Introduction to Federal Student Loans

The U.S. Department of Education provides several low-cost, fixed-rate federal student loans to help undergraduate, graduate students, and parents of dependent undergraduate students finance a college education.

More than $100 billion in new federal student loans are made each year, representing more than 90 percent of new student loan volume. More than $1.1 trillion in outstanding federal student loans are owed by more than 40 million borrowers.

Direct Subsidized Loans, Direct Unsubsidized Loans, Parent PLUS Loans, Grad PLUS Loans, and Direct Consolidation Loans are made by the U.S. Department of Education’s Direct Loan program, also known as the William D. Ford Federal Direct Loan program. Previously, these loans were also made by the Federal Family Education Loan (FFEL) program. Since July 1, 2010, all new federal student loans have been made through the Direct Loan program. However, some of the lenders who previously participated in the FFEL program serve as contractors in the Direct Loan program, handling customer service and collecting loan payments.

Perkins Loans and HRSA Loans are made by colleges and universities from revolving loan funds that were initially established with matching institutional and federal capital contributions. These loan funds are supported by payments made by previous borrowers on their loans.

To be eligible for federal student loans, the student must file the FAFSA (Free Application for Federal Student Aid), enroll in an eligible college or university on at least a half-time basis, and satisfy general eligibility requirements for federal student aid. Students must also complete loan counseling and the borrower must sign a Master Promissory Note (MPN) before the student can receive federal student loan funds.

After graduation, borrowers may combine two or more federal student loans into a single Direct Consolidation Loan with a single monthly loan payment. Federal consolidation loans are intended to preserve the cost of the original loans by basing the consolidation loan’s interest rate on a weighted average of the interest rates on the consolidated loans, rounded up to the nearest 1/8th of a percent. There are no fees on a federal consolidation loan. The portion of a federal consolidation loan that is attributable to Direct Subsidized Loans remains subsidized, but not the portion that is attributable to a Perkins Loan.

Federal student loans offer deferment and forbearance options for temporarily suspending payments, repayment plans that reduce monthly payments by increasing the term of the loan (and the total interest paid), and loan forgiveness and loan repayment assistance programs for students who pursue careers in specific occupations.

Borrowers who wish to check the status of their federal student loans may log in to the National Student Loan Data System (NSLDS).

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