Federal education loans are low-cost loans that are guaranteed by the federal government.

Prior to July 1, 2010, there were two federal loan programs (the Federal Family Education Loan (FFEL) Program and the Federal Direct Loan (FDL) Program) and your school decided which program to participate in.

Students with FFEL Program loans borrowed from commercial lenders such as a bank, and students with FDL Program loans borrowed directly from the federal government. As of July 1, 2010, federal student loans can only be originated through the Federal Direct Loan Program. This means you may have loans in both programs. The terms and conditions of the two programs are very similar; however, there are some differences.

Federal Stafford and Federal Direct Loans (subsidized and unsubsidized)

A subsidized federal loan is a need-based loan on which interest is paid by the federal government while you’re in school, during the grace period, and during approved deferment periods. Note: Subsidized federal loans are no longer available to graduate students, however, you may have borrowed one prior to July 1, 2012.

Conversely, interest on an unsubsidized federal loan begins accruing as soon as the funds are disbursed by the lender. You’re responsible for paying all interest that accrues on an unsubsidized loan. Unless you make payments while in school, the interest will be capitalized (added to the principal balance) prior to repayment.

Federal PLUS Loans

Graduate and professional students are eligible to borrow a Federal Direct PLUS Loan (aka, the Grad PLUS Loan.) Students may have previously borrowed a Grad PLUS loan in the FFEL Program. PLUS loans are unsubsidized loans that goes into repayment as soon as funds are disbursed to the borrower with no grace period. However, the Grad PLUS Loan has deferment and forbearance options similar to those of the Federal Unsubsidized Loan. As such, students can postpone repayment while enrolled at least half-time in an eligible program of study.

Grad PLUS Loans first disbursed on or after July 1, 2008, are eligible for an automatic six-month post-enrollment deferment. This will allow you to begin repaying your Grad PLUS loans at the same time as your unsubsidized or subsidized loans. If you have Grad PLUS loans first disbursed prior to July 1, 2008, you can request forbearance from your loan servicer for the same purpose.

During any period of deferment or forbearance, interest can accrue and be added to the principal loan balance (capitalized) at the end of the deferment or forbearance period if it is not paid by the borrower as it accrues. See Deferments and Forbearance.