When grants, scholarships, savings, and income from on- or off-campus work are not enough to cover educational expenses, many students in the United States may need to consider student loans as an additional source of funding.
What is a student loan?
A student loan is money that students or parents may borrow from the federal government or private lenders to pay for education-related costs such as tuition, fees, books and supplies, housing and meals, computers or other learning equipment, transportation, and other eligible educational expenses.
In most cases, the school receives the loan funds first and applies them to the student’s school-related charges. If any money remains, the school may issue the balance to the student to use for other qualified educational expenses such as tuition and fees, books, rent, etc. Even though the funds are disbursed through the school, the borrower remains responsible for repaying the principal, interest, and any applicable fees according to the loan agreement.
Two main types of student loans
Student loans in the United States generally fall into two main categories: federal student loans, which are funded by the federal government, and private student loans, which are offered by banks, credit unions, schools that offer institutional loans, or other private lenders.
These two categories can differ significantly in eligibility requirements, interest rates, credit score requirements, when repayment begins, repayment options, deferment or forbearance availability, borrower protections, and potential loan forgiveness opportunities. In most cases, eligible students should explore federal student loans before considering private loans.
Common federal student loans
Direct Subsidized Loans are available to undergraduate students with financial need. A key benefit is that the federal government pays the interest during certain eligible periods, including while the student is enrolled at least half-time and during some deferment periods. For that reason, when choosing between subsidized and unsubsidized loans for the same amount, subsidized loans are generally more favorable to borrowers.
Direct Unsubsidized Loans may be available to undergraduate, graduate, and professional students. These loans are not necessarily based on financial need. However, interest begins to accrue when the loan is disbursed, including while the student is still in school. Although monthly payments may not be required immediately, interest continues to accrue and increase the total amount owed over time.
Direct PLUS Loans include Parent PLUS Loans for parents of certain dependent undergraduate students and Grad PLUS Loans for graduate or professional students. PLUS Loans generally require a review for adverse credit history and may carry higher interest rates and fees than some other Direct Loans. It is especially important to note that a Parent PLUS Loan is the legal responsibility of the parent borrower, not automatically the student.
How are federal loans different from private loans?
| Criteria | Federal Student Loan | Private Student Loan |
| Lender | Federal government | Bank or private institution |
| FAFSA | Usually required | Usually not required |
| Credit score | Not required for some Direct Loans | Usually required |
| Cosigner | Usually not needed for Direct Subsidized or Unsubsidized Loans | Often needed if the borrower has limited or poor credit |
| Interest rate | Set by federal rules for each disbursement year | Determined by the lender |
| Repayment plans | Options available under federal rules | Depends on the contract |
Private loans can be helpful when federal aid is not enough or when the borrower is not eligible for federal loans, but their terms often depend heavily on credit history, income, and the availability of a cosigner. If the student does not make payments on time, the cosigner may also be legally responsible and may see their credit affected.
How do you apply for a federal student loan?
The typical process includes completing the FAFSA, receiving a financial aid offer from the school, deciding how much you truly need to borrow, completing entrance counseling if required, and signing a Master Promissory Note. A loan listed in a financial aid offer does not mean you are required to accept the full amount. Because loans must be repaid with interest, it is wise to prepare a realistic budget before borrowing.
How does student loan interest work?
Interest is the cost of borrowing money. For many federal student loans, the interest rate is set for each academic year or disbursement period and becomes fixed once the loan is disbursed. Private student loans may have either fixed or variable interest rates. A variable rate may start lower but can increase over time, making future payments harder to predict. Borrowers should also pay attention to loan fees, because a loan for a stated amount may be reduced by fees before the money is applied to school charges.
When does repayment begin?
For many Direct Subsidized and Direct Unsubsidized Loans, students have a grace period before regular payments begin. This period may apply after graduation, after leaving school, or after dropping below half-time enrollment. However, not all loans follow the same rules, and interest may continue to accrue during school or during the grace period. Before graduation, borrowers should review the total amount borrowed, the interest rate on each loan, the loan servicer, the first payment date, the repayment plan, and current contact information.
Federal student loan repayment plans
Federal student loans may offer different repayment options, including fixed monthly payments, gradually increasing payments, extended repayment periods, and certain plans based on income and family circumstances. Traditionally, the Standard Repayment Plan for Federal Direct Loans has generally been 10 years. For some new loans disbursed on or after July 1, 2026, the standard repayment period may range from 10 to 25 years depending on the total amount borrowed under current rules. Borrowers may also qualify for other repayment plans if they meet program requirements.
Public Service Loan Forgiveness
Borrowers who work full-time for a qualifying government agency or nonprofit organization may be interested in Public Service Loan Forgiveness, or PSLF. This program may forgive the remaining balance on certain Direct Loans after the borrower meets all requirements, including qualifying employment and the required number of qualifying payments. Borrowers should verify their loan type, employer eligibility, repayment plan, qualifying payment count, and employment certification records with their loan servicer.
How much should you borrow?
There is no single right amount for everyone. A borrower’s ability to repay depends on the total amount borrowed, interest rates, expected income after graduation, living expenses, family responsibilities, job prospects in the field of study, the time needed to complete the program, and other debts. A cautious approach is to avoid borrowing the maximum amount simply because it is available. Instead, compare projected debt with realistic entry-level salaries in the chosen field.
For example, repaying an $80,000 loan over 10 years could cost around $900 per month, depending on the loan type, interest rate, and repayment plan. That is a significant financial obligation, especially for new graduates or for borrowers who are also working toward other life goals.
Questions to ask before borrowing
- How much do I truly need to borrow?
- Can I reduce housing or living expenses?
- Are there scholarships, assistantships, or other funding sources I have not applied for?
- Is this a federal loan or a private loan?
- Is the interest rate fixed or variable?
- Will interest accrue while I am in school?
- Are there loan fees?
- What will my estimated monthly payment be after graduation?
- What is the expected starting salary in my field?
- If I do not find a job right away, how will I manage repayment?
- Who should serve as a cosigner, and what responsibilities will that person have?
- Does the loan offer deferment, forbearance, or forgiveness options under certain conditions?
Suggested order for considering funding sources
- Grants and scholarships.
- Tuition waivers or assistantships.
- Work-study income and suitable employment.
- Family contributions or available savings.
- School payment plans.
- Direct Subsidized Loans.
- Direct Unsubsidized Loans.
- PLUS Loans or private student loans after careful comparison.
This order reflects the general principle of using money that does not need to be repaid first, followed by loans with more favorable terms.
Can international students take out student loans?
Most international students on F-1 visas are not eligible for federal student loans. U.S. citizens, permanent residents, and certain eligible noncitizens may qualify if they meet other requirements. International students may be able to seek private student loans, but many lenders require a U.S. citizen or permanent resident cosigner, suitable credit history, proof of income, enrollment at an approved school, and valid visa status. Some lenders offer loans without a cosigner, but the rates and terms may be less favorable.
Before borrowing, international students should first explore scholarships, assistantships, tuition waivers, on-campus employment, fellowships, department support, funding programs from their home country, and school payment plans.
Conclusion
For many students, a student loan makes their higher education possible. However, like a mortgage or other major loan, a student loan does not reduce the cost of education; it shifts payment into the future and often increases the total cost because of interest.
For that reason, student loans should generally be considered only after students have explored and maximized non-repayable aid such as Pell Grants, scholarships, assistantships, tuition waivers, state aid, and other support programs. Every dollar that does not need to be borrowed today may save more money in the future by avoiding interest.
Before borrowing, students should carefully review each type of loan, accept only the amount truly needed, and estimate repayment realistically based on expected income after graduation. A well-considered loan can be an investment in education, but an uninformed borrowing decision can become a financial burden that lasts for many years and affects quality of life in the future.