What To Know Before Getting Student Loans

Student loan debt affects millions of Americans. According to recent data, the average student loan amount per borrower is $39,075. This loan creates a long-term financial obligation for every borrower, so it is important that you make informed decisions. An education law attorney can help you understand your legal protections. They can also explain the potential consequences of successful repayment of student loans and potential default.

Federal vs. Private Student Loans: Understanding Key Distinctions

Two primary loan programs exist for educational financial aid: government-sponsored programs and private lending through banks, credit unions, and online financial institutions. Each option offers different advantages and limitations that borrowers should carefully consider.

FAFSA Requirements and Application Process

Accessing government educational assistance requires completing the Free Application for Federal Student Aid (FAFSA). This application becomes available each October 1st for the subsequent academic year. It collects family financial data to determine eligibility levels and financial need. You should submit your FAFSA promptly, as certain grant programs work on a first-come, first-served basis.

Private loans do not require the FAFSA. You’ll be required to submit the lender’s  application. This application must contain information about your income, credit, and other financial and personal information for you and your cosigner.

Note that a cosigner is someone who agrees to pay for your loan in case you fail to pay it back. When a loan is cosigned, it is recorded on the borrower’s and cosigner’s credit reports.

Comparison With Interest Rates

Federal student loans typically offer more favorable rates than private alternatives. Federal student loan interest rates are fixed for each loan type and academic year and don’t depend on credit history or income. New rates are set annually for new borrowers.

For 2025 to 2026, the following are the interest rates for student loans:

• 6.39% for undergraduate students’ direct subsidized loans and direct unsubsidized loans
• 7.94% for graduate direct unsubsidized loans
• 8.94% for direct PLUS loans for parents of dependent undergraduate students and for graduate or professional students

Private loan interest rates may vary significantly. They could range from 2.89% to 17.99%. The interest rates are often based on the borrower’s creditworthiness. In general, government loans for students with limited credit history often benefit from the lower fixed interest rates.

Student Loan Protections

Federal student loan borrowers may qualify for extensive consumer safeguards, including:

• Deferment or forbearance, depending on their circumstances
• Interest suspension during enrollment, grace periods, and deferment for subsidized loans
• Guaranteed six-month post-graduation grace period before payments begin for most federal loans
• Multiple repayment plan options, including graduated and extended terms
• Income-driven repayment plans for high debt-to-income situations
• Loan forgiveness through income-driven plans and career-specific programs like Public Service Loan Forgiveness (PSLF)
• 270-day default timeline compared to private loans’ shorter default periods

Private loans offer limited flexibility. They typically provide only 12 months of forbearance instead of three years. They also offer fewer long-term payment reduction opportunities. Private lenders rarely provide forgiveness programs for specific careers or repayment plans.

Disaster Relief and Emergency Protections

Federal student loan borrowers received unprecedented relief during the COVID-19 pandemic. This included automatic forbearance and 0% interest rates from March 2020 through September 2021. This relief prevented balance growth during the pandemic.

Private lenders offered limited relief. These were often three-month forbearance increments with continued interest accrual.

Credit Requirements and Accessibility

Most federal loans, both subsidized and unsubsidized, require no credit checks. This makes them accessible to college students without sufficient credit history.

Private lenders, on the other hand, conduct comprehensive credit evaluations on all applicants. Lenders consider credit scores, income, cash flow, and other financial factors. Based on these factors, they could potentially reject borrowers or charge higher rates.

Borrowing Limits and Loan Maximums

Government loans impose strict borrowing limits. The limits are:

• $31,000 total for dependent undergraduate students
• $57,500 for independent undergraduates
• $138,500 for graduate students, including undergraduate loans

These limits may seem restrictive for expensive institutions, but they help ensure manageable post-graduation payments.

Private loans typically allow borrowing up to the full cost of attendance with fewer restrictions. This makes them attractive when government loan limits fall short. However, this flexibility can lead to over-borrowing and higher debt levels.

Variable Rate Options

Unlike government loans’ fixed rates, private lenders offer both fixed and variable interest rate choices. Fixed rates offered by federal loans provide safer long-term planning for most students. Variable rates often start lower than fixed alternatives but can increase over time. These may benefit borrowers with stable incomes who plan a more rapid repayment.

Refinancing Considerations

Refinancing federal student loans with a private lender converts them into private loans, permanently ending eligibility for federal protections like income-driven repayment plans, forgiveness programs, or federal forbearance.

Private loan repayment refinancing makes more sense given their higher rates and fewer protections. Borrowers with improved credit scores and steady incomes can secure lower rates through refinancing. This could potentially save them substantial amounts throughout the repayment period.

Collection Procedure

The most notable difference between federal student loans and private student loans is the collection procedures. If you default on a federal loan, the government can collect the debt without going through court approval. They can garnish your wages for up to 15% without the need for a court order and can offset tax refunds and withhold a portion of Social Security benefits (up to 15%, but benefits cannot be reduced below $750 per month). 

Private lenders typically must obtain a court judgment before garnishing wages, though exact requirements vary by state law. 

What Happens if I Default on My Federal Student Loan?

If you fail to pay your loan for 270 days, the government will place it in default and will attempt to collect on the loan. Failure to make payments constitutes a violation of the terms provided in your promissory note.

The Collection Process

Your loan servicer should exercise “due diligence” during the months when you missed paying for your student loans. The servicer will make repeated attempts to locate and contact borrowers about repayment alternatives.

If you believe you could be in default, but you have not yet received any letter from your servicer, you can contact them instead of waiting. They may have repayment options to help you avoid being in default.

Consequences of Defaulting

If your federal student loan reached default status, you may face several consequences:

• The government could garnish your wages without a court order
• You could lose your tax refund or Social Security check, as the money will be applied to your outstanding student loan
• The government would send a notification to credit reporting companies. This could result in lower credit scores

You may also be ineligible for additional government student assistance until you take actions to bring your loan out of default.

Recovery Programs

The U.S. Department of Education (ED) also offers Fresh Start Program. This is a temporary one-time initiative that helps student loan borrowers remove their loans from default status.

Differences Between Deferment and Forbearance

There may be times when you need to take a break from making student loan payments, such as periods of unemployment or other setbacks. If you have trouble making payments, you should ask your lender for a deferment or a forbearance. They both allow you to reduce or postpone your payments, but have some key differences:

Deferment

You will not need to make payments during the deferment period. The federal government may pay the interest on the loan, unless it is an unsubsidized or PLUS loan.

Forbearance

You may either stop making payments or make reduced payments for up to 12 months, depending on the agreement reached with the lender. Interest will continue to accrue during the forbearance period.

Regardless the reason, contact your lender as soon as you’re aware you can’t make a payment. Lenders will often agree to a deferment, forbearance, or other modification and always prefer that to a default. Talk to a consumer protection lawyer in your area if you need legal assistance.

Recent Court Actions Affecting Income-Driven Repayment Programs

Federal court decisions can change income-driven repayment plans. On February 18, 2025, a federal court issued a new injunction at the behest of the Trump administration. The injunction blocks the Department of Education from continuing to implement the SAVE Plan and other parts of income-driven repayment (IDR) plans. These legal actions temporarily suspended online applications for both income-driven plans and loan consolidation.

Due to ongoing litigation, some loan repayment plan features and forgiveness benefits have been temporarily paused, including:

• Monthly payment calculations using SAVE or Revised Pay As You Earn formulas
• Forgiveness and interest subsidies under PAYE, ICR, and SAVE programs
• Credit toward forgiveness for certain payments, deferment periods, and forbearance periods
• Weighted average payment applications for consolidation loans
• Access to IBR plans for borrowers in default

As of March 26, 2025, online applications have resumed for three income-driven programs:

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

Loan servicers are actively processing applications for these available options.

The Education Department continues monitoring legal developments. They will also update if the availability of the program changes. If you are a borrower, you should regularly check with your loan servicer. This will help you get the most recent information about repayment options and changes in the program. You can also contact a consumer protection lawyer.

Problems with Your Student Loan? Speak With an Attorney

If you are having problems with your student loan, such as a dispute over billing, you have options for help. You may call either the FSA Ombudsman within the Education Department for federal loans. The FSA Ombudsman does not have the authority to impose any solutions. However, they will work with everyone involved to resolve the issue. 

You can also reach out to the Private Student Loan Ombudsman within the Consumer Financial Protection Bureau. The Private Student Loan Ombudsman also lacks direct authority, but they can answer questions about confusing loan terms, debt collection problems, billing disputes, and other issues.  

If you are struggling with student loan payments or facing a default, you can contact an education law attorney. They can help you understand your rights and find available programs that can help you with your loan. A lawyer can also explore options such as deferment, forbearance, or income-driven repayment plans.