Student Loan Guide: Federal Loans, Repayment Plans, and Forgiveness

Student loans are unlike most other consumer debt — they're often taken out before a borrower has a steady income, they come with unique government protections and repayment options, and the difference between federal and private loans can dramatically change your options if you ever struggle to make payments. Understanding these distinctions before you borrow — or before you decide how aggressively to repay — can save you significant money and stress.

Federal vs. private student loans

Federal loans are issued by the US Department of Education with fixed rates set annually under a statutory Treasury-based formula. For loans first disbursed from July 1, 2026 through June 30, 2027, Direct Subsidized and Unsubsidized loans for undergraduates carry a 6.52% fixed rate, graduate Direct Unsubsidized loans are 8.07%, and Direct PLUS loans are 9.07%. The rate is fixed for that loan's life; an older loan keeps the rate assigned when it was disbursed.

Private loans are issued by banks, credit unions, and online lenders, with rates based on the borrower's (or co-signer's) credit — anywhere from roughly 4% to well over 15% depending on creditworthiness and whether the rate is fixed or variable. Private loans generally lack the flexible repayment and forgiveness options that come with federal loans, which is an important trade-off even if the initial rate looks lower.

Repayment plan options for federal loans

Your available plans now depend heavily on when your loans were first disbursed. Borrowers with a Direct Loan first disbursed on or after July 1, 2026 generally use the new Tiered Standard plan or Repayment Assistance Plan (RAP); older borrowers may retain access to legacy plans, subject to loan-type eligibility.

Repayment Assistance Plan (RAP): Monthly payments are generally 1%–10% of adjusted gross income, reduced by $50 for each qualifying dependent, with a $10 minimum. RAP has a 30-year repayment period and is the only income-driven option for borrowers with at least one qualifying Direct Loan first disbursed on or after July 1, 2026.

Legacy income-driven plans: Eligible pre-July 2026 borrowers may still qualify for IBR, ICR, or PAYE. ICR and PAYE are scheduled to end no later than July 1, 2028. The SAVE plan is no longer an available repayment option, so borrowers previously relying on it should use the official federal Repayment Calculator and contact their servicer.

Fixed-payment plans usually cost less in total interest when they repay the balance faster. Income-driven plans may reduce the required payment but can extend repayment and increase interest, so compare monthly cost, total paid, and potential forgiveness—not only the first payment.

Should you refinance your student loans?

Refinancing replaces one or more student loans with a new private loan, ideally at a lower rate. It can make sense if you have strong credit and a stable income, your current rate (especially on private loans) is well above current market rates, and you don't anticipate needing federal protections. The major catch: refinancing federal loans into a private loan permanently forfeits access to income-driven repayment plans, federal deferment/forbearance, and forgiveness programs. For borrowers confident in their job stability and income who hold high-rate private loans, refinancing can meaningfully reduce total interest. For federal borrowers who might need flexibility — or who could qualify for forgiveness — keeping the federal loan is usually the safer choice.

Forgiveness programs: a brief overview

Public Service Loan Forgiveness (PSLF) forgives the remaining federal loan balance after 120 qualifying monthly payments (10 years) while working full-time for a qualifying government or nonprofit employer. Income-driven repayment plans forgive remaining balances after 10-25 years of payments, depending on the plan and whether the original loans were for undergraduate or graduate study. Eligibility rules, qualifying payment definitions, and program details have changed multiple times in recent years, so borrowers pursuing forgiveness should verify current requirements directly with the Department of Education or their loan servicer rather than relying on older information.

Official resources and review date

Last reviewed August 9, 2026. Verify eligibility and live repayment estimates with the U.S. Department of Education’s Repayment Calculator and income-driven repayment guidance before changing plans.

Try the Calculators

Related Guides

Frequently Asked Questions