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Money

Federal student loans, explained

Federal student loans come from the U.S. Department of Education. With a subsidized loan, the government pays the interest while you're in school at least half-time. With an unsubsidized loan, you're responsible for all the interest. For 2026–27, the undergraduate rate is 6.52%, fixed.

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What to know

  1. Apply with the FAFSA. Your school uses it to decide what you can borrow, and loans are usually part of your aid offer (Federal Student Aid).
  2. Know the two kinds. Direct Subsidized Loans are for undergraduates with financial need. The government pays the interest while you're in school at least half-time, for six months after you leave, and during deferment. Direct Unsubsidized Loans don't require need, and you pay all the interest (Federal Student Aid).
  3. Know the rate. Undergraduate Direct Loans first paid out from July 1, 2026, through June 30, 2027, have a fixed rate of 6.52% for the life of the loan (Federal Student Aid).
  4. Borrow only what you need. Before the money is paid out, you can cancel all or part of a loan by telling your school (Federal Student Aid).
  5. Before your first loan, you'll complete entrance counseling and sign a Master Promissory Note, the loan contract (Federal Student Aid).
  6. Repayment starts after a six-month grace period once you graduate, leave school or drop below half-time (Federal Student Aid).
Watch out. Interest on an unsubsidized loan builds while you're in school, and in certain cases unpaid interest is added to the amount you owe. Either way, you're still responsible for that interest (Federal Student Aid).

If it doesn't work

  • Can't make a payment later? Contact your loan servicer. Help with your options is free (Federal Student Aid).
  • Someone offers to lower your payment for a fee? You never have to pay for help with federal student loans. Your servicer helps for free (Federal Student Aid).
  • Don't know who your servicer is? Log in to StudentAid.gov and check "My Aid" (Federal Student Aid).

Good to know

Federal first, private last

Interest rates and fees are generally lower for federal student loans than private ones (Federal Student Aid). Federal loans also offer income-driven repayment, which private loans typically don't (CFPB).

Limits changed

New annual loan limits took effect under the One Big Beautiful Bill Act. Your school decides which loans you get and the actual amount, which may be less than the limit (Federal Student Aid).

Changed your mind after?

After the money is paid out, you can still cancel all or part of a loan within certain time frames. Your promissory note explains how (Federal Student Aid).

Sources

  1. U.S. Department of Education (Federal Student Aid) Direct Subsidized and Direct Unsubsidized Loans
  2. U.S. Department of Education (Federal Student Aid) Interest rates and fees for federal student loans
  3. U.S. Department of Education (Federal Student Aid) Avoiding student aid scams
  4. Consumer Financial Protection Bureau Your financial path to graduation

Lesson M7.4 · Last checked October 2, 2026 against the sources listed. See a mistake?