

The Standard Repayment Plan includes fixed monthly payments to ensure your loan gets paid off within a decade. However, you can also decide on the Graduated Repayment Plan, Extended Repayment Plan, Revised Pay as You Earn (REPAYE) Plan, and several others based on your income. 

Federal Student Loans Can Help You Pay for School

College is expensive but necessary for students to achieve a lucrative career. You don’t need to struggle financially to receive a good education, though. Consider taking out federal student loans to help pay for school and earn your degree. 

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