Federal Student Loan
EducationGlossary term
Definition
A loan funded by the federal government to help students pay for college or career school, offering fixed interest rates and flexible repayment options that are generally more favorable than private loans. Federal student loans include Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans, each with different eligibility requirements and terms. Borrowers may also qualify for income-driven repayment plans and loan forgiveness programs.
Related terms
- Private Student LoanA loan issued by a bank, credit union, or other private lender to help cover education costs that exceed what federal aid provides. Private student loans typically have variable interest rates, require a credit check, and may need a cosigner for students with limited credit history. They generally lack the flexible repayment options and forgiveness programs available with federal student loans.
- Subsidized LoanA type of federal student loan available to undergraduate students with demonstrated financial need, where the government pays the interest while you are enrolled at least half-time, during your grace period, and during deferment. This makes subsidized loans one of the most affordable borrowing options for students because interest does not accrue during these periods. Eligibility and loan amounts are determined by your school based on your FAFSA results.
- Income-Driven Repayment (IDR)A set of federal student loan repayment plans that cap your monthly payment at a percentage of your discretionary income, typically between 10% and 20%. IDR plans extend the repayment period to 20 or 25 years, after which any remaining balance is forgiven. These plans are designed to make loan payments more manageable for borrowers whose debt is high relative to their income.
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