What it is
Federal student loans are borrowed money you repay with interest — but with better terms and protections than private loans (fixed rates, income-driven repayment, and forgiveness options). Always exhaust federal loans before private ones. Note: the 2025 One Big Beautiful Bill Act made major changes effective July 1, 2026.
How it works
- Direct Subsidized LoansFor undergraduates with financial need — the government pays the interest while you're in school. The best federal loan.
- Direct Unsubsidized LoansFor undergraduate and graduate students, not need-based; interest accrues from disbursement.
- Direct PLUS LoansFor parents of undergraduates (Parent PLUS) — and, until 2026, graduate students (Grad PLUS). Grad PLUS is eliminated for new borrowers on July 1, 2026.
Who qualifies
Federal loans start with the FAFSA. Subsidized loans require demonstrated need; unsubsidized loans don't. Undergraduate annual and aggregate borrowing limits stay the same for 2026-27, but note the new rules below.
How much & what it covers
2026 changes (effective July 1, 2026): a new lifetime cap of $257,500 on total federal loans (excluding Parent PLUS); Grad PLUS eliminated for new borrowers; Parent PLUS capped at $20,000/year and $65,000 lifetime per student; and loans prorated for less-than-full-time enrollment. Existing borrowers may keep current limits under legacy provisions for a few years. Undergraduate limits themselves are unchanged.
Terms to know
- Subsidized vs unsubsidizedWhether the government covers interest while you're in school
- Origination feeA small percentage deducted when the loan is disbursed
- Grace periodTime after leaving school before repayment starts (usually six months)
- Repayment Assistance Plan (RAP)A new income-driven plan for loans made from July 1, 2026
- PSLFPublic Service Loan Forgiveness — forgiveness after qualifying public-service work
Tips to maximize it
- Borrow only what you needYou repay every dollar with interest
- Take subsidized before unsubsidizedNo interest while in school
- Understand the new repayment landscapeNewer borrowers will use the tiered Standard plan or RAP; older plans (SAVE, PAYE, ICR) sunset by July 2028
- Keep federal before privateFederal protections are valuable
- Track your loansKnow your servicer and balance at studentaid.gov
Common mistakes to avoid
- Borrowing the maximum by defaultBorrow the minimum you actually need
- Choosing private over federal too earlyYou lose federal protections
- Ignoring interest on unsubsidized loansIt accrues from day one
- Not planning repaymentKnow your plan and grace period before you leave school
Frequently asked questions
- What changed in 2026?Grad PLUS ended for new borrowers, new loan caps apply, and repayment plans changed (RAP + a tiered Standard plan).
- Federal or private first?Federal — better rates, income-driven repayment, and forgiveness options.
- What's subsidized vs unsubsidized?Subsidized loans have the government pay interest while you're in school; unsubsidized don't.
- Is there loan forgiveness?Yes — options like PSLF for qualifying public-service work remain.
- Did undergrad limits change?No — undergraduate borrowing limits stayed the same for 2026-27.
Key facts
- TypesDirect Subsidized · Unsubsidized · PLUS
- GatewayThe FAFSA
- 2026Grad PLUS ended; $257,500 lifetime cap; Parent PLUS capped; new RAP repayment
- PerksFixed rates, income-driven repayment, forgiveness
- RuleFederal before private
Where to learn more
Learn more at the official source: