Back to Borrowing

Student Loans

Student loans can be an investment in your future — or a weight that follows you for decades. Understanding the difference between federal and private loans, and making smart borrowing decisions, is critical.

Federal vs. Private Loans

Federal Loans
  • From: The US government
  • Interest rates: Fixed, set by Congress
  • Income-driven repayment: Available
  • Loan forgiveness: Programs exist
  • Deferment/forbearance: More flexible

Always borrow federal first.

Private Loans
  • From: Banks, credit unions, lenders
  • Interest rates: Variable or fixed, based on credit
  • Income-driven repayment: Usually not available
  • Loan forgiveness: Does not exist
  • Deferment/forbearance: Limited or none

Last resort only.

Types of Federal Loans

Direct Subsidized Loans

For undergraduates with financial need. The government pays the interest while you are in school. Best type of federal loan.

Direct Unsubsidized Loans

Available regardless of financial need. Interest accrues from day one, even while in school. Still better than private loans.

Direct PLUS Loans

For graduate students or parents. Higher interest rates and fees. Requires credit check. Be cautious — these add up fast.

The Long-Term Impact

Student debt follows you

Unlike other debts, student loans almost never go away — not in bankruptcy, not after years of non-payment. They can affect your ability to:

  • Buy a home (debt-to-income ratio)
  • Start a family (financial stress)
  • Save for retirement (money goes to payments)
  • Take lower-paying jobs you might love (need income for payments)
  • Start a business (harder to get other loans)

Before You Borrow: Questions to Ask

What is the expected salary for my degree? (Research actual job postings, not school marketing)

Can I work part-time during school to reduce borrowing?

Are there cheaper schools that would give me the same opportunities?

Have I maxed out scholarships, grants, and work-study before loans?

What will my monthly payment be after graduation? Can I afford that on a starting salary?

Am I borrowing for living expenses I could reduce?

A Rule of Thumb

Do not borrow more than your expected first-year salary.

If you expect to earn $50,000 in your first job, try to keep total borrowing under $50,000. This keeps payments manageable (roughly 10% of income on a 10-year plan).

Borrowing $100,000 for a degree that leads to a $40,000 job is a recipe for decades of financial stress.

If You Already Have Loans

Know exactly what you owe, to whom, and at what interest rate

Understand your repayment options (especially income-driven plans for federal loans)

Look into Public Service Loan Forgiveness if you work in government or nonprofit

Pay more than the minimum when possible — specify it goes to principal

Consider refinancing only if you have private loans and good credit (you lose federal protections)

Never ignore your loans — there are options, but you must communicate with your servicer

Key Takeaway

Education can be a great investment, but the return depends heavily on what you study, where, and how much you borrow. Federal loans first, private loans as a last resort, and never borrow more than you can reasonably expect to repay. Your 18-year-old self is making decisions your 30-year-old self will live with.