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The government provides federal student loans, while private student loans are available through private entities, like banks, credit unions and online lenders.

Federal Student Loans

These loans are available through the U.S. Department of Education. You must submit aFree Application for Federal Student Aid, known as the FAFSA, to access them. Most federal student loans, with the exception of PLUSloans, do not require a credit check. Their interest rates also aren’t credit-based; they’re set by federal law, and are typically lower than private loan rates.

Depending on your financial need, you may have several federal loan options:

• Directsubsidized loans. Available to undergraduate students based on financial need. The amount you qualify fordepends on your year in school and whether you’re considered financially independent from your parents. These loans are subsidized by the government, meaning interest doesn’t accrue while you’re in school or during periods of deferment. But it does begin accruing when you graduate or drop below half-time status.
• Direct unsubsidized loans.Available to undergraduate, graduate and professional students regardless of financial need. Since these loans are unsubsidized, interest accrues during all periods.
• Direct PLUS loans. Available to graduate and professional students and parents of dependent undergraduate students to cover costs that other financial aid doesn’t. For instance, if you receive some subsidized or unsubsidized loans but need more money to fill in a funding gap, you could opt for a direct PLUS loan. If you want to get a PLUS loan, a credit check is required.
• Direct consolidation loans. This option lets you combine multiple federal student loans into one loan with a single loan servicer and interest rate. This can extend your repayment term, lowering your monthly bill, but could mean paying more in interest over time.

Private Student Loans

These loans are available through banks, credit unions and online lenders. While federal student loans have fixed interest rates, and most come with maximum loan amounts, the same isn’t true for private student loans.

Lenders typically use their own standards to set borrower requirements, but in general, a good or excellent credit score—generally 670 or higher—will get you the most competitive rates and terms. That makes it difficult for undergraduates to borrow private student loans independently, since they have shorter credit histories. Undergraduates generally must use a co-signer to qualify for private loans. In some cases, though, it’s possible to get a student loan without a co-signer.

Most importantly, private student loans do not come with borrower protections that federal student loan borrowers enjoy. Private loan borrowers won’t get access to income-driven repayment plans, forgiveness if you work in certain public service fields or generous payment-postponement programs if you experience financial hardship. That means it’s generally best to max out federal loans before turning to private loans.

Related: Find The Best Student Loan Options

Interest is a fee that the lender charges you to borrow money, usually expressed as a percentage of the amount you borrow. Student loans can have fixed interest rates—which remain the same over the life of the loan—or variable interest rates, which fluctuate over time based on certain economic conditions.

For most types of student loans, interest begins accruing as soon as you receive the money. That means the loan you took out freshman year will accrue interest during your time in school—and if you don’t make payments until you graduate, your balance will be larger than what you originally borrowed. The exception to this rule is federal subsidized loans; if you qualify for these, the government will pay the interest while you’re in school or when your loans are deferred.

When you make a student loan payment, your money is first applied to any interest that has accrued since your last payment. Any remaining amount is then applied to your loan’s balance. When you first start repaying your loans, a large portion of your payments will be eaten up by interest charges. But as your loan slowly shrinks and your repayment progresses, more and more of your money will be applied directly to your loan balance.

Interest on student loans is typically charged daily. The interest you accrue will also become capitalized at certain times. When interest is capitalized, any accrued interest is added to your loan balance—so you begin accruing interest on your existing interest. When interest becomes capitalized depends on your exact loan, but it often occurs when you enter into repayment or a temporary forbearance ends.

If you’re applying for federal student loans, your starting point is the FAFSA.

Before you can start the FAFSA, you’ll need a Federal Student Aid ID (FSA ID). Both parents and students will need an FSA ID if the student is a dependent. It serves as your electronic signature as you complete the various federal student aid documents.

If you’re a parent completing the FAFSA for your child, or with them, you can head to FAFSA.gov to start your application. You’ll enter personal information for both the student and parent, including names, Social Security numbers and dates of birth. You’ll also fill out demographics and financial information before signing and submitting the form.

Once you’ve been accepted to colleges, you’ll get an award letter from the school. Your award letter will detail how much student aid you get, which can include grants, federal work-study funds and federal student loans. You’ll have the opportunity to respond to your award letter and accept or reject the student loans you’ve been offered.

If you still need money after you’ve maxed out federal student aid, you can apply for private student loans. To apply, you’ll need to visit each lender individually. Some lenders let you see if you prequalify for a loan first, based on your credit score and history. Others only allow you to see if you qualify after you’ve applied.

Private student loan applications vary by lender, but typically require financial and school information plus the amount of money you need, when you plan to graduate and whether you’ll apply with a co-signer.

Your school determines its total cost of attendance, which includes all the expenses a student must pay to obtain a degree, including tuition, fees, living expenses and transportation. If you plan to use student loans to cover these costs, your loan funds can be used for purposes like:

• Tuition and fees
• Books
• Supplies and other equipment
• Meal plans and groceries
• Room and board (including an apartment and utilities)
• Technology expenses, like a computer
• Transportation costs, like gas or public transit passes

Most private student loans mirror federal student loan allowances, but you might find that some lenders have limitations in place on what you can and can’t use loans for.

Congress sets federal student loan interest rates, which are different depending on the type of student loan you borrow. For instance, if you have a direct unsubsidized loan and a direct PLUS loan, you’ll pay different interest rates for both.

Here are the interest rates on loans for the 2022-2023 school year:

• 4.99% for direct subsidized and unsubsidized loans for undergraduates
• 6.54% for direct unsubsidized loans for graduate and professional students
• 7.54% for direct PLUS loans for graduate or professional students, and parents of dependent students

Your federal student loans consist of the principal, or the amount you borrowed, plus interest.

Once you’ve taken out your federal loan, the interest rate will not change. If you eventually combine your federal loans using a direct consolidation loan, the interest rate will be the average of your original loans’ rates rounded up. The only other time your interest rate changes is if you refinance your student loans.

Private student lenders determine your interest rate based on your creditworthiness, or that of your co-signer, if you have one. Some private student loans also charge fees, like origination or late fees. While federal student loans have fixed interest rates that don’t change over the life of the loan, private student loans often let you choose between fixed or variable interest rates.

Keep in mind that the lowest interest rates on private loans are available to borrowers with the strongest credit scores. The lower your credit score, the higher your interest rate will generally be.

Federal student loans have some of the friendliest repayment terms. Federal loans also offer a six-month grace period, which means you’re not obligated to start paying your loan back until six months after graduation.

The standard repayment plan for federal student loans assumes you’ll pay off your loans within 10 years of graduation. But you can also choose to enroll in an alternative repayment plan. Some of these, called income-driven repayment (IDR) plans, tie your monthly bill to your discretionary income. There are four types:

• Income-based repayment (IBR). Your monthly payments will be 10% to 15% of your discretionary income. If you haven’t paid your loan off in 20 or 25 years, your remaining balance will be forgiven. Whether you qualify to pay 10% or 15% of your income, and win forgiveness after 20 years or 25, depends on the year you first borrowed. Those who first took out federal loans after July 1, 2014 qualify for the more generous terms: payments at 10% of income and forgiveness after 20 years.
• Income-contingent repayment (ICR). Your monthly payments will be 20% of your discretionary income or the amount you’d pay on a fixed payment plan over 12 years. Any outstanding balance is forgiven after 25 years.
• Pay As You Earn (PAYE). This plan caps your monthly payments at 10% of discretionary income and will never be more than what you’d pay under the standard repayment plan. Your remaining balance will be forgiven after 20 years.
• Revised Pay As You Earn (REPAYE). Your monthly payment will be 10% of your discretionary income, but it’s not guaranteed that you’ll pay less compared to a standard repayment plan. Any balance remaining after 20 or 25 years will be forgiven. REPAYE doesn’t have an income requirement like other IDR plans do, meaning any borrower with federal loans can sign up, regardless of income.

Federal student loans also have deferment and forbearance options, which allow you to temporarily pause payments without hurting your credit score or defaulting on your loan.

Most private student loans have repayment schedules of five to 20 years or more, and many offer grace periods. But keep in mind that interest typically accrues while you’re in school and during periods when you postpone payments. Private lenders also aren’t required to offer the same amount of forbearance in case you can’t make payments, with limits typically at 12 or 24 months throughout the duration of the loan term. Federal loans offer up to three years of forbearance or deferment, depending on the circ*mstance.

What happens to student loan debt when you die?

If you are the primary borrower, your federal studentloans can be forgiven if you die. Parent PLUS loans can be forgiven if either the parent borrower or the student who benefitted from the loan dies.

It’s less clear what happens to your private student loans if you die, since policies vary by lender. Many lenders will discharge the debt if the primary borrower dies, but you should check your lender’s exact policy to confirm.

How long does it take to pay off student loans on average?

How long it takes to pay off your student loansdepends on the type of loan you have and your repayment plan. The standard repayment schedule for federal student loans has you pay off your debt in 10 years, but alternative plans allow for 20, 25 or 30 years of repayment.

Private student loan terms vary by lender, but you can often choose between five, seven, 10, 15 and 20 year repayment periods. Shorter repayment terms typically come with lower interest rates, and the faster you repay your debt, the less you’ll pay overall.

What happens if you don’t pay your student loans?

If youdon’t pay your federal student loans, your loan will become delinquent on the first day of your missed payment. You may be charged late fees, and after 90 days, your missed payments will be reported to the credit bureaus. If your loan remains delinquent for 270 days (about 9 months), you’ll enter default.

If you default on your federal loans, your credit will be seriously damaged and the entire loan balance can become due. Lenders may also garnish your wages, tax refunds or Social Security payments to recoup their money. You might be sued by the lender or be forced to deal with aggressive collection agencies.

Private student loans follow a similar path, but the timeline is shorter. Your loan will become delinquent on the first day of your missed payment and can enter default after just 90 days. After 120 days, the lender may charge off your debt—that is, sell it to a collections agency who will work to make you pay up. Your credit will be seriously damaged, fees will accrue and you could be sued to allow the lender to garnish your wages.