Federal Student Loans: Eligibility and How to Apply

Federal student loans are one of the most common ways to finance college — and often the most affordable when compared to credit cards, personal loans, or many private student loans. This guide breaks down the different types of federal loans, how to qualify, and what to consider before borrowing, so you can make a more informed decision about how much to borrow and which options to use first.

Federal student loans for college are loans facilitated by the U.S. Federal Government and backed by federal law. Most financial aid experts recommend that a federal student loan should be the first type of loan a college student applies for, after exploring scholarships, grants, and work-study. Federal loans typically come with fixed interest rates, access to income-driven repayment plans, and potential loan forgiveness options that private loans do not offer.

Prior to July 1st of 2010, banks and financial institutions could provide federal student loans that were guaranteed against default by the U.S. Department of Education through the federally-guaranteed student loan program. These were often referred to as FFEL (Federal Family Education Loan) Program loans. Many borrowers still have FFEL loans today, but no new FFEL loans are being issued.

After July 1st of 2010, all new federal student loans have been provided through the Direct Loan Program, where the funding comes directly from the federal government rather than private banks. Applying for federal student loans is done by filing a FAFSA (Free Application for Federal Student Aid). Filing a FAFSA is free and needs to be completed once per academic year you want to receive aid. Once you have filed your FAFSA, you will receive a SAR (Student Aid Report), which will outline the information you submitted and help schools determine the federal student loans and other aid you qualify for and at what amounts.

Today, most borrowers will encounter three main categories of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans (for parents and graduate/professional students).

Federal Student Loan Comparison

Note: Interest rates and annual loan limits can change each year. Always check current information on studentaid.gov or through your school’s financial aid office before borrowing.

CollegeWhale Tip: Start with Direct Subsidized and Unsubsidized Loans before considering PLUS or private loans. They offer lower rates and better long-term protections.

How to Apply for Federal Student Loans

Applying for federal student loans is a straightforward process, but it’s important to understand each step to make the most of your financial aid package and avoid borrowing more than you need. Here’s how it works:

Step 1: Complete the FAFSA at studentaid.gov

The Free Application for Federal Student Aid (FAFSA) is your gateway to all federal student loans — and most federal grants and work-study programs too. You’ll need basic information about your income, assets, and school plans. If you’re a dependent student, your parents will also need to provide their financial details.

The FAFSA typically becomes available once per year for the upcoming academic year. Submit it as early as possible to maximize your access to limited grant and work-study funding. You can list multiple schools on your FAFSA so each one can prepare a financial aid offer for you.

CollegeWhale Tip: List every school you’re considering on your FAFSA. It doesn’t affect your admission chances, but it ensures each school can build an accurate aid offer for you.

Step 2: Review Your Student Aid Report (SAR)

After submitting your FAFSA, you’ll receive a Student Aid Report (SAR) that summarizes the information you provided and includes your Expected Family Contribution (EFC) or Student Aid Index (SAI), depending on the award year. Review this carefully for accuracy and correct any errors as soon as possible. Schools will use this data to build your financial aid package, which can include grants, scholarships, federal loans, and work-study.

Step 3: Accept Federal Loans in Your Financial Aid Offer

Once you’re accepted into a college, they’ll send you a financial aid award letter (or online portal notification) outlining the types and amounts of aid you’re eligible for. This will typically include grants (free money), scholarships, work-study opportunities, and federal student loans.

You can choose to accept all, some, or none of the loans offered. You do not have to borrow the full amount. Be sure to only borrow what you need after accounting for scholarships, grants, savings, and income. If the offered amount feels too high, contact your financial aid office and ask them to reduce the loan before it is disbursed.

CollegeWhale Tip: If you receive a refund you don’t need, return it to your loan servicer. Even a small amount reduces long-term interest costs.

Step 4: Complete Entrance Counseling and Sign the Master Promissory Note (MPN)

Before receiving your first loan disbursement, you’ll need to complete entrance counseling — an online session that explains your rights and responsibilities as a borrower, how interest works, and what repayment will look like after you leave school. You’ll also need to sign a Master Promissory Note (MPN), which is your legal agreement to repay the loan according to its terms.

Both of these steps are completed at studentaid.gov and typically take about 20–30 minutes. Once they’re complete and your school has certified your eligibility, your loan funds will be sent directly to your school to cover tuition, fees, and other charges.

Any leftover funds (often called a refund or credit balance) are typically released to you for other education-related expenses like books, supplies, transportation, or housing. It can be wise to return any refund you don’t truly need to keep your total borrowing as low as possible.

Federal Stafford Loans

Federal Stafford loans are fixed-rate, low interest loans which are made available to undergraduate college students who are attending accredited colleges, universities, or schools, and are at least part-time students. Today, these loans are more commonly referred to by their official names: Direct Subsidized Loans and Direct Unsubsidized Loans, but many people still use the term “Stafford” out of habit.

The most commonly applied for and obtained federal student loans are these Direct/Stafford loans. They typically form the foundation of a student’s federal aid package and are often the first loans students are offered after grants and scholarships.

The Difference Between Unsubsidized and Subsidized Federal Stafford (Direct) Student Loans
The main difference between a subsidized Federal Stafford (Direct Subsidized) Loan and an unsubsidized Federal Stafford (Direct Unsubsidized) Loan is who pays the interest that accrues while the student is attending college and during certain periods after.

• Subsidized (Direct Subsidized Loans): These are based on financial need. The federal government pays the interest on the loan while you’re enrolled at least half-time, during your grace period, and during approved deferment periods. This helps prevent your balance from growing while you’re in school.
• Unsubsidized (Direct Unsubsidized Loans): These are not based on financial need and are available to a wider range of students, including graduate students. With unsubsidized loans, you (the borrower) are responsible for all of the interest that accrues from the time the loan is disbursed, even while you’re in school. You can choose to defer payments while in school, but any unpaid interest will typically be capitalized (added to your principal balance) when you enter repayment.

Because capitalization can increase the total amount you repay over time, many borrowers try to make small interest payments while in school on unsubsidized loans if they can afford it.

CollegeWhale Tip: Making just $10–$25 monthly interest payments on your unsubsidized loans while in school can prevent thousands in capitalized interest later.

Federal Perkins Loans

Federal Perkins Loans were low interest, subsidized loans for students who displayed extreme financial need. Historically, if you were a college student who qualified for a Pell Grant, you might also have qualified for a Federal Perkins Loan. Perkins Loans were awarded as part of a school’s financial aid package and were funded jointly by the school and the federal government.

Important Update About Perkins Loans: The Federal Perkins Loan Program has been discontinued, and no new Perkins Loans are being issued. However, many borrowers still have existing Perkins Loans from prior years. If you currently have a Perkins Loan:

• Your school or its loan servicer will typically manage billing and repayment.
• You may have access to special cancellation or forgiveness benefits if you work in certain public service or teaching roles.
• You should contact your school’s financial aid or bursar’s office if you have questions about repayment, deferment, or forgiveness specific to your Perkins Loan.

While Perkins Loans are no longer an option for new borrowers, understanding them is still important for those who already have them or who may encounter them when consolidating older loans.

Federal Parent PLUS Loans

Federal Parent PLUS Loans are federally sponsored student loans for parents of undergraduate, dependent college students. Today, these are part of the Direct PLUS Loan program. Parents with acceptable credit histories can use Federal Parent PLUS Loans to borrow up to the full cost of their child’s undergraduate education, minus any other financial aid the child receives.

Federal Parent PLUS Loans can be a great option for families who have already maximized grants, scholarships, work-study, and Direct Subsidized/Unsubsidized Loans, but still have remaining costs. PLUS funds can be used for tuition and fees, as well as room and board, books, supplies, transportation, and other education-related expenses.

Qualification for Federal Parent PLUS Loans is a bit different than other federal student loans, because the loans are not based on financial need in the same way as Direct Subsidized Loans. Instead, eligibility is primarily based on credit. General requirements include:

• The borrower must be a U.S. citizen or eligible non-citizen.
• The student must be a dependent undergraduate enrolled at least half-time in an eligible program.
• The parent must not have an adverse credit history (as defined by federal rules), or they may need an endorser.
• Some schools may require a completed FAFSA in order to originate a Parent PLUS Loan.

Parent PLUS Loans usually have higher interest rates and fees than Direct Subsidized or Unsubsidized Loans, so families should carefully compare borrowing Parent PLUS versus having the student seek additional aid or consider more affordable college options.

CollegeWhale Tip: If a parent is denied a PLUS loan, the student may qualify for additional Direct Unsubsidized Loan funds — often at a lower rate.

What Makes Federal Student Loans Different From Private Student Loans

The largest differences between federal student loans and private student loans are that federal student loans generally have lower, fixed interest rates, do not require a traditional credit check for most undergraduate borrowers, and often provide a wider variety of deferment options, income-driven repayment plans, and potential loan forgiveness programs.

Because of these protections and benefits, college students are usually advised to exhaust their federal student loan options (and other free money for college such as scholarships and grants) first, and then supplement what federal student loans will not cover with private student loans only if necessary.

Many college students find that federal student loans do not cover the full costs of their college expenses, especially at higher-cost institutions or when living expenses are significant. When considering a private student loan, it is important to do your research. Compare different private loans from different lenders to make certain you are getting the best possible deal and carefully read and understand your interest rate, fees, repayment terms, and cosigner requirements.

Private student loans can help bridge the gap between what you receive in federal financial aid and what your full college expenses are, but be careful to not borrow more than you absolutely need. Unlike federal loans, private loans usually do not offer income-driven repayment, robust forbearance options, or federal forgiveness programs, so the borrowing decision should be made cautiously and with a clear understanding of your future ability to repay.

CollegeWhale Tip: Before turning to private loans, compare costs at lower-priced schools or community college transfer pathways. These options can reduce or eliminate the need for private borrowing entirely.