Learn More About Federal Loans

Borrowing low-interest loans from the federal government.


If you determine that you need to borrow to help to pay for school, there are federal student loan programs available to assist you in financing your education.

Federal Direct Loan Program (FDLP)

Another more widely available federal loan program is the Federal Direct Loan Program (FDLP).  Under the FDLP, the Department of Education lends the funds, the school delivers the funds for you to use for educational expenses, and you repay the funds.

The FDLP includes several types of loans:

  • Federal Direct Subsidized Loans are student loans that are based on financial need.  The federal government pays the interest that accrues while you are in school, during a six-month grace period after you exit school, and during periods of authorized deferment.
  • Federal Direct Unsubsidized Loans are student loans that are not based on need. You are responsible for paying the interest over the whole life of the loan; however, you can choose to allow the interest to accrue while you’re in school and during your grace period, and have it capitalized (that is, added to the principal, or the original amount you borrowed) when you begin repayment .
  • Federal Direct PLUS Loans are available to both parents of dependent undergraduate students and graduate and professional students enrolled in eligible programs.  Whether you are a parent or a graduate or professional student, to be eligible for a PLUS loan, you must not have adverse credit or must obtain an endorser without adverse credit. If you are approved as a PLUS loan borrower, you are responsible for paying, in addition to the principal, the interest that accrues on the loan from the time the loan is disbursed until it is paid in full.
  • Federal Direct Consolidation Loans are loans available if you want to combine your outstanding federal student loans into a single loan with a single monthly payment. In most cases, you are responsible for paying the interest that accrues on the loan from the time the loan is disbursed until it is paid in full.

Subsidized and unsubsidized loan details

When you fill out the Free Application for Federal Student Aid (FAFSA), you'll find out if you qualify for a Direct subsidized loan (one in which the government pays the interest until you begin repayment). You might qualify for a Direct unsubsidized loan (one in which you pay all the interest) instead of, or in addition to, a Direct subsidized loan.

Annual loan limits
A dependent undergraduate student (except for a student whose parent is unable to obtain a PLUS loan), may borrow up to the following amounts of subsidized and unsubsdized loan funds, based on his or her year of study:

Year of Study in Undergraduate Program Annual Loan Limit (subsidized and unsubsidized)
First year $5,500 — no more than $3,500 of this amount may be subsidized
Second year $6,500 — no more than $4,500 of this amount may be subsidized
Third year and beyond $7,500 — no more than $5,500 of this amount may be subsidized

An independent undergraduate student or a dependent student whose parent is unable to obtain a PLUS loan may borrow up to the following amounts of subsidized and unsubsdized loan funds, based on his or her year of study:

Year of Study in Undergraduate Program Annual Loan Limit (subsidized and unsubsidized)
First year $9,500 — no more than $3,500 of this amount may be subsidized
Second year $10,500 — no more than $4,500 of this amount may be subsidized
Third year and beyond $12,500 — no more than $5,500 of this amount may be subsidized

Graduate and professional students may borrow up to $20,500 annually in unsubsidized loan funds. For periods of enrollment that begin on or after July 1, 2013, graduate and professional students are only eligible for Direct unsubsidized loans.

Current interest rates
For a Federal Direct subsidized loan made to an undergraduate student for which the first disbursement is made on or after:

July 1, 2010 and before July 1, 2011          … the interest rate is 4.5%*
July 1, 2011 and before July 1, 2013          … the interest rate is 3.4%*

* The interest rate is fixed (that is, it does not change) for the life of the loan.

For a Federal Direct unsubsidized loan made to an undergraduate student or any Federal Direct loan (subsidized or unsubsidized) made to a graduate student for which the first disbursement is made on or after July 1, 2006, the fixed interest rate is 6.8%.

There are two exceptions to the interest rate charged on a Federal Direct Loan (subsidized or unsubsdized).

  • For a Federal Direct Loan first disbursed on or after October 1, 2008, to an active duty servicemember, no interest is charged during periods of qualifying active duty military service (for up to 60 months).
  • If the borrower qualifies under the Servicemembers Civil Relief Act, the interest rate on loans obtained prior to his or her active duty military service may be limited to 6% during his or her active duty military service.

Contact the Direct Loan Servicing Center for more information on these exceptions.

A Federal Direct Loan (subsidized or unsubsdized) first disbursed prior to July 1, 2006, has a variable interest rate. The interest rate on variable rate loans is controlled by federal law and is adjusted every year on July 1.

Origination fee
In addition to interest, you pay a loan origination fee that is a percentage of the principal amount for each subsidized or unsubsdized loan that you borrow. The Department of Education (ED) deducts the fee before you receive any loan money, so the loan amount you actually receive will be less than the amount that must be repaid.

The origination fee for a Federal Direct Loan for which the first disbursement is made on or after July 1, 2010, is 1.0%.

PLUS loan details

The FDLP offers PLUS loans to parents and graduate and professional students with good credit histories. Parents are able to borrow to pay the education expenses of their dependent undergraduate children, up to the cost of attendance minus any other estimated financial assistance received. Graduate and professional students are able to borrow to pay their own education expenses, up to the cost of attendance minus any other estimated financial assistance received. Generally, graduate and professional students use PLUS loan funds for educational costs not covered by subsidized and unsubsdized loans.

Current interest rate
The Federal Direct PLUS loan interest rate is fixed at 7.9% for loans disbursed on or after July 1, 2006.

There are two exceptions to the interest rate charged on Federal Direct PLUS Loans.

  • For Federal Direct PLUS Loans first disbursed on or after October 1, 2008, to active duty service members, no interest is charged during periods of qualifying active duty military service (for up to 60 months).
  • If the borrower qualifies under the Servicemembers Civil Relief Act, the interest rate on loans obtained prior to his or her active duty military service may be limited to 6% during his or her active duty military service.

Contact the Direct Loan Servicing Center for more information on these exceptions.

A Federal Direct PLUS loan first disbursed prior to July 1, 2006, has a variable interest rate. The interest rate on variable rate loans is controlled by federal law and is adjusted every year on July 1.

Origination fee
In addition to interest, you pay a loan origination fee that is a percentage of the principal amount for each Federal Direct PLUS Loan you borrow. ED deducts the fee before you receive any loan money, so the loan amount you actually receive will be less than the amount that must be repaid.

The origination fee for a Federal Direct PLUS loan is 4.0%.

Federal Perkins Loan Program

The Federal Perkins Loan Program offers a low-interest loan that you borrow directly from your school. The Perkins interest rate is fixed at 5%for the life of the loan, and the interest is subsidized (that is, paid by the federal government until you begin repayment, and during authorized periods of deferment). Since there is a limited amount of federal funding available at each participating school for this program, only students with high financial need are offered this loan. The maximum amount that a qualifying undergraduate student can borrow each year in a Perkins loan is $4,000, and that a qualifying graduate student can borrow each year is $8,000.

For more information about the kinds of financial aid for which you may be eligible, including FDLP loans for you and your parents, contact TG Customer Assistance at (800) 845-6267. You can also find more information about federal student aid on ED’s website at www.studentaid.ed.gov.


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