Federal Student Loans Benefits, Types, How To Apply & Complete Guide

Student Loans in the US or Federal Student Loans are a form of Financial ads designed to help Students & Parents to get their higher education.

Federal Students Loans are different from Private Students Loans. Federal Students Loans are made by the department of education while Private Students Loans are made by banks & Financial Institutions. federal Student Loans are likely to be your best Student Loan Option.

They offer more generous borrowers protections than Private Student Loans do, such as the ability to switch to an income-driven plan if you can’t afford your monthly payment or to defer payments if you lose your Job.

Federal Student Loans are made directly from the Department of Education to Borrower. Federal Student Loans cover full academic years and are distributed in two payments, one each semester. With Federal Student Loans, School determines the type of Student Loan and how much you can borrow.

These Loans may only be used to cover Tuition and direct costs of Living expenses. all the Payments must be made either directly to the School or the Department of Education.

Federal Student Loans Benefits, Types, How To Apply & Complete Guide

The Fee Application for Federal Student Aid or FAFSA is the Application for all the Federal Student Loans. The Federal Student Loan Programs are highly regulated by the Department of Education, United States.

Also, the Interest rates and many more important Terms and Conditions are also Set by the Department of Education USA, which is similar to both FFEL and Direct Loan Programs.

Direct Loans and Federal Family Education Loans (FFEL) are two Largest Govt Education Loan Programs. Knowing and Understanding the Interest rate of your Federal Student Loans is a very Important Step in navigating the Path to Financial Success.

Eligibility for federal student loans is based on the results of your FAFSA. There are several benefits of federal student loans:

Federal Student Loans Benefits & Features-

  • Lower fixed interest rates
  • Income-sensitive repayment plans
  • Deferment periods
  • Forgiveness options
  • No credit checks are required (and loans are NOT based on creditworthiness)

Federal Student Loans Types –

Federal Student Loans are categorized into several types:

Direct subsidized loans or subsidized Stafford loans –

These types of Federal Loans are earmarked for Undergraduate borrowers with financial needs. Direct Subsidized Loans are not accrued Interest while you’re at school.

Direct Unsubsidized loans or Unsubsidized Stafford loans-

These loans are available to all eligible students (both graduates or Undergraduates Students) and are not based on financial need. You are responsible for all interest payments (or capitalization of interest) from the date the loan is disbursed.

Perkins loans –

These Type of Federal Student Loans are subsidized loans which are reserved for undergraduate and graduate borrowers with extreme financial need.

Unlike all other federal student loans, which have interest rates set by Congress each year, Perkins loans always charge 5% interest and don’t have any fees.

Grad PLUS loans –

These loans are available for graduate and professional students and don’t have borrowing limits. Unlike Stafford and Perkins loans, which don’t consider borrower credit, you need decent credit to qualify for a Grad PLUS loan.

The government wants to make sure your credit report is free of negative marks like bankruptcies, charge-offs or past-due debt, says Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators.

Parent PLUS loans-

These loans are available for parents with dependent undergraduate students. Parents’ credit histories must be tarnish-free to qualify. They can borrow as much as they need to cover their student’s college costs.

Federal Student Loans Borrowing Limits-

Year in school Annual borrowing limit, subsidized loans for dependent students Annual borrowing limit, unsubsidized loan for dependent students
First-year undergraduate students $3,500 $5,500 total (including subsidized)
Second-year undergraduate students $4,500 $6,500 total (including subsidized)
Third- and fourth-year undergraduate students $5,500 $7,500 total (including subsidized)
Aggregate loan limits $23,000 $31,000 (including subsidized)
Year in school Annual borrowing limit, subsidized loans for independent students Annual borrowing limit, unsubsidized loan for independent students
First-year undergraduate students $3,500 $9,500 (including subsidized)
Second-year undergraduate students $4,500 $10,500 (including subsidized)
Third- and fourth-year students $5,500 $12,500 (including subsidized)
Aggregate loan limits $23,000 $57,500 (including subsidized)

How to Apply for Federal Student Loan Program-

Applying for federal student loans can seem like a daunting process, but it’s actually quite simple and can be done mostly online. To make it easier, we’ve outlined the step-by-step application process below:

  • Start by completing a FAFSA Form (or Renewal FAFSA for returning students). This form is required for both current and prospective US college students (both undergraduate and graduate) to determine their eligibility for financial aid. It can be completed online and submitted directly to the Department of Education for review.
  • The student will begin receiving financial aid award letters anywhere from 3 days to 6 weeks after submitting their FAFSA. Each letter will outline all of the relevant information regarding the financial aid package being offered.
  • Upon receiving these letters, the student will contact their chosen school’s financial aid office to accept the student loan package being offered.
  • Once the student loan package is accepted, the student will simply review and sign any necessary paperwork associated with the loans, such as a Master Promissory Note.

Federal Student Loans Vs Private Student Loans-

You have the option first to grab the Federal Student Loans, but Private Student Loans can be also a good option for some borrowers. Such as Student who has borrowed the maximum amount of Federal Student and Still looking for Student Loans.

Interest Rates:

Federal student loans have the benefit of a fixed interest rate and usually, have lower rates than private student loans. Private student loans can be either fixed or variable rate.

Variable rate loans are often tied directly to the Prime or LIBOR rate and adjust accordingly. The interest rates for private student loans can vary widely depending on the lender, term length, whether the loan is fixed or variable rate, and the credit history and debt-to-income ratio of the borrower or cosigner. Current rates can vary from 2.5% up to 18%!

Federal Student Loans & Privates Student Loans Benefits

Applying for Private Student Loans:

Unlike most of Federal Student Loans, Private Student Loans require the full underwriting process. Lenders look for borrowers who have good credit and enough extra cash to make loan payments given other expenses.

that is a relatively low debt-to-income ratio. If you don’t meet those requirements, you may need a co-signer to qualify for a private student loan.

Banks, credit unions and a new crop of online lenders all offer private student loans. The biggest private student lenders are Citizens Bank, Discover, Navient, PNC Bank, Sallie Mae, and Wells Fargo Student Loans, according to the latest report. Startups including SoFi, CommonBond and College Ave also offer private student loans.

Federal Student Loan Servicers –

Great Lakes Student Loans: a non-profit company is dedicated to helping college students by working with both the US Department of Education and private lenders to make every step in the borrowing and repayment process easier. for more Info about Great lakes Student Loans Click here

Nelnet: One of the select group of companies chosen to service student and parent federal loans by the US Department of Education.

Their loan servicing department helps customers through both financial literacy tools and broad-based servicing. for more Info about Nelnet Student Loans Click here

FedLoan Servicing (also known as PHEAA): This company was established to directly support the US Department of Education in the servicing of federal student loans. 

Navient: One of the select group of companies chosen to service student and parent federal loans by the US Department of Education. Their loan servicing department helps customers through both financial literacy tools and broad-based servicing.

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