How Student Loan Repayment Works

Your monthly student loan payment is calculated using the standard amortization formula. Early in repayment, the majority of each payment goes toward interest. As the balance decreases, more goes toward principal until the loan is fully paid off.

Federal student loans offer multiple repayment plans, income-driven options, and potential forgiveness programs. Private loans typically offer fewer protections, making it critical to understand your full cost before borrowing.

Current Federal Student Loan Rates —

Subsidized & Unsubsidized (Undergrad)

Approximately 6.5–7.0% for the 2025–2026 academic year. Fixed for the life of the loan. Subsidized: government pays interest during school. Unsubsidized: interest accrues immediately from disbursement.

Graduate Unsubsidized

Approximately 8.0–8.5% for graduate students. Higher rates reflect the larger balances typically borrowed. No subsidized option is available for graduate students under current law.

PLUS Loans (Parent & Grad)

Approximately 9.0–9.5% — the highest federal rate. Used when other federal limits are exhausted. Full credit check required. Origination fees of approximately 4.2% apply at disbursement.

Private Student Loans

Variable: 4–16% depending on credit score, co-signer, and lender. Can be lower than federal for excellent-credit borrowers, but lack income-driven repayment and forgiveness options.

Estimates only. Actual payment may vary based on your servicer, grace periods, and capitalized interest from school years. Contact your servicer for official figures.

🎓

Refinance your student loans — rates from 4.99% APR

Compare offers from top lenders · No impact on credit score · Takes 3 minutes

Compare Rates →

Sponsored — we may earn a commission if you apply through this link, at no cost to you.

Frequently Asked Questions

What is the average student loan debt in the US?+

The average federal student loan debt per borrower is approximately $37,000–$40,000 as of 2026. Total US student loan debt exceeds $1.7 trillion held by over 43 million borrowers. Graduate and professional school graduates often owe $100,000–$200,000 or more. Undergraduate federal loan limits are $31,000 for dependent students and $57,500 for independent students over four years.

What is the difference between subsidized and unsubsidized student loans?+

Subsidized loans are need-based — the government pays the interest while you are enrolled at least half-time, during grace periods, and during deferment. Unsubsidized loans are available regardless of financial need, but interest accrues from the moment of disbursement. If you do not pay that interest during school, it capitalizes (is added to your principal) when repayment begins — increasing your total debt. Always maximize subsidized loans before taking unsubsidized ones.

How does income-driven repayment work for federal student loans?+

Income-driven repayment (IDR) plans cap your monthly payments at a percentage of your discretionary income — typically 5–20% depending on the plan. Options include SAVE, IBR, PAYE, and ICR. After 20–25 years of qualifying payments, any remaining balance may be forgiven (forgiven amounts may be taxable). IDR plans are available for federal Direct Loans only — not private loans. Enrollment is free through studentaid.gov.

Can I deduct student loan interest on my taxes?+

Yes — you can deduct up to $2,500 of student loan interest as an above-the-line deduction (no itemizing required). The deduction phases out at MAGI of $75,000–$90,000 for single filers and $155,000–$185,000 for married filing jointly in 2026. You must be legally obligated to repay the loan and not be claimed as a dependent. Your servicer sends Form 1098-E showing interest paid each year.

Should I refinance my student loans to get a lower rate?+

Refinancing makes sense if you can qualify for a significantly lower rate and have stable income. Critical warning: refinancing federal loans with a private lender permanently eliminates all federal protections — income-driven repayment, Public Service Loan Forgiveness, deferment, and forbearance rights. Only refinance federal loans if you are certain you will not need PSLF or IDR. Private loan refinancing has fewer downsides and can save thousands in interest.

How does Public Service Loan Forgiveness work?+

PSLF forgives the remaining balance on federal Direct Loans after 120 qualifying monthly payments (10 years) while working full-time for an eligible public employer — government agencies, 501(c)(3) nonprofits, and certain other organizations. Payments must be under an income-driven repayment plan. Forgiven amounts under PSLF are not taxable. Submit the PSLF Employment Certification Form annually to track progress. Only Direct Loans qualify — FFEL loans must be consolidated first.

What happens if I miss student loan payments or go into default?+

For federal loans, missing payments leads to delinquency. Default occurs after 270 days of missed payments and has serious consequences: damaged credit, wage garnishment, tax refund seizure, and loss of eligibility for future federal aid. If you cannot afford payments, contact your servicer immediately to explore income-driven repayment, deferment, or forbearance options. Do not simply stop paying — proactive communication with your servicer preserves options.

How much extra should I pay per month to pay off student loans faster?+

Even modest extra payments have significant impact. On a $35,000 loan at 6.5% over 10 years, paying an extra $100/month saves approximately $2,800 in interest and cuts payoff time by about 16 months. An extra $200/month saves over $5,000 and cuts nearly 3 years. Always ensure extra payments are applied to principal, not future installments — contact your servicer to confirm. Target your highest-rate loan first for maximum interest savings.

Is it better to pay off student loans or start investing?+

The answer depends on your loan rate versus expected investment returns. If your rate is below 5–6%, investing in broad index funds (historically 7–10% annual returns) may be more beneficial long-term. If your rate is above 7%, aggressively paying down debt often makes more financial sense. A smart approach: always contribute enough to capture your employer's 401k match first, then pay down high-rate loans, then invest the remainder. Do not neglect an emergency fund either.

What are the federal student loan borrowing limits for undergraduates?+

Federal loan limits for dependent undergraduates: $5,500 in year 1 (max $3,500 subsidized), $6,500 in year 2 (max $4,500 subsidized), $7,500 in years 3+ (max $5,500 subsidized). Total aggregate limit: $31,000 (max $23,000 subsidized). Independent undergraduates have higher limits: $9,500, $10,500, $12,500 per year respectively, with a $57,500 aggregate limit. Graduate students can borrow up to $20,500/year unsubsidized, plus PLUS loans for remaining costs.