Student Loan Basics

Student loans are one of the most common types of debt in the country, and they come with their own set of rules, options, and terminology. Whether you’re currently paying off student loans or trying to understand what you signed up for years ago, knowing the basics helps you take advantage of the repayment options and programs available to you.

Federal vs Private Student Loans

The most important distinction in student loans is whether they’re federal or private. This determines your interest rate, repayment flexibility, and access to programs like forgiveness and income-driven repayment.

Federal Student Loans

Federal loans are issued by the U.S. Department of Education. They’re the most common type and come with significant borrower protections.

Key features:

• Fixed interest rates set by Congress annually
• No credit check required for most undergraduate loans (Direct Subsidized and Unsubsidized)
• Income-driven repayment plans that cap your monthly payment based on what you earn
• Loan forgiveness programs for qualifying borrowers
• Deferment and forbearance options if you’re struggling to pay
• Subsidized loans don’t accrue interest while you’re in school at least half-time

Common federal loan types include:

• Direct Subsidized Loans — for undergrads with financial need; the government pays interest while you’re in school
• Direct Unsubsidized Loans — available regardless of need; interest accrues from day one
• Direct PLUS Loans — for graduate students and parents; require a credit check
• Direct Consolidation Loans — combine multiple federal loans into one

Private Student Loans

Private loans come from banks, credit unions, and online lenders. They fill the gap when federal loans don’t cover the full cost of education.

Key features:

• Interest rates can be fixed or variable, and are based on your credit score
• Often require a cosigner for younger borrowers
• No income-driven repayment options
• No federal forgiveness programs
• Limited hardship relief (deferment and forbearance options vary by lender)
• Fewer consumer protections overall

Because of these differences, the standard advice is: borrow federal first, and only use private loans as a last resort.

Income-Based Repayment (IBR) Plans

If your federal student loan payments feel unmanageable, income-driven repayment plans can help. These plans set your monthly payment based on your income and family size rather than how much you owe.

There are several plans available:

SAVE Plan (Saving on a Valuable Education)

• Payments are based on 5% of discretionary income for undergrad loans (10% for graduate)
• Remaining balance forgiven after 20-25 years
• Interest doesn’t grow if you’re making qualifying payments
• This is the newest and often most generous plan

Income-Based Repayment (IBR)

• Payments are 10-15% of discretionary income
• Forgiveness after 20-25 years
• Available to borrowers with high debt relative to income

Pay As You Earn (PAYE)

• Payments are 10% of discretionary income
• Forgiveness after 20 years
• Only available to newer borrowers

Income-Contingent Repayment (ICR)

• Payments are 20% of discretionary income or what you’d pay on a 12-year fixed plan, whichever is less
• Forgiveness after 25 years
• The only income-driven plan available for Parent PLUS loans (through consolidation)

To enroll in an income-driven plan, apply through your loan servicer or at StudentAid.gov. You’ll need to recertify your income annually.

Loan Forgiveness Programs

Several programs can eliminate some or all of your remaining federal student loan balance:

Public Service Loan Forgiveness (PSLF)

If you work for a qualifying public service employer (government, nonprofit, etc.) and make 120 qualifying payments (10 years) on an income-driven plan, your remaining balance is forgiven — tax-free.

Key requirements:

• Must have Direct Loans (or consolidate into one)
• Must be on an income-driven repayment plan
• Must work full-time for a qualifying employer
• Submit the PSLF Employment Certification Form regularly

Income-Driven Repayment Forgiveness

After 20-25 years of payments on an income-driven plan, any remaining balance is forgiven. Historically, this forgiven amount has been treated as taxable income, though this may vary based on current tax law.

Teacher Loan Forgiveness

Teachers who work in low-income schools for five consecutive years may qualify for up to $17,500 in forgiveness on certain federal loans.

Other State and Employer Programs

Many states and employers offer their own student loan repayment assistance programs. These are worth researching — your state’s higher education agency or your employer’s HR department can provide details.

Tips for Managing Student Loans

Here are practical steps you can take:

• Know your loans. Log into StudentAid.gov to see all your federal loans, their balances, interest rates, and servicers.
• Contact your servicer. If you’re struggling, call them. They can help you explore repayment plans, deferment, and forbearance.
• Don’t default. Federal loan default (270+ days without payment) triggers serious consequences: wage garnishment, tax refund seizure, and loss of access to income-driven plans and forgiveness.
• Pay more than the minimum when possible. Specify that extra payments should go toward the principal balance, not future payments.
• Consider refinancing carefully. Refinancing federal loans into a private loan can lower your rate, but you permanently lose access to federal protections, income-driven plans, and forgiveness programs.

Bottom Line

Federal student loans offer protections and flexibility that private loans don’t — including income-driven repayment plans and forgiveness programs. If you’re struggling with payments, explore income-based options before falling behind. And if you work in public service, look into PSLF. Understanding your loan type and the programs available to you is the foundation of a smart student loan strategy.