Many college students find it necessary to take a low-interest federal loan to pay for part of their college education.

Many college students find it necessary to take a low-interest federal loan to pay for part of their college education. Students should look at all loan options, and research the benefits, terms, and conditions of taking a federal loan.

To qualify for a student loan, you must:

  • Fill out the Free Application for Student Aid (FAFSA).
  • Have a high school diploma, GED, or have passed the California Proficiency Exam.
  • Be a US citizen or eligible non-citizen with a Social Security Number.
  • Enroll in a degree or certification program.
  • Maintain Satisfactory Academic Progress (SAP).
  • Not be in default on a federal student loan, and not owe money on a federal student grant.

With a federal student loan, you must also sign a Master Promissory Note (MPN).

Types of Federal Loans

Loans from the federal government or Department of Education are low-interest loans that must be paid back with interest. Before applying for a federal education loan, the school will help students see how much they can get from grants and scholarships.

Stafford Loans

A Stafford loan is made by the US Department of Education to the student. Over 33 million people in the US currently have a Stafford loan. Sometimes, these are referred to as Direct Loans.

There are two types of Stafford loans: subsidized and unsubsidized. Direct Subsidized and Unsubsidized Loans have annual loan limits, based on the student's dependency status (as determined by the FAFSA) and grade level.

Stafford loans are the easiest loan to obtain; the federal government does not assess your credit or ability to repay. This also means you should borrow responsibly, and not beyond your means of repayment.

Subsidized vs Unsubsidized Loans

One key difference between the two loans is with subsidized loans, the interest is paid by the federal government while the student is still in school, or if the loan is in deferment. With unsubsidized loans, the interest is added to the principal of the loan while the student is in school, or the student can choose to pay the interest each quarter. In unsubsidized loans, unpaid interest is added to the principal amount.

To qualify for a subsidized loan, a student must show financial need. This is determined by filling out the FAFSA.

These are the annual loan limits:

Dependent StudentsIndependent Students
First Year$5,500 (up to $3,500 may be Subsidized)$9,500 (up to $3,500 may be Subsidized)
Second Year$6,500 (up to $4,500 may be Subsidized)$10,500 (up to $4,500 may be Subsidized)

The maximum lifetime loan limit for dependent students is $31,000 (up to $23,000 may be Subsidized) and the limit for independent students is $57,500 (up to $23,000 may be Subsidized).

Interest Rates

Undergraduates who take out loans for the 2023-2024 school year receive a 5.50% interest rate. These Stafford loan interest rates are fixed rates, and they will not change for the life of the loan.

Interest rates are set for the Academic Year each July 1st.

Origination Fees

Stafford loans have an origination fee of about $150 for each $10,000 borrowed and this fee is assessed by the Department of Education and covers the cost of setting the loan up. The origination fee is subtracted from the loan on disbursement. This means you need to borrow enough to cover the offset of the origination fee, if you need a specific amount.

The origination fee rate for Stafford loans is set each year at October 1st. For the period 10/1/2020-9/30/2024, the origination fee rate is 1.057% of the loan amount.

Repayment of Stafford Loans

In most cases, the repayment period for Stafford loans in 10 years. You can arrange a longer repayment period if you have more than $30,000 in federal student loans. Payments are due after you graduate, leave school, or change your enrollment status to less than half-time.

Federal Direct PLUS Loans

Direct PLUS loans are loans that parents of undergraduates can use to help pay for college or career school.

Before applying for a Direct PLUS loan, make sure your student has filled out the FAFSA.

PLUS Loan Eligibility

To be eligible for a Direct PLUS loan, you must:

  • Be a parent of a student enrolled in a program leading to a degree or certificate, at least half-time.
  • Not have an adverse credit history.
  • Meet general eligibility for financial aid.

You must also sign a Master Promissory Note (MPN) when getting a Direct PLUS loan.

If you have adverse credit, you may still be eligible for a Direct PLUS loan, if you have a co-signer who does not have adverse credit.

How Much Can You Borrow on a PLUS Loan?

The maximum amount a parent can borrow on a PLUS loan is the cost of attendance (determined by the school – in this case Campus, formerly MTI College) minus any other financial assistance your student receives.

Interest Rates

For Direct PLUS Loans first disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is 8.05%. This is a fixed interest rate for the life of the loan.

PLUS Loan Repayment

If you request a deferment, you do not have to start making payments until six months after your student graduates, leaves school, or drops below half-time enrollment.

In any period where you are not required to make payments on your PLUS loan, interest will accrue on your loan. You can pay the accrued interest or allow the interest to capitalize (be added to the principal balance of your loan). The institution servicing your loan will notify when your first payment is due.