Student Loans

For many students, borrowing is critical for access to college.  Borrowing limits should be set at levels that encourage choice and help borrowers avoid higher-priced private loans. Proposals to reduce current federal student loan limits may be intended to reduce debt, but, in fact, they exacerbate it.  

Borrowing should also be structured so that students who finish college in four years have as much access to aggregate loan limits as those students who take longer to complete. Under a “loan flex” proposal developed by NAICU, loan amounts would be provided on the basis of progress toward degree completion.

The NAICU proposal, along with other suggestions related to the federal student loan programs, was submitted to the House Education and Workforce Committee for consideration in the reauthorization of the Higher Education Act.  Loan flex would also accommodate innovations on time-to-degree, such as Summer Pell.  


The greatest source of loan funding comes from the federal government.  Through the William D. Ford Federal Direct Loan Program and the Perkins Loan program (currently in the elimination process), students are expected to receive $110 billion in AY 2016-17. Funding of another 10% comes from private loans.

Colleges administer the funding provided through the Direct Loan Program. The program structure and intent of the program remain valid, though some features should be updated to provide additional support and flexibility for borrowers.  Any proposed change, such as the restructuring of loan limits, must be carefully reviewed in terms of its impact on students.  

Federal Student Loan Programs 

The William D. Ford Federal Direct Loan (Direct Loan) Program is now the primary source of federal loans for college students.  There are several types of Direct Loans, including subsidized, unsubsidized, PLUS, GRAD PLUS, and consolidated loans, making it possible to address the different funding needs of borrowers.  The PLUS loan program, for example, provides loans, up to the cost of attendance, for parents of dependent students, and for graduate students.

The various types of Direct Loans have different terms, interest rates, and fees—all of which have changed over the years.

  • Interest rates:  Currently, the interest rates on loans are based on the 10-year Treasury note, to which a statutorily fixed percentage is added, depending on the type of loan. The interest rate is updated annually based on the current Treasury bill rate; however, the interest rate at disbursement remains the rate for the life of the loan. The subsidized and unsubsidized loans currently have historically low interest rates.  The loans are also subject to origination fees, which are a one-time additional cost.  Older loans may have higher/lower interest rates, depending on how the rate was determined at the time the loan was disbursed.

  • Loan limits:  There are limits on how much may be borrowed.  The amount of subsidized and unsubsidized loans depends on a number of factors including: the borrower’s need and level in college; whether the borrower is attending full-or part-time; whether he/she is a dependent or independent student; and the borrower’s cost to attend the college.

  • Repayment options:  Borrowers have several options for repaying their loans, including several that are based on their income.  While such repayment plans reduce monthly payments, there can be increased costs over time.  For borrowers with multiple loans, consolidated loans provide a convenient payment option.  (See also, Student Debt.)

  • Subsidy Levels:  Graduate students  are no longer eligible for subsidized loans.  In the 114th Congress, Representative Judy Chu (D-CA) introduced legislation to reinstate their eligibility.  NAICU supports this effort, and will also work to protect the subsidy for undergraduate students.

There is also a campus-based loan program, the Perkins Loan Program.

In the News


NAICU Washington Updates

What You Can Do

  • Be prepared to discuss possible changes in federal student loan programs and policies with your Senators and Representative.  Information to have handy includes—

    * Your institution’s Stafford, PLUS, and Perkins loan borrowing levels.

    * Your institution’s cohort default rate.  (Default rates are announced each September, and historical data on these rates is available here.)

    * Your institution’s loan counseling efforts.
  • Support federal programs that provide sufficient borrowing levels with low interest rates and reasonable repayment terms for students and graduate students who need to borrow.
  • Encourage student completion by urging your Member of Congress to support NAICU’s loan flex proposal.


NAICU Contact

Emmanual Guillory: