The Student Loan Guide: What to Know Before You Borrow
Federal vs. private loans, repayment plan options, interest rates, and when refinancing makes sense. The essential guide to borrowing for college.
61% of bachelor's degree graduates borrow to pay for college. The average debt for the class of 2024 is $29,560. That is a car loan's worth of debt for most graduates - manageable if your degree leads to strong earnings, painful if it does not.
This guide covers what you need to know before borrowing: the types of loans available, how repayment works, and how to decide how much debt is reasonable for your situation.
Federal Loans: Start Here
Federal student loans should always be your first borrowing option. They offer lower interest rates, flexible repayment, and protections that private loans do not.
Types of Federal Loans
| Loan Type | Who Qualifies | Interest Rate (2025-2026) | Borrowing Limit |
|---|---|---|---|
| Direct Subsidized | Undergrads with financial need | 6.53% fixed | $3,500-$5,500/year |
| Direct Unsubsidized | All undergrads (no need requirement) | 6.53% fixed | $5,500-$7,000/year |
| Parent PLUS | Parents of undergrads | 9.08% fixed | Up to cost of attendance |
| Grad PLUS | Graduate students | 9.08% fixed | Up to cost of attendance |
Annual limits matter. A dependent undergraduate can borrow a maximum of $5,500-$7,000 per year in federal loans (depending on year in school), with a total cap of $31,000. If your school costs more than that, the gap comes from family contributions, scholarships, or private loans.
Private Loans: The Last Resort
Private loans come from banks, credit unions, and online lenders. Use them only after exhausting all federal options.
Why federal first: - Federal loans have income-driven repayment options. Private loans generally do not. - Federal loans qualify for Public Service Loan Forgiveness. Private loans do not. - Federal loans offer deferment and forbearance in hardship. Private loan options are limited. - Federal interest rates are fixed. Many private loans have variable rates that can increase over time.
If you must borrow privately, compare rates from at least 3-5 lenders. Your interest rate depends on your (or your cosigner's) credit score and income.
How Much Should You Borrow?
The debt-to-income rule is simple: do not borrow more than your expected first-year salary.
Check what graduates from your school and major actually earn using our school profiles or the College Scorecard. Then use that number as your borrowing ceiling.
| Expected Salary | Max Recommended Debt | Monthly Payment (10-year) |
|---|---|---|
| $35,000 | $35,000 | ~$400 |
| $50,000 | $50,000 | ~$570 |
| $65,000 | $65,000 | ~$740 |
| $80,000 | $80,000 | ~$910 |
For more detail on this threshold, read how much student debt is too much.
Repayment Plans Explained
Federal loans offer multiple repayment options. The plan you choose determines your monthly payment and total interest paid.
Standard Repayment
- Fixed payments over 10 years - Highest monthly payment, lowest total interest - Best for: borrowers who can afford it and want to minimize total costGraduated Repayment
- Payments start low and increase every 2 years over 10 years - Total interest is higher than standard - Best for: borrowers who expect rising income early in their careerIncome-Driven Repayment (IDR)
- Payment capped at a percentage of discretionary income (10-20% depending on the plan) - Remaining balance forgiven after 20-25 years - Best for: borrowers with high debt relative to income, or those pursuing Public Service Loan ForgivenessSAVE Plan (Saving on a Valuable Education)
- Newest IDR option (though subject to ongoing legal challenges as of 2026) - Payments at 5% of discretionary income for undergraduate loans - Outstanding unpaid interest does not capitalize - Best for: lower-income borrowers with undergraduate debtUse our loan payback calculator to model each plan with your specific numbers.
When Refinancing Makes Sense
Refinancing replaces your existing loans with a new private loan at a (hopefully) lower interest rate. It makes sense when:
- Your credit score is 700+ (or you have a strong cosigner) - You have stable employment and income - Your current interest rate is at least 1-2 percentage points above available refinance rates - You do not need federal protections (IDR, forgiveness, deferment)
Warning: Refinancing federal loans into private loans is a one-way door. You permanently lose access to income-driven repayment, Public Service Loan Forgiveness, and federal deferment options. If there is any chance you will need those protections, do not refinance your federal loans.
Refinancing private loans into a new private loan carries no such risk and is almost always worth doing if you qualify for a lower rate.
Strategies to Minimize Debt
Start at community college. Two years at a community college followed by transfer to a 4-year school can cut total cost by 40-60%. Read our transfer student guide for the playbook.
Work during school. 10-15 hours per week has been shown to improve academic performance (counterintuitively). More than 20 hours starts to hurt grades and extend time to degree.
Exhaust scholarships. Apply broadly. Most scholarships receive fewer applications than you would expect. Even $1,000-$2,000 scholarships add up and reduce borrowing.
Graduate on time. Every extra semester costs $10,000-$30,000 in tuition plus $15,000-$20,000 in forgone earnings. Pick schools with high 4-year graduation rates.
The Bottom Line
Student loans are a tool, not a crisis - as long as you borrow the right amount for the right degree. Keep total debt below your expected first-year salary, always choose federal over private, and pick the repayment plan that matches your income trajectory.
The math is not complicated. The discipline is the hard part.
Frequently Asked Questions
How much student loan debt is too much?
The general rule: do not borrow more than your expected first-year salary after graduation. If you expect to earn $50,000, keep total borrowing under $50,000. Above that threshold, monthly payments start consuming more than 10% of gross income on a standard 10-year plan, which financial advisors consider the upper limit of comfortable repayment.
What is the difference between federal and private student loans?
Federal loans come from the government with fixed interest rates, income-driven repayment options, and potential forgiveness programs. Private loans come from banks or lenders with variable or fixed rates, fewer repayment protections, and no forgiveness options. Always exhaust federal loans before considering private loans.
When should I refinance my student loans?
Refinancing makes sense when you have strong credit (700+), stable income, and your current interest rate is significantly higher than what private lenders offer. But refinancing federal loans into private loans means losing access to income-driven repayment, Public Service Loan Forgiveness, and other federal protections. Only refinance federal loans if you are certain you will not need those safety nets.
Run your own numbers
Every family's situation is different. Use our tools to model your specific scenario.