May 28, 2021

What Is a Federal Student Loan?

Chipper Help

A federal student loan is an educational loan that’s backed by the federal government and is available at every educational level to support students in need of financial assistance. In this article, we uncover how federal loans work, along with the various types of loans available and the benefits they provide when you need extra help to cover your education.

What Are Federal Student Loans?

Federal loans can be used for college, graduate school, or career school which is made through the U.S. government — the U.S. Department of Education to be more specific. Conditions (such as when payments need to start) and terms (like the interest rate) are dictated by federal law. In general, these terms will make getting a federal student loan an advantage, compared to a private student loan made through a bank or some other private organization.

The Types of Federal Student Loans

There are currently four different types of loans made available by the federal student loan program through the U.S. Department of Education. These are:

  • Direct Consolidation Loans: These loans combine several federal student loans into one, leaving you with just a single loan servicer.
  • Direct Subsidized Loans: These loans are available for eligible undergraduate students who have a financial need. Through a direct subsidized loan, the government may also pay your loan’s interest during a certain period (such as if you’re enrolled in school on a half-time basis.)
  • Direct Unsubsidized Loans: This federal student loan is offered to professional, graduate, and undergraduate students who have or don’t have a financial need.
  • Direct PLUS Loans: This loan is available to professional or graduate students, and even parents with undergraduate students dependent on them. The direct plus loan isn’t based on financial need, but a credit check will be performed.

For all of the federal student loans above, the U.S. Department of Education will act as your lender. However, you will be assigned a loan servicer — a company that provides your loan and collects your payments for the loan.

How Much Can I Borrow in Federal Student Loans?

The answer to this question will depend on whether you’re a graduate, undergraduate, or professional student, or the parent of a student. Here’s a guide that may help you determine how much you might be able to borrow.

  • Direct Subsidized Loans and Direct Unsubsidized Loans: For undergraduate students, the maximum amount that can be borrowed every year under these loans will range between $5,500 to $12,500. However, this will depend on your school year as well as the status of your dependency.
  • Direct Unsubsidized Loans: For professional or graduate students, you can borrow as much as $20,500 every year.
  • Direct PLUS Loan: These can also be used for your remaining college costs that aren’t covered by any other financial aid — which is determined by your school.
  • Parent PLUS Loan: Lastly, if you’re the parent of a dependent undergraduate student, you may apply for a Direct PLUS Loan (also called Parent PLUS) to cover the remaining costs of your child’s studies. Keep in mind that these shouldn’t be covered by any other financial aid, and will be determined by your child’s school.

Why Should I Take Out Federal Student Loans?

For many students, taking out a federal student loan is an investment for their future. While you shouldn’t be afraid to apply for a federal student loan, you will need to be smart about it. A federal student loan offers plenty of benefits compared to other options when you’re looking for ways to pay for college such as:

  • Interest rates are fixed and are usually lower compared to private loans; they’re also much lower compared to interests on a credit card.
  • You won’t have to go through a credit check or need a cosigner for most federal student loans.
  • There’s no need to repay your federal student loans until you drop below part-time schooling or after you leave college.
  • If you have demonstrated your need for financial assistance, the government can pay the interest on some loan types during your time in school and after school.
  • If you work in a certain job, you might be eligible to get a portion of your federal student loan forgiven should you meet certain conditions.
  • Federal student loans also offer flexible payment options and plans to extend your loan repayments if you can’t pay just yet.


A few key takeaways that you need to remember when considering to take out a federal student loan are as follows:

  • Federal student loans are educational loans made by the government.
  • There are currently four types of federal student loans, known as Direct Consolidation Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Each of these federal loans has been designed for different financial situations and educational levels.
  • Keep in mind that while student loans provide advantages such as flexible repayment plans and fixed interest rates, the government may limit the amount you can borrow.
  • Chipper can help you manage your Federal student loans by finding the best repayment plan for you or find out if you're eligible for a Student Loan Forgiveness program.
  • If you're interested in seeing what potential paths you're currently eligible for, get started here linking your loans so we can generate your various options today!

References: student loans%2C also known,money to cover college expenses.

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