The Three Main Types Of Federal Student Loans

Apr 25, 2019, 6:55:00 PM
  • All federal student loans are now Direct Loans.
  • Direct Loan amounts are based on financial need, cost of attendance and other aid.
  • The Perkins and FFEL Loan Programs have been discontinued.


In a 2016 - 2017 report, the Federal Reserve found that of those holding student debt, the mean amount was $32,731. 93.7% of educational debt is student loans, making student loans the most popular method of financing education, with credit cards coming in at 20.3%.

Student loans are made up largely of Federal Direct Loans. All federal student loans issued today are Direct Loans. Perkins and FFEL loans are no longer available. They were both rolled into the Direct Loan Program. For most borrowers, this change had little impact on how they make payments.

In this article, we’ll look at all three loan types. The Direct Loan program is actually made up of four different loan types - each for specific student status and financial need.


Direct Loans

Direct Loans are now the main vehicle for federal student loans. Federal Direct Loans are issued directly by the U.S. Department of Education, which gets the funds from the US Treasury.

There are four different Direct Loans available:

  • Direct Subsidized Loans - Undergraduate students who can show financial need.
  • Direct Unsubsidized Loans - Undergraduate and graduate students.
  • Direct PLUS Loans - Graduates students and the parents of undergraduates.
  • Direct Consolidation Loans - Those who have student loans and are in repayment.

Direct loans have fixed interest rates. Direct Subsidized Loans have the best interest rate to help those with the greatest financial need. Undergraduate loan rates are 5.05%. Direct Unsubsidized Loans for graduates and professional are 6.6%. Direct PLUS Loans for parents, graduates, and professionals are 7.6%.

Interest can be deferred while in school at least half-time, the first six months after leaving school and during periods of deferment. Interest on unsubsidized loans is not deferred and accrues continually.

Your school determines the loan amount. For subsidized loans, it is based on financial need. Unsubsidized loan amounts are determined by the cost of attendance and other aid.

The government changed its loan program on July 1, 2010. If you were issued a federal student loan or consolidated one after this date, it is a Direct Loan. Direct Loans are the largest student loan type with an outstanding debt of $1.1503 trillion.


Perkins Loans

As of September 30, 2017, schools were permitted from making Perkins Loans, and the program officially ended. The program was originally slated to be shut down on September 30, 2015, but thanks to the General Education Provisions Act, it got a two-year extension.

Perkins Loans were low-interest with an interest rate of only 5.00%. They were available to undergraduates, graduates, and professionals who showed substantial financial need. The grace period was nine months.

Perkins loans were subsidized. With a subsidized loan, the federal government pays the loan’s interest while the student is in school. Unlike Direct Loans, schools were lenders for Perkins Loans. Not all schools participated in the Perkins Loan Program.

Students don’t pay directly on their federal student loans. Instead, they pay a servicer. The servicer manages the loan, including handling of payments. Perkins Loans did not have a servicer. Students paid directly to the school instead.

Under certain conditions, Perkins Loans were eligible for 100% cancellation. Those serving in a public or nonprofit elementary or secondary school system might have been eligible, having met certain other requirements.


FFEL Loans

The Federal Family Education Loan Program (also referred to as the federally-guaranteed student loan program) is a federal student loan program that was discontinued on July 1, 2010. This was due to the Health Care and Education Reconciliation Act of 2010. These loans originated from private lenders (banks and other financial institutions) but were insured by the federal government. Stafford, Consolidation or Graduate PLUS loans that were issued before the FFEL Program ended were commonly FFEL loans.

About 3/4 of colleges participated in the FFEL Program in FY2008. Repayment options included standard repayment, extended repayment, graduated repayment, income-sensitive repayment, and income-based repayment. Income-based repayment generally had a lower monthly payment than income-sensitive repayment.

Public Service Loan Forgiveness isn’t directly available for FFEL loans. Through consolidation into the Direct Loan Program, FFEL borrowers were able to obtain Public Service Loan Forgiveness.

Those who are seeking out financing for school should start with the FAFSA at The FAFSA allows you to apply for grants, work studies, and loans. Any loans you are eligible for will be Direct Subsidized and Direct Unsubsidized. They’ll be based on your status as an undergraduate or graduate and financial need.

  • All federal student loans are now Direct Loans.
  • Direct Loan amounts are based on financial need, cost of attendance and other aid.
  • The Perkins and FFEL Loan Programs have been discontinued.