Beginner’s Guide: Government-Backed Student Loans

Looking at your college financial aid offers and wondering about the list of loans you’re seeing?

Schools almost always offer government-backed loans to students to help pay for tuition and living expenses. They can make college possible if you don’t have a lot of savings. But it’s important to understand two things:

  • You don’t have to take out loans. There may be other ways to pay for college.
  • If you are open to taking out some loans, it’s important to understand what they are and how they work. 🙂


The most common student loans are government-backed. We explain those below. But there are also other types available.

Here is our quick explanation of the loans available: Thinking About Loans

And be sure to check out our Q&A: Student Loans and College Debt


Federal Direct Loans

Your financial aid award may include two types of student loans. Both are guaranteed by the federal government, which makes them less expensive to pay back than private loans, and the payment terms can be more flexible too.

Federal Direct Subsidized Loans are available to undergraduate students with financial need. You won’t need to start loan payments until six months after graduation. So long as you attended school at least half-time, the U.S. Department of Education pays the interest on your loans until you start paying them back. This is a better deal than any other loan you can take out.

Federal Direct Unsubsidized Loans are available to all undergraduate and graduate students regardless of financial need. You don’t need to start paying them back as long as you’re in school at least half-time. However, students are responsible for all interest accrued from the start of the loan. This adds up. Always take subsidized loans first if they are offered to you.


Government Loans: Pros and Cons

Pros: Accepting Federal Direct Loans will lower your out-of-pocket payment, which can be a lifesaver if you don’t have the savings to pay for tuition and school costs. Government-backed loans make college possible for many students.

Cons: These are loans. You will need to pay them back — with interest, which means you pay more back than you borrowed. And there is no way to avoid repayment. Unlike other loans, you cannot file for bankruptcy to erase this debt.


From Learn More About Government Loans
The U.S. Department of Education Offers Low-Interest Loans to Eligible Students to Help Cover the Cost of College or Career School


The Bottom Line

Think carefully before taking out loans. They add up quickly and will likely take you many years to pay back. Talk it over with your parents and school college counselor. Figure out what your monthly payments will be once you graduate college. Still have questions? Call the college’s financial aid office.