Filling out the FAFSA: The Differences between Loan Types

Being a student is often the busiest time of a person’s life, and when FAFSA season arrives, it’s easy to find yourself preoccupied. You might stare at that FAFSA document and not even know what type of loan you need to apply for this year. If you require a little help to clear the cobwebs and figure out what direction to go in, the following are the basic definitions of the major loan types available by filling out the FAFSA, or Free Application for Federal Student Aid. All loans under this program are referred to as direct loans, as they are part of the Federal Direct Student Loan Program.

Subsidized Direct Loans: These federal loans are granted to students with the most financial need- although a student may be awarded a combination of different loans. Subsidized loans are those where the interest is paid by the government while a student is enrolled at least half-time. Therefore, no interest accrues on these loans until the student has graduated or drops below half-time status. When the loan enters repayment, the interest rate will be very low- 4.5% for loans disbursed prior to June of 2011, and 3.4% for any loans obtained after that time.

Unsubsidized Direct loans: Students with less financial need will often be awarded unsubsidized loans. On this type of loan, interest accrues from the day the loan is issued. However, the rate is still low: only 6.8%. Students utilizing this type of loan are advised to pay at least the interest on the loan while they are still enrolled in school.

Direct Plus Loans: These loans are granted exclusively to parents who wish to pay for their children’s education but don’t have the immediate funding to do so. Loan amounts are equivalent to a student’s educational expenses, minus other forms of aid such as grants and scholarships.

Direct Consolidation Loans: For students that have attended multiple schools or have multiple loan servicers, this type of loan allows you to roll all loans into one federal loan at a low rate of 7.9%

Don’t forget that these are just loans- you can also apply for grants, scholarships, and work study by filling out a FAFSA.