What you can borrow, what it costs, when interest starts, and how repayment changed in 2026. General information, not personalized financial or legal advice.
They are both money you borrow for school, and that is roughly where the similarity ends. A federal loan's interest rate is set by Congress once a year and is the same for every borrower who takes that loan type that year, no matter their credit. A private loan's rate is set by a lender based on your credit and your co-signer's, so two students at the same school can be offered very different terms.
The bigger difference is what happens if things go wrong. Federal loans carry income-based repayment, deferment and forbearance rights, and forgiveness programs, all written into law. Private loans carry whatever the contract says, which is usually far less. That asymmetry is why the standard advice is to exhaust federal options before taking a private loan, even when a private rate looks lower on the day you sign.
One fixed rate per loan type per year, set by law and never credit-based. No co-signer needed for the main undergraduate loans. Access to income-driven repayment, where your payment is tied to what you earn rather than what you owe, plus deferment, forbearance and forgiveness programs. The trade-off is hard borrowing limits: the government caps what you can take, regardless of what the school charges.
Rates are underwritten on credit, so a strong co-signer can produce a genuinely low offer and a thin credit file can produce a high one or a refusal. Rates may be variable, meaning the payment you were quoted is not necessarily the payment you keep. Limits are set by the lender and can cover a full cost of attendance. What you generally do not get is income-driven repayment or federal forgiveness, and that gap only matters when your income disappoints, which is exactly when you cannot fix it.
This is the single most misunderstood mechanic in student lending. A subsidized loan is the one that behaves the way most people assume all student loans behave: while you are enrolled at least half-time, the government pays the interest for you, so the balance you graduate with is the balance you borrowed. Subsidized loans are need-based and are only offered to undergraduates.
An unsubsidized loan accrues interest from the day it is disbursed, including every month you are still in class. Nobody sends you a bill for it, which is why it goes unnoticed, but it is accumulating the whole time. At the 2026-27 undergraduate rate of 6.52%, a single $5,500 freshman loan quietly generates about $358.60 of interest over its first year while you are sitting in lectures. Graduate students have no subsidized option at all, so for them this is simply how every federal loan works.
Federal borrowing limits rise as you progress, and they depend on whether you are classed as a dependent or an independent student, which is a specific federal definition rather than a description of who pays your bills. The annual figures below are for 2026-27, and the amount inside each that can be subsidized is capped separately.
Two consequences follow from those numbers. First, the gap between the cap and the actual price of a school is exactly the gap that gets filled by parent borrowing, private loans, scholarships, or not attending. Second, the lifetime caps are cumulative across your whole undergraduate career, so borrowing the maximum every year runs a dependent student into the $31,000 ceiling before a fifth year. Parent PLUS loans are capped at $20,000 a year and $65,000 per dependent student, and there is now a $257,500 lifetime ceiling across all federal loan types for a single borrower.
Federal rates are reset each July for loans disbursed in the year ahead, and they are fixed for the life of the loan once taken. They are calculated from the high yield of the 10-year Treasury note at the last auction before June, plus a fixed add-on that differs by loan type. For 2026-27 that Treasury yield was 4.468%, producing 6.52% for subsidized and undergraduate unsubsidized loans, 8.07% for graduate unsubsidized loans, and 9.07% for PLUS loans. A loan you took two years ago keeps its own rate; these apply only to new disbursements.
There is also an origination fee, deducted before the money ever reaches the school, which means you owe more than you receive from the first day. It is 1.057% on Direct subsidized and unsubsidized loans and 4.228% on PLUS loans. Borrow $31,000 in Direct loans and about $327.67 comes off the top, so roughly $30,672 arrives while $31,000 is what you repay. The same $31,000 as a PLUS loan loses about $1,310.68 to fees.
To put the standard plan in concrete terms: $31,000 at 6.52% repaid over the standard 10 years works out to about $352.31 a month, roughly $42,278 in total, of which about $11,278 is interest. Stretch the same balance to 25 years and the monthly payment drops to about $209.70, which feels like relief, but the total climbs to roughly $62,911 and the interest nearly triples to about $31,911. A longer term does not make a loan cheaper. It moves the cost from your monthly budget into the total, exactly as it does on a car loan or a mortgage.
On July 1, 2026, federal repayment split into two tracks. If your loans were disbursed on or after that date, your choices are the new Repayment Assistance Plan or a tiered standard plan. If you borrowed before it, you keep access to the older options for now and can also move to the new plan, with a decision deadline of July 1, 2028. The SAVE plan is being eliminated, PAYE and ICR end on July 1, 2028, and Income-Based Repayment survives as the continuing income-driven option for existing borrowers.
Grad PLUS borrowing also ends for students beginning programs after that date, and new annual limits apply for graduate and professional students, generally between $20,500 and $50,000 depending on the program. If you are currently enrolled or about to be, the practical takeaway is that the rules you plan around should be the ones attached to the date you actually borrow.
Payments run between 1% and 10% of income depending on what you earn, reduced by $50 a month per dependent, with a $10 minimum so that every borrower stays in contact with their servicer. Two features make it unusually forgiving of low earnings: unpaid monthly interest is waived rather than added to your balance, and if your payment does not reduce principal by at least $50, the government contributes the difference. Remaining balances are discharged after 360 on-time monthly payments, or 30 years, which is longer than the 20 to 25 years older income-driven plans offered.
The income-driven plan that survives the overhaul, and remains available to borrowers whose loans predate July 1, 2026. If you are already on it, or already working toward forgiveness under it, it is the option that does not disappear underneath you. Anyone weighing it against RAP is really comparing two things: the monthly payment each produces on their actual income, and how many qualifying payments they have already banked.
The fixed-payment route for loans taken on or after July 1, 2026, with the repayment term scaled to how much you borrowed rather than a flat ten years for everyone. It is the option that gets you out of debt fastest and costs the least in total interest, provided the payment fits your budget. If it does not, RAP exists precisely because a payment you cannot make helps nobody.
True for subsidized loans only, and those are need-based, undergraduate-only, and capped well below the annual limit. Every unsubsidized dollar accrues interest from disbursement, right through your degree. What graduation actually starts is the six-month grace period before payments are due, which is not the same thing as interest being paused.
Refinancing federally-held debt with a private lender is irreversible, and it converts protections into a rate. You give up income-driven repayment, federal deferment and forbearance rights, and eligibility for federal forgiveness, permanently. A lower rate can still be the right call for a high earner with stable income and no forgiveness prospects. It is a poor trade for anyone whose income might dip, because the protections you are selling are worth most in exactly that situation.
Not never, but the bar is genuinely high. Student debt is not wiped out automatically the way most consumer debt can be; it requires a separate proceeding and a showing of undue hardship, which is a demanding legal standard. "Extremely difficult and rarely attempted" is accurate. "Impossible" is not, and treating it as impossible has kept people from getting advice they were entitled to.
A longer term always lowers the payment and always raises the total. On the $31,000 example above, moving from 10 years to 25 cuts the payment by roughly $143 a month and adds roughly $20,633 in interest. That can still be the correct choice when the shorter payment genuinely does not fit, and income-driven plans exist for that reason. It is just worth choosing it knowingly rather than because it was the smallest number on the page.
Rates and fees apply to loans disbursed between July 1, 2026 and June 30, 2027, and are reset annually. A loan already taken keeps the rate it was issued at.
Almost everything above collapses into three habits. Take federal money before private money, because the protections are worth more than a rate quote. Borrow what you need rather than what you are offered, since the annual maximum is a ceiling and not a recommendation, and every unsubsidized dollar starts costing you immediately. And know which repayment track your loans sit on, because the July 2026 split means two borrowers with identical balances can now have genuinely different options.
Once you are repaying, student loans behave like any other debt with a rate attached, which means the ordering question applies: paying extra against the highest rate first saves the most money, while paying the smallest balance first clears accounts faster. If you are carrying several loans at different rates, the debt payoff calculator will compare both strategies on your actual balances, and how interest works explains why the rate matters more than the schedule.
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Monthly payment and total-interest examples on this page are calculated directly from the standard amortization formula at the stated rate and term; they are illustrations, not quotes. This page explains how federal student loans generally work and isn't financial or legal advice. Repayment rules changed substantially in 2026 and the details that apply to you depend on when your loans were disbursed, so confirm your own options with your servicer or at StudentAid.gov.