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Federal Student Loans: 2018 Review

April 16, 2018
Loans, Student Loans

Federal direct student loans are the best option for students who need to borrow money to pay for college.

Unlike private student loans, federal direct student loans don’t require credit history or a co-signer, and they have more repayment options and protections to prevent default. And federal loans are the only way to get Public Service Loan Forgiveness.

Use federal student loans before you consider taking out private student loans.

Type of loanFederal student loan
NerdWallet rating5 stars out of 5
5.0 out of 5.0 stars
Good forAll borrowers
Interest ratesFixed undergraduate rate: 5.05% interest

Fixed graduate rate: 6.60%

Rates for the 2018-19 school year
Loan terms10 to 25 years once repayment begins, depending on the plan
Loan amountsDependent undergraduate: $31,000 total; $23,000 subsidized

Independent undergraduate: $57,500 total; $23,000 subsidized

Graduate: $20,500 per year and $138,500 total, including undergraduate loans.
Apply Now with the FAFSA

Is a federal student loan right for you?

Undergraduate borrowers can take out two types of direct loans: subsidized and unsubsidized. Graduate students can borrow unsubsidized and PLUS loans.

If you take subsidized loans, the Department of Education pays the interest that accrues while you’re in school and during the six-month grace period. The subsidy is part of your financial aid package. To get subsidized loans, borrowers must demonstrate financial need.

Borrowers do not have to show financial need to get unsubsidized loans, where the accrued interest is added to your principal when repayment begins.

The interest rate is the same for both subsidized and unsubsidized undergraduate federal loans.

A federal direct student loan may be right for you if you:

  • Need to fill a gap after federal grants, scholarships and federal work-study you received after filling out the Free Application for Federal Student Aid, known as the FAFSA
  • Don’t have credit history or a creditworthy co-signer
  • Want flexible repayment options, including income-driven repayment
  • Are considering a career in public service and want to apply for Public Service Loan Forgiveness

If you are considering a private student loan in addition to federal loans, compare your options to make sure you’re getting the best rate you qualify for.

» MORE: NerdWallet’s 2018-19 FAFSA Guide

Can you qualify?

  • Minimum credit score: Credit is not assessed
  • Minimum income: Income is not assessed
  • Education requirements: Enrollment at an eligible Title IV college or career school
  • Citizenship requirements: U.S. citizens and eligible noncitizens

Federal student loans, unlike most private loans, do not require credit history, income or a co-signer for approval.

» COMPARE: Private student loans

How to apply for a federal student loan

If you’re ready to borrow a federal student loan, you can apply by submitting a FAFSA. The form is available to complete online, with your Federal Student Aid ID. You can also submit a paper FAFSA by mail.

  1. Create a Federal Student Aid ID. This username-password combination will allow you to complete the form online and access information about your financial aid.
  2. Complete the application. Learn more about how to complete the application, based on your situation, with NerdWallet’s FAFSA guide.  
  • Gather the necessary documents. You’ll need all documents included on the 2018-19 FAFSA checklist, according to your dependency status.
  • Use the IRS Data Retrieval tool to transfer your prior-prior year tax return directly into your FAFSA
  • Add FAFSA school codes for up to 10 schools you want to apply to
  • Wait to receive your Student Aid Report. The Student Aid Report will summarize the information you included in the FAFSA as well as your expected family contribution. That’s the amount the government says your family can afford to pay out of pocket for college.
  • Review your financial aid award package. Each college acceptance letter will include a financial aid award letter that details all free money you may be eligible for (grants, scholarships and work-study) as well as the federal direct loans you can borrow.
  • Accept aid. Accept all free aid first before taking out federal loans. Also, you may not need all of the loans offered. Your school will tell you how to turn down a loan or request a lower loan amount. Figure out how much you need to borrow using a student loan repayment calculator.  
Apply Now with the FAFSA

More details

General repayment options

Federal loan borrowers have a range of repayment options. Loans are automatically deferred until six months after a student leaves school for all borrowers enrolled at least half-time in school. Consider paying any interest on unsubsidized loans that accrues during deferment to reduce the amount you owe when repayment begins.

Borrowers are automatically enrolled in the standard 10-year repayment plan. To change your repayment plan, you must contact your loan servicer. You can use the federal student aid office’s Repayment Estimator to find out which plans you might be eligible for and to get monthly and overall payment estimates.

Your payments are fixed in order to pay off the full loan in 10 years.
Your payments are initially lower and will increase, typically every two years, in order to pay off the full loan in 10 years.
Your payments are fixed or graduated in order to pay off the full loan in 25 years.
Any borrower with an eligible federal direct loan can qualify for payments set at 10% of your discretionary income. Your loan term increases from the standard 10 years to 20 or 25 years.
Your qualifications depend on your income and amount of outstanding debt. If you qualify, your payments will be set at 10% of your discretionary income and your loan term increases from the standard 10 years to 20 years.
Your qualification is based on your income and amount of outstanding debt. If you qualify, your payments are set at 10% or 15% of your discretionary income and your loan term increases from the standard 10 years to 20 or 25 years.
Your qualifications depend on your income, tax filing status and the number of people in your household. Your payments are capped at 20% of your discretionary income or the amount of your fixed monthly payments on a 12-year loan term, whichever is less. Your loan term increases from the standard 10 years to 25 years.

Repayment options for struggling borrowers

The federal government offers generous deferment and forbearance for struggling borrowers. You’ll need to make a request to your loan servicer. You may also need to provide documentation to show you meet eligibility requirements for deferment or forbearance.

You can request deferment in several situations:

• While enrolled at least half-time at an eligible college or career school, graduate fellowship program or rehabilitation training program for the disabled
• While experiencing economic hardship, up to three years
• While unemployed or unable to find full-time employment, up to three years
• While serving in the Peace Corps, up to three years
• While on active military duty or for 13 months after conclusion of that service or until you return to a college or career school

You can request forbearance if you have financial difficulties, medical expenses, change in employment or other reasons your loan servicer deems acceptable.

General forbearance is granted for no more than 12 months at a time. If you are experiencing hardship at the end of a 12-month period, you can request another. Your loan servicer may set a limit on the maximum period of time you can receive a general forbearance, but the Education Department has no limit

Your loan servicer is required to give you forbearance, up to 12 months at a time, in a few situations:

• You are serving in a medical or dental internship or residency program and meet requirements
• The total amount you owe each month is 20% or more of your total monthly gross income, for up to three years
• You are serving in an AmeriCorps position for which you received a national service award
• You are performing teaching service that would qualify you for teacher loan forgiveness
• You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program
• You are a member of the National Guard and have been activated by a governor, but you are not eligible for military deferment

Federal direct loan extras

Borrowers who make 120 payments on an eligible repayment plan (income-driven repayment) while employed full-time for a qualifying public service employer, may qualify for loan forgiveness.
Teachers who teach full-time for five complete and consecutive academic years in a low-income school or educational service agency may be eligible for loan forgiveness of up to $17,500 in direct loans.
After the loan term ends on any of the four income-driven repayment plans, the remaining balance is forgiven.
If a borrower’s school misled or engaged in any other misconduct or illegal activity, borrowers may be eligible for loan forgiveness.
You may be eligible for 100% discharge of your direct loans if your school closes while you’re enrolled and you do not complete your program, or if your school closes within 120 days after you withdraw.

Federal student loan FAQs

  • Can I apply with a co-signer? No co-signer necessary.
  • Can I qualify if I’ve filed for bankruptcy in the past? Bankruptcy is not assessed.
  • Can I qualify if I don’t go to a Title IV-accredited school? No, borrowers must attend a Title IV school to receive federal loans.

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