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As the cost of attending college continues to climb, so does the need for financial aid. A recent study by the National College Attainment Network (NCAN) found that 2022-23 incoming college students completed 4.8% fewer FAFSAs than the previous class. To qualify for federal financial aid, including student loans, you must complete the Free Application for Federal Student Aid.

But, many high school seniors know little about the financial aid process, including how student loans work and how to repay them, according to a 2019 ACT study.

That’s troubling, especially when you consider that students in the U.S. currently owe nearly $1.9 trillion in student debt, according to FinAid. Fortunately, we’ve got the answers to your student loan FAQs.

Credible makes it easy to compare student loan interest rates from multiple lenders.

  • What is a student loan and how is it different from other types of loans?
  • What’s the difference between federal and private student loans?
  • How do I get federal student loans?
  • How can I get private student loans?
  • Can my parents take out a student loan for my education?
  • How much can I borrow in student loans?
  • What’s the interest rate on student loans?
  • What’s the difference between variable- and fixed-rate loans?
  • What is a student loan servicer and what do they do?
  • How do I apply for student loans?
  • What can I use student loans for?
  • Can I get a student loan with bad or no credit?
  • What’s the FAFSA and do I need to complete it?
  • When do I have to start repaying student loans?
  • What is forbearance?
  • What is an income-driven repayment plan?
  • Can I get my student loans forgiven?
  • What if I can’t afford my student loan payments?
  • Can student loans be discharged in bankruptcy?
  • How can I get a student loan out of default?

What is a student loan and how is it different from other types of loans?

Student loans — both private and federal — help students cover the cost of attending college. They’re similar to other types of loans since you’re obligated to repay them with interest. Student loans are unsecured, meaning you don’t have to put up collateral to get one, and failing to repay your loans can negatively affect your credit score, lead to legal action, or even garnishment of your future wages.

The federal government funds federal student loans, and the U.S. Department of Education gives the loans. Private lenders make private student loans. You must pay your student loans even if you file for bankruptcy unless you meet strict guidelines, like showing you have greater undue hardship than someone normally facing bankruptcy.

What’s the difference between federal and private student loans?

Private student loans come from banks, credit unions, online lenders, nonprofits, and schools . Federal student loans come from the U.S. Department of Education. Both types of loans are meant to cover the cost of tuition, housing, books, supplies, transportation, and other expenses related to attending college.

Private lenders set the terms and interest rates for their loans, so terms can vary from one lender to the next. Qualifying for private loans usually requires a good credit score, credit history, and source of income. Qualifying for federal loans is less stringent, and a good credit score typically doesn’t matter.

Federal student loans also offer a number of benefits that private ones don’t, including flexible repayment options and the ability to qualify for student loan forgiveness. But the amount you can borrow with federal student loans is limited, while there’s no limit on how much you can borrow with private student loans.

How do I get federal student loans?

Applying for federal student aid starts with submitting the Free Application for Federal Student Aid, or FAFSA. This determines how much federal aid you qualify for, based on the information you provide on the enrollment form. After you submit the form, you’ll receive a financial award letter outlining all the details of your financial aid package.

But to receive the funds, you’ll likely need to complete a college entrance counseling session. After you complete this session, you’ll sign a Master Promissory Note, which means you agree to the loan terms.

How can I get private student loans?

It’s usually best to apply for private student loans only after you’ve exhausted all your other financial aid possibilities — scholarships, grants, work-study programs, and federal loans. But if you still need money to attend college, you can contact a private lender to help fill in the gaps with a private loan.

Once you’ve shopped around for a lender that satisfies your needs, gather some personal, employment, and school information, and fill out an application. Keep in mind that you’ll likely need a cosigner to qualify if your credit score is low.

Can my parents take out a student loan for my education?

Parents can help offset the cost of their child’s education by taking out federal Parent PLUS loans or private loans offered by banks, credit unions, and online lenders. Parent PLUS loans are federal student loans that come with fees but can offer better rates and terms than private loans and don’t have strict requirements to qualify. Private loans usually require the borrower or a cosigner to have good to excellent credit to qualify, but generally don’t come with fees.

How much can I borrow in student loans?

Most lenders agree that you should only ever borrow enough to cover the cost of your college education. A good rule of thumb is that you should only borrow what you think you’ll earn as a starting salary when you graduate and only what your earnings will allow you to repay.

For federal subsidized and unsubsidized loans, your school will determine how much you can borrow. Private lenders have their own guidelines for determining loan limits but may not lend more than the cost of your education, minus any other financial aid you receive.

What’s the interest rate on student loans?

The interest rate you pay on your student loans varies depending on the loan you get. Federal student loan rates are fixed and the same for every borrower, while private loan rates vary by lender. Private lenders look at your credit score, type of loan (fixed or variable), income, and more before offering a rate. Overall, federal loans generally have lower rates than private loans.

You can see and compare interest rates for both variable- and fixed-rate student loans using Credible.

What’s the difference between variable- and fixed-rate loans?

The rate on a variable interest rate loan changes or fluctuates with the market. Payments can increase or decrease over time. Conversely, the interest rate on a fixed-rate loan is just that — fixed for the life of the loan.

While variable-rate loans usually start out with a lower interest rate than fixed-rate loans, the unpredictability of the rate over time can make managing payments difficult.

What is a student loan servicer and what do they do?

A federal loan servicer is a sort of liaison between you and the federal agency that lent you money for your college education. Part of their job is to make sure you make on-time payments.

They can also talk to you about additional repayment plans, help you discover forgiveness programs, and answer any questions you may have. You can log in to My Federal Student Aid to find out who your loan servicer is if you’re not sure.

How do I apply for student loans?

Before applying for student loans — either private or federal — exhaust all other options for funding your education. After that, follow these steps:

  • Look into the pros and cons of both federal and private student loans to make an informed choice of which is best for your needs. Generally, you should always exhaust your federal student loan options before turning to private student loans.
  • Gather personal and financial documents, such as your income, last year’s taxes, Social Security number, and more.
  • Fill out your FAFSA.
  • Receive a FSA I.D.
  • Complete a CSS profile — an online application used by scholarship programs, universities, and colleges to award institutional aid.
  • Meet with a private lender to determine your private loan options.
  • Review the financial aid report and your Expected Family Contribution you receive after submitting your FAFSA.
  • Accept your financial aid award.

What can I use student loans for?

While scholarships, grants, and work-study programs are great ways to fund your education, you may need loans to fill in any gaps in funding. You can generally use loans to pay for tuition, room and board, textbooks, electronics and other equipment, supplies, transportation, any miscellaneous fees, and even child care if needed.

Can I get a student loan with bad or no credit?

Yes, you can get a private student loan with poor or no credit. But federal student aid should be your first choice as federal lenders don’t consider your credit profile.

If you have bad credit, you may not easily qualify for a private loan, you’ll likely pay higher interest rates if you don’t have a cosigner, and repayment terms may not be as favorable. Online lenders can be a good option to get a private student loan with bad credit.

What’s the FAFSA and do I need to complete it?

FAFSA stands for Free Application for Federal Student Aid. It’s a form that you fill out to determine what kind of aid you’ll receive to attend college. This is done by assessing your financial need.

If you or your parents can pay for college, and you don’t need to take out federal loans, you may not think you need to bother filling out the FAFSA.But some colleges and universities require it during the application process. Check with your school’s financial aid office. Plus, if you plan to apply for grants and scholarships, you may also have to complete the FAFSA.

When do I have to start repaying student loans?

Depending on the type of loan you borrowed, the start date for repayment on your student loans will vary. Most federal student loans have a six-month grace period after graduation. Repayment options on private loans depend on the lender.

But because of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, payments on federal student loans owned by the Department of Education are suspended through May 1, 2022. Until then, your federal loans won’t accrue any new interest and won’t go into collections.

But not all loans qualify. Only Direct Loans, FFEL program loans, Federal Perkins loans, and defaulted HEAL loans not owned by commercial lenders qualify. Your loan servicer will notify you when you must begin making payments again.

What is forbearance?

Forbearance is “a temporary postponement or reduction of your student loan payments because you are experiencing financial difficulty,” according to the Consumer Financial Protection Bureau.

Federal student loan providers can offer forbearance up to 12 months at a time. Private lenders may only offer forbearance for up to three months, depending on the lender. Remember, you’ll continue to accrue interest on your loans during forbearance, and you’ll still be responsible for making the postponed payments once your forbearance period ends.

What is an income-driven repayment plan?

Income-driven repayment (IDR) plans, offered by the Department of Education, are intended to make federal student loan debt a bit more bearable by reducing your monthly federal student loan payments. There are four options:

  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Income-Contingent Repayment Plan (ICR)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)

IDR payments are determined by your income, which is typically 10% to 15% of your discretionary income, depending on when you took out the loan. IDR plans also usually run for 20 to 25 years. IDR plans aren’t available for private loans.

Can I get my student loans forgiven?

Yes, it’s possible to get some or all of your federal student loans forgiven. But, you must meet specific eligibility requirements to qualify for each option of student loan forgiveness.

  • Public Service Loan Forgiveness (PSLF) — Available for federal Direct Loans if you work a certain amount of time for a qualifying employer in a qualifying job
  • Income-driven repayment (IDR) plans — Based on your income, but only kicks in after you make a certain number of payments over a specific time period
  • Teacher Loan Forgiveness Program — Full-time teachers who have taught for five consecutive academic years in specific elementary or secondary schools that serve low-income families. Other qualifications also apply.
  • Military service — Available from the U.S. Department of Defense and U.S. Department of Education for military service to your country
  • AmeriCorps — Must complete a term in an approved AmeriCorps program

What if I can’t afford my student loan payments?

Although every private lender is different, many offer modified repayment plans that can help you better afford your student loan payments. For federal loans, there are several options, including:

  • Income-driven repayment plans
  • Graduated Repayment Plans
  • Extended Repayment Plans

If you’re having trouble making your loan payments, contact your loan servicer — private or federal.

Can student loans be discharged in bankruptcy?

Generally, student loans can’t be discharged in bankruptcy. But there are exceptions. Bankruptcy laws make an exception where your student loan debt would impose an undue hardship on you and your dependents, according to the U.S. Department of Education.

Also, if you can’t maintain a minimal standard of living or your financial situation is unlikely to improve during the repayment period but you’ve shown good faith in repaying your student loans, you may qualify for bankruptcy.

How can I get a student loan out of default?

If your student loans fall into default, you have three main options for getting out of default:.

  • Payment in full — This is exactly what it sounds like — you pay off your student loan balance in full.
  • Loan consolidation — You may be able to consolidate your defaulted federal student loans into a new Direct Consolidation Loan.
  • Loan rehabilitation Based on your income, to qualify for loan rehabilitation, you must agree to make nine monthly payments over 10consecutive months.

You can compare private student loan rates and learn more about student loans when you use Credible.


About the author: Kathryn Pomroy has been a personal finance writer for over seven years and is a contributor to Credible. Her work can be seen on LendingTree, Intuit/QuickBooks, FundThrough, insure.com, finder.com, NextAdvisor, and more. Kathryn holds a BA in Journalism.

About the author
Kathryn Pomroy
Kathryn Pomroy

Kathryn Pomroy has been a personal finance writer for over seven years with work featured on LendingTree, Intuit/QuickBooks, FundThrough, insure.com, finder.com, NextAdvisor, and more.

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