Thinking about taking out a federal student loan to help pay for college? You’re not alone.
Many students take out federal loans to help pay for tuition and other college expenses because they typically offer lower interest rates, flexible repayment options, and stronger borrower protections than private loans.
But before you sign on the bottom line, it is important to understand what how federal loans work and the true costs involved.
Read our answers to some common questions.
Q: Who is eligible for federal student loans?
A: To qualify for federal student aid — including both grants and student loans — you must be enrolled in college at least part-time and be a U.S. citizen or an eligible noncitizen.
If you are a student with undocumented immigration status, you are not eligible for federal grants or loans. However, you have other options, which may include state or local grants as well as college-funded and private scholarships.
Q: What do I have to do to get a federal student loan?
A: Your first step is to complete the Free Application for Federal Student Aid, or FAFSA. Schools will get your family’s income information and your Student Aid Index number, or SAI, which is an indicator of how much your family can afford to pay for college. Colleges will use your SAI to determine the type and amount of aid they offer you, including federal student loans.
Once you are accepted by a college, the school will send you a financial offer letter detailing your aid package, including which federal loans are being offered and the maximum amount you may borrow.
If you decide to take out a loan, you will need to complete additional steps including entrance counseling and signing a Master Promissory Note, a legal document in which you agree to the repayment terms of the loan.
Q: What federal loans are available to students?
A: There are two types: subsidized and unsubsidized.
Federal Direct Subsidized Loans are available to undergraduate students with financial need. You don’t need to start loan payments until six months after graduation. As long as you are in school at least half-time, the federal government will pay the interest on your loans. This is a very good deal and better 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 loan payments until six months after graduation. However, students are responsible for all interest accrued from the start of the loan. This adds up over the years you are in college.
Always take the maximum available in subsidized loans before considering an unsubsidized loan.
Q: Why are unsubsidized government loans more expensive?
A: While you don’t have to start payments until you leave school, you will be charged interest on the loan from the moment you secure it. And, any interest that is not paid down by the time loan payments begin will be capitalized, which means the interest that you didn’t pay off while you were in school becomes part of the loan amount.
Let’s say you take out a $5,000 unsubsidized loan for your freshman year and you did not make any payments while you were in school. It’s now six months after graduation and you owe roughly $1,500 in interest that accrued while you were in school — on top of the $5,000 you borrowed. Now you owe $6,500 that you’ll have to start paying back with interest accruing on the new higher total.
Important Tip: While you’re still in school, set up an online account with your loan service provider and check your loan balances regularly. Make sure to monitor how much interest is accruing and figure out a plan to pay at least some of it down before the grace period ends. That will save you a lot of money in the long run.
Q: How much can I take out each year in federal student loans?
A: It depends on what year of school you are in and whether you are a “dependent” (you rely on family for financial support) or “independent” (you support yourself).
Currently, dependent students entering their first year of college may borrow as much as $5,500, with a maximum of $3,500 in subsidized loans. Independent first-year college students may borrow as much as $9,500, with a maximum of $3,500 in subsidized loans. The numbers go up from there for each year you are in college.
Graduate students have higher loan limits than undergraduates, but only through unsubsidized loans. There are no subsidized federal student loans or federal grants for graduate students.
Read FSA’s full schedule of student loan limits.
Q: Why was I offered less than the maximum subsidized loan allowed?
A: Colleges cannot offer you more federal aid than you’re eligible to receive. If you qualified for federal aid but were not offered a subsidized loan, or were offered a partial subsidized loan (less than the maximum amount allowed), chances are it’s because the college met your financial need through grant money.
Example: A college calculates that a rising freshman who is a “dependent” is eligible for $25,000 in federal need based aid. This particular school is committed to “meeting need” (not all schools are) and offers the student $24,000 in grants (free money). The most the school may offer in the form of a subsidized loan is $1,000.
If you have questions about your aid package, reach out to the school’s financial aid office for clarification. And, if you think your aid offer is too low, appeal for more money.
Q: How long will I have to repay my student loans?
Once you leave school, you’ll need to choose a repayment plan. As of July 1, 2026 new borrowers have two main repayment options: a tiered standard repayment plan and the new Repayment Assistance Plan, known as RAP.
Under the tiered standard repayment plan you pay a fixed monthly amount and your repayment term is determined by how much you borrowed. For instance, if you borrowed less than $25500, you have 10 years to pay back the loan; between $25,00–49,999, you have 15 years, etc. The repayment term schedule gradually increases to a maximum of 25 years for loans more than $100,000.
RAP is income-driven, so your monthly payment is based on your income and family size and will change if either or both changes. To enroll, you must authorize access to your IRS tax information or provide documentation of your income (and your spouse’s, if applicable) and number of dependents.
Borrowers who took out loans prior to the new rules taking effect may still have access to some older repayment plans for now, however those options are being phased out.
Not sure which plan to choose? Try a loan simulator that allows you to test out repayment options before you commit.
Q: Should I consider a private student loan?
A: Ideally, no. While it may be tempting to borrow additional money from banks or other private financial institutions, we don’t advise it. The fees and interest rates on private loans are typically higher than government ones. And there is usually no grace period, which means you’ll have to start paying back the loan while you’re still in school. If your financial aid package seems too low, call your financial aid office. They may be able to help.
Laura Zingmond is the senior editor of InsideSchools.org and UnderstandingFAFSA.org. She is passionate about improving equity in education at all levels and is a seasoned veteran of the college financial aid system. Ask her anything about the FAFSA, the CSS Profile, and communicating with financial aid offices.