Federal student loan basics

College is a significant investment. According to the College Board's “Trends in College Pricing 2025” publication, for the 2025-2026 tuition year the average total cost for tuition, fees, room, and board for a private four-year college was $60,920, up 3.4% over the previous year, and $25,850+ for an in-state, four-year public institution¹. And costs are only rising. To help foot the bill, many students and their parents rely on financial aid in a variety of forms—from scholarships to grants to loans.

Federal student loans are one of the most appealing financial aid options, because they have low fixed-interest rates and, unlike private loans, don’t typically require credit checks or collateral. They also have a variety of deferment options and extended repayment terms, which can help you and your child save money during his or her college years. Here are some details about federal student loans, so you can see if they might be a good fit for your family’s college planning needs.

Applying for a federal loan

No matter what type of loan you are considering, as a prerequisite to applying for a federal student loan, your child must submit the Free Application for Federal Student Aid (FAFSASM). The FAFSA is typically available in October every year and must be completed by June. The form collects information that the federal government uses to calculate your family’s Expected Family Contribution (EFC) toward the cost of college, including your and your child’s income or assets, your family’s household size, and the number of other immediate family members currently attending college.

Your child must list the colleges and universities he or she is applying to on the FAFSA, and then schools use the application information to determine financial need—the difference between the cost of attending college and your EFC. Most financial aid packages provided by colleges and universities, which may include federal loans, are based on financial need.

In order to receive federal student aid, your child must also:

• be a U.S. citizen or eligible noncitizen of the U.S. with a valid Social Security number;
• have a high school diploma or a General Education Development (GED) certificate, complete homeschooling, or pass an approved “ability to benefit” test;
• enroll in an eligible program as a regular student seeking a degree or certificate;
• continually make satisfactory academic progress; and
• not owe a refund on a federal grant or be in default on a federal education loan.

Prior to receiving loan funds, your child will also be required to complete entrance counseling, which ensures your child understands his or her obligation to repay the loan, and sign a Master Promissory Note (MPN) agreeing to the terms of the loan.

Federal Direct Loan Program

Most federal loans are direct loans, meaning the U.S. Department of Education lends the money directly to you or your child. Repayment of direct loans begins six months after graduating or dropping below half-time enrollment status, and the standard repayment term is between 10 and 25 years, depending on the plan. The Direct Loan Program offers the following types of loans:

• Subsidized loans are dependent on financial need, as determined by your child’s school based on your EFC. The U.S. Department of Education pays the loan’s interest while your child is in school (the 2025-2026 interest rate is 6.39%).²
• Unsubsidized loans do not require proof of financial need, because your child pays all of the interest on the loan (the 2025-2026 interest rate for undergraduate students is 7.94%).² However, your child can defer interest payments until after graduation. Your child’s school determines the amount your child can borrow based on the cost of attendance and any other financial aid your child receives.
• PLUS loan for parents is an unsubsidized loan for parents of dependent students. In order to qualify for this loan, parents must not have adverse credit history. The annual award limit for this loan is the cost of attendance, minus any other financial aid the student receives, and the 2025-2026 interest rate is 8.94%.²
• PLUS loan for graduate or professional students is an unsubsidized loan for graduate or professional degree students. In order to qualify for this loan, the student must not have adverse credit history. The annual award limit for this loan is the cost of attendance, minus any other financial aid the student receives, and the 2025-2026 interest rate is 8.94%.²

Loan deferments and forbearance

An important key feature of federal loans is the ability, under certain circumstances, for your child to temporarily postpone or reduce his or her federal student loan repayments.

Loan deferment is a period during which repayment of the principal loan balance is temporarily delayed and interest does not accrue on Direct Subsidized Loans and Subsidized Federal Stafford Loans. However, all other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrues during a deferment period may also be added to the principal loan balance. Situations that may qualify for deferment include periods of half-time enrollment, study in an approved graduate fellowship program, unemployment or inability to find full-time employment, economic hardship, and active duty military service during a war, military operation, or national emergency.

Loan forbearance is a period during which monthly loan payments are temporarily suspended or reduced due to certain types of financial hardships. Interest continues to accrue on the loan during the forbearance period and is added to the principal loan balance.

Loan considerations

Before you or your child consider taking out a federal loan, keep in mind that the loan will, in most cases, have to be paid back with interest. Keep track of how much you borrow and how that may affect your or your child’s future finances. Make sure you understand the terms of the loan, and that you or your child make loan payments on time. Finally, keep in touch with the loan servicer—the company that the U.S. Department of Education assigns to handle the billing and other services on the loan—and notify them when your contact information or your child’s student status changes.

Because the various interest rates associated with any type of loan may affect your family’s personal situation differently, you might want to consider speaking with a financial advisor about whether federal loans are right for you and your child, or whether another type of college payment option might make more sense. For more information on federal loans, visit the Federal Student Aid website.

And remember: Applying for financial aid is just one part of the college planning process. My HPE Financial Wellness has additional information to help you prepare.

¹ Trends in College Pricing 2025 | College Board | November 2025

² Interest Rates and Fees for Federal Student Loans | Federal Student Aid | 2026

Amounts are subject to change.

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