The bottom line:
Federal direct subsidized and unsubsidized student loans are offered by the federal government. They are the best first option for borrowing money for college.
Federal Subsidized/Unsubsidized Loan
Min. credit score
Pros & Cons
More flexible repayment options for struggling borrowers than other lenders.
Subsidized loans do not collect interest while in school or during deferment.
Lower interest rates compared with private lenders.
You pay an origination fee.
Compare to Other Lenders
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. They also offer borrowers 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.
Federal direct student loans at a glance
Undergraduate borrowers can take out two types of direct loans: subsidized and unsubsidized.
Loans offer flexible repayment options, including income-driven repayment.
No credit history, income or co-signer is needed to apply.
How Federal Direct Student Loans Could Improve
Federal student loans are the best option for students, but they're not perfect. They could improve by:
Eliminating student loan origination fees.
Federal direct student loan details
How to apply for a federal direct 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.
» MORE: NerdWallet’s FAFSA Guide
To apply, you’ll need all documents included on the 2020-21 FAFSA checklist, according to your dependency status.
After you submit the FAFSA, you’ll receive a Student Aid Report, which summarizes 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.
When you receive your college acceptance letters, you’ll also receive 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 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.
If you have a payment gap to fill after you maximized all grants, scholarships, work-study and federal loans, you may consider borrowing a private loan.
Compare private student loan options to make sure you’re getting the best rate you qualify for. In addition to interest rates, look at lenders’ repayment alternatives and the flexibility they offer to borrowers who struggle to make payments.
STUDENT LOAN RATINGS METHODOLOGY
Our survey of more than 29 banks, credit unions and online lenders offering student loans and student loan refinancing includes the top 10 lenders by market share and top 10 lenders by online search volume, as well as lenders that serve specialty or nontraditional markets.
We consider 40 features and data points for each financial institution. Depending on the category, these include the availability of biweekly payments through autopay, minimum credit score and income requirement disclosures, availability to borrowers in all states, extended grace periods and in-house customer service.
The stars represent ratings from poor (one star) to excellent (five stars). Ratings are rounded to the nearest half-star.