Student loans help pay for your college expenses, including tuition, room and board, fees, and other education-related expenses.
There are two types of student loans available: federal loans and private loans, each with different features and options for borrowers.
If you’re looking to go to college and need some financial assistance to pay for it, student loans can help you cover the costs. But they aren’t free, and you’ll end up paying them back with interest.
Types of Student Loans
There are two main types of student loans: federal and private.
The government backs federal student loans, whereas banks, credit unions, and other financial institutions provide private student loans.
Federal loans
Government programs offer federal loans, typically referred to as “direct loans.” You can obtain these student loans by completing the Free Application for Federal Student Aid (FAFSA).
There are several types of federal student loans available, each with different interest rates and loan terms:
- Direct subsidized loans: Students qualifying for “financial need” can obtain subsidized loans as undergraduates, where interest does not accrue while in school or during deferment or grace periods. Up to $23,000 is available for a four-year degree. These have a fixed 6.39% APR.
- Direct unsubsidized loans: Undergraduate students who don’t qualify for “financial need” can get unsubsidized loans that accrue interest while in school and during deferment and grace periods. Dependent students can access up to $31,000 for a four-year degree; non-dependent students can borrow up to $57,500. These have a fixed 7.94% APR.
- Direct PLUS loans: Direct PLUS loans are for graduate students and professionals, and Parent PLUS loans are for parents of students. You can borrow up to $138,500 in total PLUS loans, with no more than $65,500 in subsidized loans. Direct PLUS loans have a fixed 8.94% APR.
- Direct consolidation loans: You can combine several federal student loans into a direct consolidation loan. This allows you to extend your payment terms and possibly lower your monthly payment but could result in paying more interest over the life of the loan.
Effective July 1, 2026, new borrowers will have a total lifetime borrowing limit of $257,500 for all federal student loans.
Federal student loans also offer a wide range of borrower protections, including:
- Income-driven repayment: Lower payments based on your discretionary income
- Grace period: Allows you to avoid making payments while in school and up to six months after graduation
- Subsidized loans: On loans while in school and during the grace period for certain borrowers
- Paused payments: During a national crisis, the federal government may pause student loan payments and interest accrual
- Borrower defense loan discharge: If your school participated in any misconduct related to your loans or educational services, you may be eligible to have your loans discharged
Private loans
Private student loans are available from banks, credit unions, and other lenders. They have a wide variety of loan terms, rates, and repayment options.
In general, the better your credit history and profile, the better rates and terms available.
While federal loans offer fixed rates and maximum loan amounts, private student loans may have fixed or variable rates, and some don’t have caps on how much you can borrow. This makes them a good option if you need access to larger loan amounts or want more flexible loan choices.
Rates vary from around 3% APR to nearly 18% APR. To get lower rates or even qualify for a loan, you may need to apply with a co-signer. This is common if you don’t have a steady income or a credit history.
Some popular lenders with low starting APRs include College Ave at just 3.19%, as well as SoFi student loans* and Earnest.
However, note that private student loans lack many of the borrower protections offered by federal student loans. Loan forgiveness, forbearance, income-driven repayment, and payment postponement are not available through most private lenders.
This makes private loans more difficult to manage if you run into income issues in the future, and there are very few options for loan forgiveness available.
READ MORE: Federal vs. Private Student Loans
How To Apply for Student Loans
To apply for student loans, you’ll need to provide your personal and financial information and are typically subjected to a credit profile review.
The process is slightly different for federal versus private student loans.
Federal student loan application
To apply for federal student loans, students and/or parents will need to fill out the FAFSA. This application helps determine eligibility for subsidized and unsubsidized loans, and any federal grant programs available.
After turning in the FAFSA, you can review your loan options and select your loan amounts and terms.
If the amount does not cover the full amount of college expenses needed, you may need to look at applying for private student loans as well.
Private student loan application
You can apply for private student loans through a bank that offers loans or an online student loan lender. There are a wide range of online lenders to choose from, and they typically offer the best rates (but only if you have great credit).
You'll need to provide financial and tax documents, but usually not a list of your savings accounts, investment accounts, or business assets.
A private lender may offer a “pre-qualification” tool that does a “soft” credit check first and will show you potential rates and loan terms before you have to complete a full application.
What Can Student Loans Be Used For?
You can use student loans to cover the costs of college and professional education. This may include:
- School tuition and related fees
- Books
- Room and board (i.e., college dorm rent and utilities)
- Transportation costs (i.e., gas or a bus pass)
- Technology costs
- College meal plans or other food costs
Both federal and private student loans cover these costs, but it's advisable to confirm with your lender what is covered before borrowing.
How Does Student Loan Interest Work?
Student loan interest is a fee that lenders charge to borrowers for access to loan funds. The interest rate is expressed as a percentage of the loan balance, which is charged over one year. This is known as the annual percentage rate, or “APR.”
Interest rates can be fixed — remaining the same over the life of the loan — or variable, which means the interest charged can go up or down, depending on the Federal Funds rate.
Interest begins to accrue on most student loans as soon as you receive the funds. This means that interest is added to your student loan balance if you don’t make any payments while in school.
Due to the absence of mandatory payments during school, your student loan balance can increase significantly before any repayment obligations arise. This is true of private loans and most federal student loans — subsidized federal loans are the only type that doesn't accrue interest while in school or during the grace period.
When making payments on your student loans, you pay the interest balance first, followed by the principal balance.
Most student loan payment schedules follow an amortized structure, similar to a mortgage, where initial payments primarily cover interest with minimal contributions to the loan principal.
Over time, payments shift to pay down more principal, assuming you stick to the payment schedule.
Interest on most student loans accrues daily and is periodically capitalized, adding to your loan balance. Compounding interest, especially with minimum monthly payments, can lead to significant costs, so it's important to have a repayment strategy.
Capitalized interest causes you to pay significantly more than your initial loan balance, contributing to the total repayment amount.
READ MORE: How Student Loan Interest Works
Repaying Student Loans
Student loan repayment terms vary by the type of loan you use. Repayment for both private and federal student loans is required — discharging student loan debt in bankruptcy is not an option.
So it’s important to understand your repayment terms before applying.
Payment plans
Private student loans offer a wide range of repayment plans. Most lenders offer from 5-year to 20-year repayment terms. Your interest rate may vary as well, making your payments adjust over time.
Federal student loans have several repayment plans available, including:
- Graduated repayment: A 10-year repayment schedule where payments start lower and increase over time
- Extended Repayment: Extend payments up to 25 years, and any remaining balances may qualify for forgiveness
- Income-driven repayment: Adjusts your payment based on your discretionary income and family size, extending the length of payments up to 25 years and any remaining balances may qualify for forgiveness
Student Loan Forgiveness
Private student loans don’t generally offer any student loan forgiveness options. Because for-profit private lenders offer loans, borrowers must make payments, and the lenders earn money through collected interest.
In rare cases, such as permanent disability or death, the remaining loan balances with a private lender may be discharged. Still, you’ll need to check with your lender to see what options are available in those circumstances.
Federal student loans, on the other hand, offer several student loan forgiveness options, including:
- Public Service Loan Forgiveness (PSLF): Employees of certain government agencies and non-profit organizations who make 120 consecutive on-time student loan payments may qualify to have their remaining loans forgiven.
- Teacher Loan Forgiveness (TLF): Public school teachers may be able to apply for up to $17,500 in loan forgiveness (as of 2025). This is only for teachers in a low-income school or educational service agency who have taught there for at least five consecutive years. Teachers may also qualify for PSLF and might receive a higher amount of forgiveness compared to TLF, so review your loans carefully.
- Nurse Corps Loan Repayment (NCLRP): Nurses working in a Critical Shortage Facility (CSF) or eligible nursing school (as faculty) for at least two years may be able to apply for loan forgiveness for up to 85% of their loan balances. This includes registered nurses (RNs), advanced practice registered nurses (APRNs), and nurse faculty (NF).
- Income-Driven Repayment (IDR): Income-Driven Repayment plans offer loan forgiveness for remaining balances after making on-time payments for 20 to 25 years (depending on your loan type). Forgiveness for undergraduate loans occurs after 20 years, while graduate loans become eligible for forgiveness after 25 years.
Before applying for any student loans, it's crucial to understand your options. It informs your loan and career decisions, potentially saving thousands.
FAQs
Why do I owe more than I borrowed on my student loans?
Student loans accrue interest even when payment is not required. This interest is periodically added to your loan balance (“capitalized”), which increases your total loan balance. If you have unsubsidized loans and haven’t begun paying them back, your balance will increase until you make payments.
Can I get a student loan without my parents?
Yes, you can secure a student loan independently, even with limited credit or income history. Federal student loans are available to “dependent” students, with some limitations.
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* Interest Rates: Eligibility and Important Details. Fixed rates range from 3.43% APR to 15.99% APR with 0.25% autopay discount. Variable rates range from 4.64% APR to 15.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates are capped at 17.95%. SoFi rate ranges are current as of 1/28/2026 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term and type of repayment option you select, evaluation of your creditworthiness, income, presence of a co-signer (if applicable) and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. Check out our eligibility criteria at https://www.sofi.com/eligibility-criteria/. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
