The Student’s Guide to College Loans
- Student loans help millions of students pay for college each year.
- Unlike grants and scholarships, student loans must be repaid, typically with interest.
- There are two primary loan types: federal and private.
- Most U.S. citizens can qualify for federal student loans simply by submitting the FAFSA form.
The student loan system can often appear overwhelming and complex.
Yet student loans have become an increasingly common way for many college students to help pay for their education. With tuition inflation remaining consistent over the past decade, it’s unlikely that student loans will fade into the background anytime soon.
It’s important, therefore, to have a firm grasp of student loans if you are interested in or already attending college.
In this student’s guide to college loans, we will explore the different kinds of loans, how to apply for each, and how to repay that debt once you graduate or leave school.
Student Loans: An Overview
A college loan is similar to any other kind of loan: You receive a sum of money, with the expectation that you will repay your debt with interest.
However, there are key differences between student loans and more traditional loans like a mortgage. Mainly, you aren’t expected to begin repaying your student loan debt until after you graduate from your college program. Additionally, interest rates on student loans — especially federal student loans — tend to be much lower than other types of loans.
It’s worth distinguishing between student loans and other forms of financial aid.
Grants and scholarships, for example, do not need to be repaid. It’s generally a good idea to exhaust all other financial aid options before taking on student loan debt, as these loans can follow borrowers for many years, sometimes decades.
Federal vs. Private Student Loans
When people refer to “student loans,” they typically mean federal student loans. However, not all college students are eligible for federal loans, and those loans may not be enough to cover the full cost of attendance.
In these instances, private student loans may be used.
Federal Direct Loans
This is the primary type of federal student loan. If you are an undergraduate student who filed a Free Application for Federal Student Aid (FAFSA) form and received a student loan offer, this is likely the type of loan offered.
There are two primary types of federal direct loans:
- Direct Subsidized Loan: The Department of Education covers the interest costs on this loan while a student is enrolled at least half time, plus during the six-month grace period after graduation.
- Direct Unsubsidized Loan: Interest begins accumulating on the loan immediately after its disbursement.
Subsidized loans are only awarded to undergraduate students who demonstrate “financial need” and are capped at $3,500 per year for first-year students, $4,500 for second-year students, and $5,500 per year for years three and beyond. The rest of a student’s loan award is unsubsidized debt.
Direct PLUS Loans
PLUS loans are traditionally taken out by graduate students or parents of students enrolled in college.
The Grad PLUS program, however, is being sunset. The recently passed One Big Beautiful Bill Act called for Federal Student Aid to stop awarding Grad PLUS loans on July 1, 2026.
Parent PLUS loans will remain. This loan type allows parents to take on student loan debt on behalf of their dependent children. These loans can work alongside or in place of traditional direct loans.
Private Student Loans
Private student loans originate from banks and other lenders.
These loans typically have higher interest rates than federal student loans, and repayment options are more limited. For these reasons, experts advise students to only take out private student loans if absolutely necessary.
Some of the most popular private student loan lenders include:
- Sallie Mae
- SoFi
- College Ave
- ELFI
- Ascent
Undocumented and international students often turn to private student loans, as they are ineligible for federal loans.
Health Profession Loans
Full- or part-time students can qualify for the federal Health Professions Student Loan (HPSL) program if they pursue one of the following degrees:
- Doctor of dentistry
- Bachelor or doctor of science in pharmacy
- Doctor of podiatric medicine
- Doctor of optometry
- Doctor of veterinary medicine
HPSL loans are only available at certain institutions. The program has an application separate from the FAFSA.
How to Apply for Student Loans
Student loans are among the easiest loan types to acquire, especially federal student loans.
Step 1: Determine Eligibility
There are a few eligibility restrictions for federal student loans. For example, to qualify for one of these loans, you must:
- Be a U.S. citizen or an eligible noncitizen
- Have a valid Social Security number
- Be enrolled or accepted into an eligible degree or certificate program
- Have a high school diploma or GED certificate or meet an “ability to benefit” alternative
- Maintain satisfactory academic progress
Private lenders have their own criteria for determining loan eligibility. These lenders will likely consider your credit score or may require a cosigner if you have limited credit history.
Step 2: File the FAFSA
The Free Application for Federal Student Aid is your one-stop shop for qualifying for most types of student financial aid.
Federal, state, and institutional aid is typically determined by the FAFSA. The form collects information about your financial circumstances and estimated cost of attendance to determine whether you qualify for need-based aid like Pell Grants.
Filing the FAFSA can also determine your eligibility for federal student loans.
Students and families typically have until the end of June of any award year to file the FAFSA. For example, for the 2025-26 academic year, students will have until June 30, 2026, to file the FAFSA. However, it’s recommended that you file the form much sooner than that.
Step 3: Review Financial Aid Offers
After submitting the FAFSA, you should start to receive financial aid award letters from colleges and universities you’ve been accepted to. When you receive those offers depends on when you submitted the form.
Take time to compare financial aid offers before deciding which college to attend. Once you’ve done that, you can figure out whether you may need private loans to cover any remaining costs for college.
Step 4: Determine Whether to Apply for Private Loans
Private student loans should be a last resort.
These loans typically offer worse interest rates than federal student loans. Additionally, repayment, forbearance, and deferment options are often more limited for private student loans.
Still, if you are ineligible for federal loans or have remaining costs after other aid, private loans may be a viable option. Things to keep in mind when comparing private loans include:
- Interest rate
- Loan term
- Potential fees
- Cosigner requirements
- Borrowing limits
How to Repay Student Loans
Receiving student loans is the easy part. Actually paying off those loans is what trips up most borrowers.
Here, we outline what you need to know to stay current on your loan payments.
Grace Period
Recipients of federal student loans typically don’t have to begin repaying their debt immediately after graduation.
For direct loans, you have a six-month grace period from after you graduate, leave school, or drop below half-time enrollment before you need to start repaying your loans. Interest will begin to accrue on debt for unsubsidized loans, while interest does not accrue during the grace period for subsidized loans. However, not making payments will not negatively impact your credit score during this period.
Grad PLUS loan recipients automatically receive a six-month deferment after graduation, while parent PLUS borrowers must manually request one.
Many private student loans also have postgraduation grace periods. However, the timeline of these grace periods varies from lender to lender, and interest typically accrues during the grace period.
Repayment Plans
Passage of the One Big Beautiful Bill Act pared down the number of repayment plan options for federal student loan borrowers to just two:
- Standard Repayment Plan
- Repayment Assistance Plan (RAP)
Previously, the standard repayment plan had a 10-year timeline, no matter the size of the borrower’s debt. Under the new plan, the standard repayment timeline is dependent on how much the borrower owes.
| Amount Owed | Repayment Timeline |
|---|---|
| Less than $25,000 | 10 years |
| $25,000–$49,999 | 15 years |
| $50,000–$99,999 | 20 years |
| $100,000 or more | 25 years |
The new standard repayment plan applies only to loans distributed on or after July 1, 2026.
RAP is an income-driven repayment plan. This means monthly payments are calculated based on a borrower’s income. Borrowers pay a percentage of their adjusted gross income (AGI) based on how much they make per year, and they can qualify for total debt forgiveness after making 360 qualifying payments.
Deferment vs. Forbearance
Both deferment and forbearance are ways borrowers can temporarily withhold making payments on their student loan debt.
It’s easier to be approved for forbearance. You can request a general forbearance from your loan servicer, and “financial difficulties” is an acceptable reason for forbearance.
Interest on student loan debt continues to accrue when a loan is on forbearance.
It is slightly harder to be approved for deferment. However, this option is generally preferred because interest does not accrue on subsidized debt that is in deferment.
Some of the life circumstances that may qualify you for deferment include cancer treatment, economic hardship, and military service, among others.
Student Loan Forgiveness
There are a handful of ways you can have your federal student loans forgiven. Typically, you can qualify for forgiveness if you work in a certain industry for a set amount of time or if you were defrauded by your institution in some way.
Loan forgiveness programs include:
- Public Service Loan Forgiveness (PSLF)
- Teacher Loan Forgiveness
- Closed school discharge
- Borrower defense to repayment
- Total and permanent disability (TPD) discharge
You may also be able to discharge student loans through bankruptcy, contrary to popular belief. During bankruptcy proceedings, you can make a case that you are unlikely to be able to repay your student loan debt. However, it’s still up to the courts to make the final decision.
How Common Are Student Loans?
During the 2019-20 academic year, more than 15 million students received federal student loans.
| Adjusted Gross Income | Subsidized Loan Recipients | Unsubsidized Loan Recipients |
|---|---|---|
| Less than $20,000 | 1,162,620 | 3,556,075 |
| $20,000–$39,999 | 1,187,051 | 3,560,275 |
| $40,000–$59,999 | 713,874 | 2,111,299 |
| $60,000–$79,999 | 474,812 | 1,495,711 |
| $80,000–$99,999 | 343,177 | 1,126,950 |
| $100,000 and over | 578,224 | 3,702,010 |
| Total | 4,459,758 | 15,552,320 |
Another 3.2 million graduate students received Grad PLUS loans that year.
Frequently Asked Questions About Student Loans
How much money can you borrow in student loans?
Federal student loan borrowing is typically capped at the cost of attendance, but there is usually no limit to how much you can borrow in private student loans.
The federal government not only limits borrowing to the cost of a program, but it also caps lifetime borrowing depending on the degree type. Recently, Congress adopted a $100,000 aggregate borrowing limit for graduate students, a $200,000 limit for professional students, and a $257,500 lifetime borrowing limit for all students.
How are student loans paid out?
Federal student loan funds are distributed directly to your college or university, which then applies that money to costs like tuition and fees.
Any leftover loan funds, which can be used on expenses like supplies, then go to the borrower. Typically, the borrower assigns an account for direct deposit to expedite this part of the process.
What can you use student loans for?
Borrowers can use federal student loans to cover any expenses related to their college education.
This is a comprehensive list of expenses that includes tuition, fees, housing, food, books, supplies, and transportation. Students may also use funds to care for dependents while enrolled.
What is the average student loan payment per month?
The average student loan payment for a bachelor’s program graduate is $336 per month.
Average payments on federal student loans largely depend on the degree earned. The average monthly payment for someone who attended an associate program is $231, while the average payment for a law student is $1,715.
How do private lenders determine how much money you get?
Private student loan lenders consider your estimated cost of attendance, creditworthiness, and any cosigner’s credit to determine how much money you can get.
You may have to shop around for a good private loan because not all lenders follow the same rubric when determining the potential size of your loan. Additionally, the interest rate can be determined by your or your cosigner’s credit score.
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