FEDERAL STUDENT LOANS 

BASICS FOR STUDENTS 

® 
Whether you’re an adult returning to school or a recent high school graduate, there’s a lot to consider when you’re thinking 

about college, or career, technical, or trade school. One of those considerations should be how you plan to fund your 

education. 

Chances are, you’ll to need to rely on student loans (money that you borrow and pay back with interest*) to help pay for at 

least part of your education. 

Federal student loans (loans made by the federal government) are available to help you cover your education expenses. This 

brochure will help guide you through the basics of responsible borrowing. 

BASICS OF STUDENT LOANS 

With careful planning and an understanding of the basics of student loans, you can help ensure that you achieve your 

academic goals and graduate with a manageable amount of debt. 

Know the Types of Federal Student Loans 

The U.S. Department of Education (ED) offers federal student loans through the William D. Ford Federal Direct Loan (Direct 

Loan) Program.1 There are three types of Direct Loans. 

LOAN TYPE AVAILABLE TO DETAILS AND UPDATES 

Direct Subsidized Loans* Undergraduate students StudentAid.gov/sub-unsub 

Direct Unsubsidized Loans* Undergraduate, graduate, and professional 

degree students 

StudentAid.gov/sub-unsub 

Direct PLUS Loans Graduate and professional degree 

students, and parents of dependent 

undergraduate students (you must not 

have an adverse credit history*) 

StudentAid.gov/plus 

1As of publication time, participating schools also offered federal student loans through the Federal Perkins Loan Program. 

For more information, visit StudentAid.gov/perkins. 

For information on current interest rates, visit StudentAid.gov/interest. 

Consider Federal Student Loans First 

Student loans can also come from private sources, such as banks or fnancial institutions. These are often called private 

student loans. Federal student loans have many benefts that private loans don’t typically offer, such as 

• low fxed interest rates, 

• the option to consolidate multiple loans (learn more at StudentAid.gov/consolidation), 

• fexible repayment plans based on income, 

• cancellation, discharge, and forgiveness of loans under certain circumstances (learn more at StudentAid.gov/forgiveness), 

and 

• postponement options, including deferment* and forbearance* of loan payments if you return to school or experience an 

economic hardship. 

To learn more about the differences between federal student loans and private loans, visit StudentAid.gov/federal-vs-private. 

*Please refer to the glossary on the back page 
STEPS TO RECEIVE DIRECT LOANS 

Determine Your Eligibility 

To qualify for a Direct Loan, you must be enrolled (or planning to enroll) at least half-time at a school that participates in the 

Direct Loan Program. You must also meet general eligibility requirements for the federal student aid programs. You can learn 

more about these requirements at StudentAid.gov/eligibility. 

Fill Out the FAFSA® Form 

To apply for federal student loans, you need to complete the Free Application for Federal Student Aid (FAFSA®) form every 

year you’re in school. Completing and submitting the FAFSA form is free, and the fastest and easiest way to do so is online 

at fafsa.gov. 

Visit StudentAid.gov/fafsa for details about the application process. 

Review Aid Offers 

The schools that you identifed on your FAFSA form (and that have offered you admission) will send you fnancial aid offers 

that include the types and amounts of fnancial aid you may receive. You’ll be asked to indicate which fnancial aid you want 

to accept. 

A good rule of thumb is to accept free money first (scholarships* and grants*), then earned money (work-study*), and then 

borrowed money (federal student loans). You don’t have to repay grants, scholarships, or work-study earnings (as long as 

you complete the term for which you were paid). Once you have exhausted those options, then you should look to federal 

student loans. Remember, loans are borrowed money that must be repaid with interest, so you should borrow only what you 

need. 

Visit StudentAid.gov/types to learn more about the different types of aid. 

Complete a Master Promissory Note and Entrance Counseling 

After accepting a Direct Loan, you’ll have to sign a loan agreement called a Master Promissory Note (MPN)* and also go 

through entrance counseling.* Both requirements can be completed on StudentLoans.gov, but you should check with 

your school’s financial aid office to find out how they expect you to complete them. 

*Please refer to the glossary on the back page
 

THINGS TO CONSIDER BEFORE RECEIVING A LOAN 

Federal student loans can help you pay your education expenses, but you need to borrow responsibly. It’s important that you 

do the following before you borrow. 

Determine How Much You Should Borrow 

Figure out how much money you will need to borrow to cover your education expenses for each year you’re in school. Any 

school that participates in the federal student aid programs is required to provide information on its cost of attendance and 

to offer a net price* calculator on its website. 

The following factors will also affect how much you need to borrow: 

• Where you plan to attend school (the cost of living is different depending on the city your school is in)

• The price of the school you plan to attend (the more expensive the school, the more likely it is you will have to borrow)

• The amount of fnancial aid your school can offer from its funds (some schools offer signifcant scholarships and grants

to make the net price affordable even if the cost of attendance is high)

• Your expected graduation date and your future borrowing needs to get you through to graduation (you can get a rough

estimate of your total borrowing needs by multiplying the amount you’re borrowing for one year by the length of your

program)

For suggestions on reducing your college costs, visit StudentAid.gov/collegecost. 

Estimate What You Might Earn After Graduation 

Check with the career center at your school for starting salaries of recent graduates in your prospective feld(s) of study to 

get an idea of how much you might earn after you graduate. Different programs will have different expected employment 

outcomes that will infuence your earning potential. 

Add up your estimated total net income (your monthly salary minus taxes) and any other sources of income you expect 

to have. 

Understand What Repayment Might Look Like 

Once you have a realistic idea of your potential income after you graduate, and the amount you need to borrow to meet your 

education expenses, you’ll want to determine your estimated monthly loan payment amount and the amount you’ll pay in 

total for your loan. To get an idea of what your monthly student loan payment will be under available repayment plans, use 

the Repayment Estimator at StudentAid.gov/repayment-estimator. 

You’ll need to repeat this process each time you receive a student loan to ensure that you are calculating your payments based 

on your accumulated total loan debt. 

You’ll want to make sure that you are able to live comfortably after meeting your monthly student loan payment. You should 

try to keep your monthly payments to 8 percent of your monthly pay. 

After you leave school or drop below half-time enrollment, your loan servicer* will contact you and provide you with loan 

repayment information. Generally, you will be expected to start making payments six months after you leave school or drop 

below half-time enrollment. Learn more at StudentAid.gov/repay. 

*Please refer to the glossary on the back page
 

 

TIPS FOR MANAGING YOUR LOANS 

Don’t wait until you leave school to review your student loan debt. If you wait, you may fnd you have borrowed more than you 

can afford to repay. 

Track Your Borrowing 

You can view your federal student aid history at StudentAid.gov/login. If you have private loans, they will not be listed there. 

Pay Interest as It Accumulates 

Whenever possible, pay interest on your federal student loans while you’re in school, and during grace,* deferment, and 

forbearance periods. This will allow you to avoid capitalization* of any unpaid interest. 

Stay in Touch With Your Loan Servicer 

At any time after you receive a federal student loan, you must notify your loan servicer if you 

• change your address or telephone number;

• change your name (for example, maiden name to married name);

• enroll less than half-time for the loan period certifed by the school;

• fail to enroll at the school that determined you were eligible to receive the loan;

• stop attending school or drop below half-time enrollment;

• transfer from one school to another school; or

• graduate.

*Please refer to the glossary on the back page

CONTACT US 

U.S. Department of Education 

Federal Student Aid Information Center (FSAIC) 

P.O. Box 84 

Washington, DC 20044-0084 

1-800-4-FED-AID (1-800-433-3243) 

TTY users can call 1-800-730-8913. 

Callers in locations without access to 1-800 numbers may 

call 1-334-523-2691 (this is not a toll-free number). 

Photos – Front Cover: woman on laptop, PeopleImages/Getty 

Images; classroom, Caiaimage/Sam Edwards/Getty Images; group 

of students, David Schaffer/Getty Images; man writing, FatCamera/ 

Getty Images; books, Rakop Tanyakam/EyeEm/Getty Images; man 

on tablet, HeroImages/Getty Images. Page 3: female student, 

Jamie Grill/JGI/Getty Images; male student, PeopleImages/Getty 

Images. These photos are protected by copyright. Permission to 

use or otherwise reproduce these photos must be obtained directly 

from Getty Images. 

Stay Connected 

Access your federal student loan information at 

StudentAid.gov/login 

Information for U.S. armed forces StudentAid.gov/military 

 /FederalStudentAid

 /FAFSA

 / FederalStudentAid 

The information in this guide was compiled in summer 2017. 

For changes to federal student aid programs since then, visit 

StudentAid.gov. 

Printed: September 2017 
 

GLOSSARY 

Terminology What does it mean? 

Adverse Credit History A credit history is a summary of your financial strength, including your history of paying bills and your ability 

to repay future loans. Your credit history may be considered adverse if you have experienced bankruptcy 

discharge or foreclosure within the past five years, or if you have any accounts that are 90 days or more 

delinquent. 

Capitalization The addition of unpaid interest to the principal balance of a loan. When the interest on your federal student 

loan is not paid as it accrues (accumulates), ED will capitalize the interest under certain circumstances. This 

increases the outstanding principal* amount due on the loan and may cause your monthly payment amount to 

increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan. 

Deferment A postponement of payment on a loan. Deferment is allowed under certain conditions. During deferment, 

interest does not generally accrue (accumulate) on Direct Subsidized Loans, Subsidized Federal Stafford 

Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue 

interest. Any unpaid interest that accrued during the deferment period may be capitalized (added to the 

principal balance of the loans). 

Entrance Counseling A mandatory information session, which takes place before you receive your frst federal student loan; entrance 

counseling explains your responsibilities and rights as a student borrower. 

Forbearance A period during which your monthly loan payments are temporarily suspended or reduced. ED may grant you 

forbearance if you are willing but unable to make loan payments due to certain types of fnancial hardships. 

During forbearance, principal payments are postponed but interest continues to accrue (accumulate). Unpaid 

interest that accrues during the forbearance will be capitalized (added to the principal balance of your loans), 

increasing the total amount you owe. 

Grace Period A period of time (generally six months) after a borrower graduates, leaves school, or drops below half-time 

enrollment during which the borrower is not required to make payments on certain federal student loans. Some 

federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added 

to the principal balance of the loan when the repayment period begins. 

Grant Financial aid, often based on fnancial need, that does not have to be repaid (unless, for example, you 

withdraw from school and owe a refund). 

Interest A loan expense charged for the use of borrowed money. Interest is paid by the borrower to ED. The expense is 

calculated as a percentage of the unpaid principal amount of the loan. 

Loan Servicer A company that collects payments, responds to customer service inquiries, and performs other administrative 

tasks associated with maintaining a federal student loan on behalf of ED. If you're unsure of who your federal 

student loan servicer is, you can look it up in “My Federal Student Aid” at StudentAid.gov/login. 

Master Promissory 

Note (MPN) 

A binding legal document that you must sign when you get a federal student loan. The MPN can be used to 

make one or more loans for one or more academic years (up to 10 years) at one or more schools. It lists the 

terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as 

a borrower. It’s important to read and save your MPN because you’ll need to refer to it later when you begin 

repaying your loan or at other times when you need information about loan provisions, such as deferments or 

forbearances. 

Net Price An estimate of the actual cost that a student and his or her family need to pay in a given year to cover 

education expenses for the student to attend a particular school. Net price is determined by taking the 

institution's cost of attendance and subtracting any grants and scholarships for which the student may be 

eligible. 

Principal Loan principal can refer either to the original amount borrowed (original principal), or to the remaining amount 

of principal to be repaid (current principal). The current principal balance may include interest that has been 

capitalized (for example, interest that was capitalized at the end of a period of deferment or forbearance). 

Scholarship Money awarded to a student based on academic or other achievements to help pay for education expenses. 

Scholarships generally do not have to be repaid. 

Subsidized Loan A loan based on fnancial need for which the federal government generally pays the interest that accrues while 

the borrower is in an in-school, grace, or deferment status. A borrower is eligible to receive subsidized loans for 

up to 150 percent of his or her program length. 

Unsubsidized Loan A loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest 

on unsubsidized loans accrues from the date of disbursement and continues throughout the life of the loan. 

This type of loan is not based on fnancial need. 

Work-study A federal student aid program that provides part-time employment while a student is enrolled in school. 

Work-study earnings help pay the student’s education expenses.