A student loan is money you borrow to pay for education, which you repay with interest after you finish school
A student loan is a debt you take on to cover education costs — tuition, fees, books, housing, or living expenses while you study. Unlike a grant or scholarship, which you do not repay, a loan is money you must pay back. The lender (usually the federal government or a private bank) gives you the money upfront, and you agree to repay it over time, typically with interest added on top.
Student loans come in two main types: federal loans, which are issued by the U.S. Department of Education, and private loans, which come from banks, credit unions, or other lenders. Federal loans have fixed interest rates set by Congress, income-based repayment options, and forgiveness programs in some cases. Private loans have terms set by the lender and are based on your credit history.
You do not have to repay a student loan while you are still in school full-time. Repayment typically begins six months after you graduate, leave school, or drop below half-time enrollment. This period is called the grace period.
Key Takeaways
- Federal student loans are issued by the Department of Education and have fixed interest rates and flexible repayment plans; private loans come from banks and have terms based on your credit score.
- You do not begin repaying most student loans until six months after you leave school, a period called the grace period.
- Federal loans can be forgiven in some cases, such as working in public service or teaching in a low-income school, but private loans cannot.
- Interest accrues (builds up) on unsubsidized loans while you are in school, but not on subsidized federal loans.
- Your monthly payment amount depends on the loan type, total amount borrowed, interest rate, and repayment plan you choose.
Federal loans versus private loans
Federal student loans are funded by the U.S. government and have the same interest rate for all borrowers in a given year. For the 2024–2025 school year, the interest rate on undergraduate federal loans is 8.5 percent. The interest rate changes each year based on a formula set by Congress. Federal loans also come with built-in protections: you can pause payments if you face hardship, switch to a repayment plan based on your income, or have part of your debt forgiven if you work in certain fields like teaching or public service.
Private student loans are issued by banks, credit unions, and online lenders. The interest rate depends on your credit score and the lender's policies. If you have no credit history or a low credit score, you may need a cosigner (usually a parent) to borrow. Private loans do not offer income-based repayment, forgiveness programs, or pause options in most cases. They are typically used to cover costs that federal loans do not, or by borrowers who have already maxed out federal loan limits.
Subsidized versus unsubsidized federal loans
Federal loans come in two forms: subsidized and unsubsidized. With a subsidized loan, the government pays the interest while you are in school. With an unsubsidized loan, interest starts building up immediately, even while you are studying. If you do not pay the interest as it accrues, it gets added to your loan balance, meaning you end up owing more than you originally borrowed.
Subsidized loans are generally better if you can get them, because you borrow less money overall. However, they are only available to undergraduate students who demonstrate financial need. Unsubsidized loans are available to both undergraduate and graduate students regardless of need, but they cost more in the long run.
How much you owe and when you repay it
The amount you owe depends on how much you borrowed, the interest rate, and how long you take to repay. Federal loans have annual borrowing limits that increase each year you are in school. For the 2024–2025 school year, dependent undergraduate students can borrow up to $5,500 in federal loans (with a maximum of $3,500 in subsidized loans). Independent students and graduate students can borrow more.
Your monthly payment is calculated based on your total debt, interest rate, and repayment plan. On a standard 10-year federal repayment plan, a borrower who owes $30,000 at 8.5 percent interest would pay roughly $350 per month. Income-based plans can lower your monthly payment to as little as $0 if your income is very low, though you will repay for a longer period and pay more interest overall.
Repayment begins six months after you graduate or drop below half-time enrollment. During this grace period, you do not have to make payments, but interest on unsubsidized loans continues to build.
What happens if you do not repay
If you miss a payment, your loan enters delinquency. After 270 days (about nine months) of missed payments, your loan goes into default. Once in default, the entire remaining balance becomes due immediately, your credit score drops significantly, and the lender can pursue collection actions such as wage garnishment (taking money directly from your paycheck) or seizing tax refunds.
If you are struggling to pay, contact your loan servicer before you miss a payment. Federal loans offer income-driven repayment plans that can lower your monthly payment, deferment (temporary pause), or forbearance (temporary reduction). These options prevent default and protect your credit.
Loan forgiveness and discharge
Federal student loans can be forgiven in specific circumstances. Public Service Loan Forgiveness (PSLF) erases remaining debt after 120 may have access to payments if you work for a government agency or nonprofit organization. Teacher Loan Forgiveness can forgive up to $17,500 if you teach in a low-income school for five years. Income-Driven Repayment forgiveness erases remaining debt after 20 to 25 years of payments, though you may owe income tax on the forgiven amount.
Federal loans can also be discharged (erased without repayment) if you become permanently and totally disabled, if your school closes while you are enrolled or shortly after you leave, or if you are defrauded by your school. Private loans do not have forgiveness or discharge options except in rare cases of permanent disability.
How to understand your loan documents
When you borrow a student loan, you sign a promissory note, a legal document that lists the loan amount, interest rate, repayment terms, and your obligations. For federal loans, you also complete a Master Promissory Note (MPN), which covers all federal loans you take out at that school. Keep copies of these documents and review them carefully.
Your loan servicer is the company that collects your payments and handles customer service. This is not always the lender. Your servicer's contact information appears on your billing statements and on the National Student Loan Data System (NSLDS), a federal database where you can see all your federal loans. If you have private loans, check your statements or contact your lender directly to find your servicer.
Frequently Asked Questions
Do I have to repay a student loan if I do not finish my degree?
Yes. Repayment begins six months after you leave school, regardless of whether you completed your degree. If you plan to return to school later, you can request a deferment to pause payments while you are enrolled at least half-time.
What is the difference between a student loan and a parent loan?
A student loan is borrowed in your name and you are responsible for repayment. A Parent PLUS loan is borrowed by your parent in their name, and your parent is legally responsible for repaying it. Parent PLUS loans have higher interest rates and fewer repayment options than federal student loans.
Can I get a student loan if I have bad credit?
Federal student loans do not require a credit check, so bad credit does not disqualify you. Private loans do check credit and may require a cosigner if your score is low. If you need private loans, compare offers from multiple lenders before choosing.
What happens to my student loans if I die?
Federal student loans are discharged (erased) if you die. Your family does not inherit the debt. Private loans may be inherited by your estate, so check your loan documents. Parent PLUS loans are discharged only if the parent who borrowed dies.