Student loans are money borrowed to cover education costs. You pay them back, with interest, after school. The type of loan you have matters a lot: it determines your interest rate, what repayment options you have, and how much protection you get if things go sideways.
The single most important distinction is whether your loans are federal or private.
Federal vs Private Loans
Federal student loans are issued by the U.S. Department of Education. They come with fixed interest rates set by Congress, income-driven repayment options, deferment and forbearance programs, and several loan forgiveness pathways.
Private student loans come from banks, credit unions, and other lenders. Rates can be fixed or variable, and the lender sets them. Private loans have far fewer repayment protections and aren’t eligible for federal programs like income-driven repayment or Public Service Loan Forgiveness.
If you have a choice, use your federal loan options first. Federal loans offer protections you simply can’t get from private lenders.
| Feature | Federal Loans | Private Loans |
|---|---|---|
| Interest rate | Fixed, set by Congress | Fixed or variable, set by lender |
| Income-driven repayment | Yes | Generally no |
| Deferment/forbearance | Yes, with defined options | Varies by lender |
| Loan forgiveness programs | Yes (PSLF, IDR forgiveness) | Generally no |
| Credit check required | No (for most federal loans) | Yes |
| Borrowing limit | Set by program and year | Varies |
Borrowing Limits Changed In 2026
For loans made on or after July 1, 2026, federal borrowing got tighter for graduate students and parents:
- Grad PLUS loans are gone for new borrowers. Students who already had Grad PLUS loans for a program they were enrolled in before that date can generally keep borrowing for a limited time to finish it.
- Graduate and professional students have new caps on unsubsidized loans: generally $20,500 a year and $100,000 total for graduate programs, and $50,000 a year and $200,000 total for professional programs like medicine or law.
- Parent PLUS loans are capped at $20,000 a year and $65,000 total per student.
Undergraduate loan limits did not change. If federal limits don’t cover the full cost, compare grants, school payment plans, and a cheaper program before turning to private loans, which carry fewer protections.
Subsidized vs Unsubsidized Federal Loans
Federal loans for undergraduates come in two main types:
Subsidized loans: The government covers the interest while you’re enrolled at least half-time, during the grace period after leaving school, and during certain deferment periods. These are need-based, and they’re the better deal when you qualify.
Unsubsidized loans: Interest starts building from the day the loan is disbursed. You’re not required to pay it while in school, but if you don’t, that interest capitalizes when repayment begins. It gets added to your principal, and then you owe interest on a larger balance going forward.
If you’re offered a mix of both, the subsidized portion is the more favorable part of your package.
How Interest Accumulates
Interest builds daily based on your outstanding principal and your interest rate.
With unsubsidized loans, ignoring the balance while you’re in school means the unpaid interest capitalizes at repayment. You’ll owe more than you originally borrowed. How much more depends on your rate and how long you were enrolled.
A useful option if you can manage it: make small interest-only payments while in school. You’re not required to, but even paying just the monthly interest keeps the principal from growing.
Repayment Plan Options
Your repayment choices depend on when your loans were made, because a 2025 law changed the menu for new loans starting July 1, 2026.
Loans made on or after July 1, 2026 have two plans:
- Standard (tiered): Fixed payments over 10 to 25 years, with the term set by how much you owe. Smaller balances get shorter terms. Paying it off on the shortest schedule you can afford keeps total interest lowest.
- Repayment Assistance Plan (RAP): An income-driven plan. Your payment is a percentage of your income (with a small minimum and a reduction for each dependent), unpaid interest isn’t added to your balance while you pay on time, and any remaining balance is forgiven after 30 years.
Loans made before July 1, 2026 can also use the older plans:
- Standard repayment: Fixed payments over 10 years. You’ll pay the least total interest this way.
- Graduated repayment: Payments start low and increase every two years. You’ll pay more total interest than on standard.
- Extended repayment: Stretches the term up to 25 years for larger balances, lowering the monthly payment but raising total interest paid.
- Income-driven repayment (IDR): IBR and RAP are available. The older PAYE and ICR plans are closing, and borrowers on them must switch by July 1, 2028.
Be careful about taking out a new federal loan or consolidation loan after July 1, 2026 if you already have older loans: it can move you onto the new, narrower menu. Visit studentaid.gov and use the Loan Simulator to compare the plans open to you before choosing. For a deeper look, see Student Loan Repayment Strategies.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) cancels your remaining federal loan balance after 10 years of qualifying payments, while working full-time for a qualifying employer. That generally means government agencies or nonprofits.
PSLF requires:
- Qualifying loan types (Direct Loans)
- A qualifying repayment plan (generally an income-driven plan)
- A qualifying employer certified through the PSLF process
- 120 qualifying monthly payments (not necessarily consecutive)
If you plan to work in public service, this can be genuinely valuable. Use the PSLF employer search on studentaid.gov to confirm your employer qualifies before building forgiveness into your long-term plan.
Finding Your Loans
Not sure what federal loans you have? Log in to studentaid.gov with your FSA ID. You’ll find loan types, balances, interest rates, and servicer contact information.
Private loans don’t appear on studentaid.gov. Check your credit reports or contact the lender directly. Private loans usually show up on your credit report under the original lender or a collection agency.
When Payments Start
Most federal loans come with a six-month grace period after you graduate, leave school, or drop below half-time enrollment. Payments aren’t required during that window, but interest on unsubsidized loans keeps building.
Use the grace period well:
- Track down all your loans and servicers
- Choose a repayment plan that fits your budget
- Set up autopay (many servicers offer a small rate discount)
- Build the payment into your monthly expenses
Missing your first payment is easier than it sounds if you haven’t set things up in advance. Log into studentaid.gov before the grace period ends to confirm your servicer and payment start date.
Managing Student Loan Debt Alongside Other Goals
Student loan payments are a fixed monthly expense that has to coexist with rent, food, and everything else. See How To Build A Budget for a practical approach to folding loan payments into a workable monthly plan.
If the payments feel unmanageable, contact your servicer about income-driven repayment before you miss anything. Switching plans proactively is much easier than digging out of delinquency later.
Frequently Asked Questions
Q: What is the difference between a loan servicer and the Department of Education?
The Department of Education is the actual lender for federal loans. Your servicer is the company that handles the day-to-day stuff: billing, payment processing, repayment plan changes. The servicer can change over time even though your lender stays the same.
Q: Can federal student loans be forgiven?
Yes, under certain circumstances. Public Service Loan Forgiveness cancels remaining balances after 10 years of qualifying payments for government and nonprofit workers. Income-driven plans also include forgiveness timelines, typically after 20 to 25 years. Tax treatment of forgiven amounts can vary depending on the program and year, so check current rules before counting on forgiveness as a core part of your financial plan.
Q: Should I pay off student loans early?
It depends on the interest rate and your other priorities. Federal student loan rates are generally lower than credit card rates, so paying off high-interest debt first usually makes more sense. If you have an emergency fund and no high-interest debt, extra payments toward student loans can save on interest over time. If you’re on an income-driven plan pursuing PSLF, extra payments may not help at all. Get clear on your repayment plan before throwing extra money at the balance.
Q: What happens if I cannot make student loan payments?
For federal loans, contact your servicer right away. Options include income-driven repayment (which can lower payments to as little as $0 based on income), deferment, or forbearance. Private loans have fewer options, but some lenders offer hardship programs. Ignoring the loans is the one thing you don’t want to do. Missed payments become delinquency, and delinquency damages your credit.
Learn More
- Federal Student Aid: studentaid.gov
- Consumer Financial Protection Bureau: Repaying student loans
- Federal Student Aid: Public Service Loan Forgiveness
- Federal Student Aid: Income-driven repayment plans