College Planning

Understanding Federal Student Loans

This article explains how federal student loans can be used to help pay for college and which types of federal aids students and parents qualify for.

Federal Student Loans - What You Need to Know

Getting money for college is usually a top priority for every student, but if your scholarships, grants, and college savings won't stretch far enough, then it may be time to familiarize yourself with the various types of student loans available to you, as well as the vocabulary terms you'll need to know to fully understand what your loan terms actually entail. In this post, we'll discuss federal student loan options, as opposed to private student loan options.

There are several types of federal student loans that undergraduates, graduate students, and/or their parents can apply for by filling out a FAFSA (Free Application for Student Aid). All of these loans have mercifully low fixed interest rates that will not alter over the life of the loan.1 How much financial assistance you are eligible for is usually determined by the various costs associated with the school you are enrolled in.

What kind of federal student aid do I qualify for as a student?

Subsidized student loans

Undergraduate and graduate students who can demonstrate financial need can qualify for direct subsidized student loans. The government “subsidizes” these loans by paying any interest that accrues while you are enrolled in college at least part-time, during a six month grace period after you leave school, and also during periods of deferral or forbearance. The government determines whether you are eligible for these loans by looking at factors such as your parent's income and assets and/or your personal income and assets.

Unsubsidized student loans

Unsubsidized loans are available to all students, regardless of need. When you accept unsubsidized loans, the interest on your loans begins to accrue as soon as the loan is accepted, and continues to accrue even when loans are deferred or a forbearance is granted. If you choose not to pay down the interest during these periods, the interest will be capitalized, i.e. it will continue to accrue and be added to your total debt.

Perkins loans

Perkins loans, like subsidized loans, are a low-interest loan issued to undergraduate, graduate, or professional students who are able to demonstrate exceptional need. Your eligibility for Perkins loans is also based on the availability of funds at your college, however, not all schools participate in the Perkins loans program.

What kind of federal student aid do I qualify for as a parent of a dependent student?

PLUS student loans

PLUS loans are available to undergraduate and graduate students, as well as their parents. Applicants should be aware that their eligibility for PLUS loans will be affected by an adverse credit history. (Your credit history is not a factor in determining your eligibility for subsidized and unsubsidized student loans.) PLUS loans can be used to cover a broad range of expenses not covered by other types of financial aid.

What is the difference between a fixed and variable interest rate?

Loans with fixed interest rates like federal student loans have a set APR that will NOT fluctuate over the life of the loan. A fixed interest rate usually also translates to a fixed loan repayment amount. A loan with a variable interest rate, such as a private student loan, will be dependent on the prime rate or the interest rate index. Your interest rate will fluctuate over the life of the loan, and your payment amounts may as well.

You can find more information about federal student loans from the U.S. Department of Education's Federal Student Aid website.


1. https://studentaid.ed.gov/sa/types/loans/interest-rates

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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Money for College

If you or a hopeful student you know is looking for money for college, federal student loans may be an option. This article can help you learn more about getting money for college by applying for federal student loans. For more information, visit our learning center.

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