How student loan repayment works
A student loan is money borrowed to pay for college, graduate school, vocational training, or other qualified educational expenses. Once you leave school, whether you graduate, drop below half-time enrollment, or withdraw, you enter a six-month grace period before payments begin (PLUS loans don't have a grace period). At that point, you'll need to choose a repayment plan and start making monthly payments to your loan servicer.
Federal Direct Loans charge a fixed interest rate set the year you borrow, meaning the rate stays the same for the life of the loan. Loans first disbursed July 1, 2026 to June 30, 2027 carry: 6.52% for undergraduate Direct Loans, 8.07% for graduate Direct Unsubsidized, and 9.07% for Parent/Grad PLUS. Federal rates are reset annually on July 1 based on the 10-year Treasury auction held each May, with statutory caps.
Monthly Payment = P × [r(1+r)n] / [(1+r)n − 1]
P = principal, r = monthly interest rate (APR ÷ 12), n = total months
Each payment is split between interest (charged on the remaining balance) and principal (the original loan amount). Early in the loan, most of your payment goes to interest; later, more goes to principal. This is called amortization.
Federal student loans offer flexible options that private loans rarely match: income-driven repayment plans (which cap payments at a percentage of your discretionary income), forgiveness programs, deferment and forbearance during financial hardship, and discharge upon death or total disability. Choosing the right plan can save you tens of thousands of dollars and decades of payments.
Still saving for school? Every dollar saved ahead is a dollar you don't borrow: the 529 calculator shows the monthly saving that covers a college cost estimate.
2026–27 federal student loan interest rates
Each year's Direct Loan rates come from one formula: the 10-year Treasury note's high yield at the last auction before June 1, plus a fixed add-on for each loan type. The 2026 index was 4.468%, so loans first disbursed from July 1, 2026 to June 30, 2027 carry the rates below for their whole life. Older loans keep the rate of the year they were disbursed; private loans and refinancing set their own rates by credit.
| Loan | Index + add-on | 2026–27 | 2025–26 |
|---|---|---|---|
| Direct Subsidized and Unsubsidized, undergraduate | 4.468% + 2.05% | 6.52% | 6.39% |
| Direct Unsubsidized, graduate or professional | 4.468% + 3.60% | 8.07% | 7.94% |
| Direct PLUS: Parent PLUS, and Grad PLUS for those still eligible (closed to new graduate borrowers) | 4.468% + 4.60% | 9.07% | 8.94% |
Federal vs private student loans
Most US student debt, about 92%, is federal Direct Loans issued by the U.S. Department of Education. The remaining 8% is private student loans from banks, credit unions, and online lenders like SoFi, Earnest, Sallie Mae, College Ave, and Discover. The differences matter enormously when it comes to repayment options, forgiveness, and protections during hardship.
| Feature | Federal Direct Loan | Private Student Loan |
|---|---|---|
| Interest rate | Fixed by Congress, same for everyone | Variable or fixed; based on credit score |
| Credit check | Not required (except PLUS) | Required; usually need cosigner |
| Income-driven plans | Yes, IBR, PAYE, RAP | No |
| Forgiveness programs | PSLF, IDR forgiveness, teacher, disability | Generally none |
| Death/disability discharge | Yes, automatic | Varies by lender |
| Deferment/forbearance | Up to 3 years deferment, 12 mo forbearance | Limited; 3–12 mo total typically |
| Subsidized interest | Yes (subsidized loans during school) | No, interest accrues from day 1 |
The bottom line: Always max out federal aid first via FAFSA before turning to private loans. The protections are too valuable to give up. Private loans make sense only when you've exhausted federal options and need to fill a gap, or when refinancing federal loans no longer makes sense (you have a stable high income, won't need IDR/PSLF, and can lock in a much lower rate).
Direct loan types: Subsidized, Unsubsidized, PLUS
There are three main categories of federal Direct Loans, each with different eligibility rules, interest treatment, and borrowing limits.
Direct Subsidized Loans (undergraduate, need-based)
Available to undergraduates with demonstrated financial need (per FAFSA). The federal government pays the interest while you're in school at least half-time, during the 6-month grace period, and during deferment. 2026-27 rate: 6.52%. Annual limits: $3,500 (freshman), $4,500 (sophomore), $5,500 (junior/senior). Aggregate cap: $23,000.
Direct Unsubsidized Loans (undergraduate & graduate)
Available to undergrad and graduate students regardless of financial need. Interest accrues from day one, and whatever you don't pay during school is still owed when repayment starts: your first payments go to it before they reach principal. 2026-27 rates: 6.52% undergrad / 8.07% graduate. Annual limits: undergrads up to $7,500 (dependent senior), $12,500 (independent senior). Graduate students: up to $20,500/year.
Direct PLUS Loans (Parent & Grad PLUS)
For parents of dependent undergrads (Parent PLUS) or graduate students (Grad PLUS). Requires a credit check (no adverse credit history). 2026-27 rate: 9.07%, the highest of any Direct Loan, plus a ~4.2% disbursement fee. From July 1, 2026, Grad PLUS is closed to new graduate borrowers, and Parent PLUS is capped at $20,000 a year and $65,000 per student. Parent PLUS loans are never eligible for RAP, even after consolidation, making them especially risky.
⚠ Subsidized vs unsubsidized matters more than you think: A $20,000 unsubsidized loan taken at the start of school accrues about $5,868 of interest over 4 years of school and the 6-month grace period at 6.52%, all owed before your first payment reaches principal. Pay the interest during school if you can, even small monthly payments save thousands over time.
2026 student loan changes (OBBB Act)
The 2025 One Big Beautiful Bill (OBBB) Act overhauled federal student loan repayment, phasing out the SAVE plan (which a court then ended in March 2026), introducing the new Repayment Assistance Plan (RAP), and setting timelines to phase out PAYE and ICR. Here's what changed and when:
- July 1, 2026: RAP launches as the only IDR plan available for new federal Direct Loans. Existing IBR continues for current borrowers.
- March 10, 2026: a court order ended the SAVE plan. SAVE borrowers get 90 days' notice (sent July to October 2026) to choose another plan, or are placed in Standard or Tiered Standard.
- July 1, 2028: PAYE and ICR end. Borrowers on them must choose another plan first, or are moved to RAP (or IBR for loans RAP can't take).
- January 1, 2026: ARPA tax exemption on forgiven student loans expires. IDR forgiveness becomes federally taxable income (PSLF remains tax-free).
- July 1, 2026: Grad PLUS closed to new graduate borrowers; graduate Unsubsidized loans capped at $20,500 a year ($50,000 for professional students); Parent PLUS capped at $20,000 a year and $65,000 per student. A borrower with any new loan from this date repays under RAP or the new Tiered Standard plan only.
Why it matters: If you were on SAVE waiting for forgiveness, choose a new plan when your servicer's notice arrives, or you'll land in Standard or Tiered Standard. If you're a new borrower as of July 2026, you'll only have access to RAP among IDR plans. And if you were counting on tax-free forgiveness through IDR, factor in the federal tax bill, a $50,000 forgiven balance in the 22% bracket would add $11,000 to your federal tax that year.
All 2026 repayment plans compared
Federal student loans offer seven repayment plans in 2026. Four are fixed-payment, three are income-driven, and which ones you can use depends on when your loans were made: a borrower with any Direct Loan made on or after July 1, 2026 repays all of them under Tiered Standard or RAP. Choosing the right plan depends on your loan balance, expected income, family size, and forgiveness goals.
| Plan | Payment basis | Term / Forgiveness |
|---|---|---|
| Standard | Fixed amortized payment (loans before July 2026) | 10 years |
| Tiered Standard | Fixed amortized payment (loans from July 2026) | 10–25 years by balance |
| Graduated | Starts low, rises every 2 years (loans before July 2026) | 10 years |
| Extended | Fixed or graduated (balance > $30K, loans before July 2026) | 25 years |
| IBR (new borrower) | 10% of discretionary income | 20-yr forgiveness (taxable) |
| PAYE (ends July 2028) | 10% of discretionary income | 20-yr forgiveness (taxable) |
| RAP (from July 2026) | Tiered 1–10% of AGI minus $50/dependent | 30-yr forgiveness (taxable) |
Discretionary income = AGI − (1.5 × federal poverty line for your family size). For 2026, the FPL is $15,960 (1 person), $21,640 (2), $27,320 (3), $33,000 (4), with $5,680 added for each additional person above 8 (48 contiguous states and DC).
Standard 10-year plan
The Standard Repayment Plan is the default for loans made before July 1, 2026 (loans made on or after that date default to Tiered Standard, which runs 10 to 25 years by balance). Your monthly payment is fixed for the entire 10-year term, at least $50,, calculated to fully amortize the loan. It produces the lowest total interest cost of any plan because you pay off the balance fastest.
Example: $35,000 at 6.52% on Standard
Monthly payment: $398
Total paid over 120 months: $47,733
Total interest: $12,733
Best for: Borrowers with stable income who want to be debt-free fastest, who don't qualify for or care about forgiveness programs, and who can afford the higher monthly payment without straining cash flow.
Avoid if: Your monthly payment would exceed roughly 10% of your gross income. You'd be better off on an income-driven plan to keep payments manageable, even at the cost of more total interest.
Graduated repayment plan
Graduated repayment stretches over the same 10-year term as Standard but starts with lower payments that increase every 2 years. The payment escalation roughly matches expected salary growth, useful for new graduates who expect their income to rise meaningfully.
ED's rule: no payment is less than the interest that accrues between payments, or more than three times any other payment. Graduated isn't available for loans made on or after July 1, 2026. Total interest paid is slightly higher than Standard because more of the principal sits in the loan longer.
Best for: Recent graduates entering careers where starting salary is modest but rapid raises are likely (medicine, law, engineering, finance) and you want to manage cash flow in early years without committing to an income-driven plan.
Watch out: The early payments cover the interest but barely touch principal, so the balance falls slowly at first. By design the payment "catches up" later, but psychologically it can feel like making no progress.
Extended 25-year plan
Extended repayment stretches the loan to 25 years (300 months), dramatically reducing the monthly payment. Eligibility requires more than $30,000 in Direct Loan balance, and no loan made on or after July 1, 2026. Available as fixed or graduated.
Example: $35,000 at 6.52% on Extended (25 years)
Monthly payment: $237 (vs $398 Standard)
Total paid: $71,028
Total interest: $36,028, nearly 3× the Standard plan
Best for: Borrowers with large balances ($50K+) who can't qualify for or don't want IDR, but need lower monthly payments than Standard. Often used as a fallback when income doesn't qualify for meaningful IDR reduction.
Caution: The 25-year cost is brutal. Make extra payments whenever possible to shorten the timeline. Extended is rarely the best long-term choice, it's a cash-flow tool, not a strategy.
Income-Based Repayment (IBR)
IBR caps your monthly payment at 10% of your discretionary income (15% if you borrowed before July 2014). Discretionary income equals your AGI minus 150% of the federal poverty line for your family size. Remaining balance is forgiven after 20 years (new borrowers) or 25 years (older borrowers).
Example IBR calculation: $60,000 AGI, family of 1, new borrower
150% × $15,960 FPL = $23,940 protected income
Discretionary income = $60,000 − $23,940 = $36,060
10% of $36,060 = $3,606.00/year ÷ 12 = $300.50/month
Your IBR payment is recertified annually based on updated income (you'll submit pay stubs or your most recent tax return). The payment never exceeds the Standard 10-year amount: a high earner stays on IBR and pays that capped amount. Since the 2025 law you no longer need a partial financial hardship to enroll.
Tax bomb warning: If your loans are forgiven through IBR after 20–25 years, the forgiven amount is treated as taxable income for the year forgiveness occurs. A $100,000 forgiven balance could add $20,000+ to your federal tax bill. Plan for this with savings or by pursuing PSLF instead (which is tax-free).
PAYE (ends July 2028)
Pay As You Earn (PAYE) mirrors IBR's 10% formula but with a shorter forgiveness window: 20 years vs IBR's 25 for older borrowers. For new borrowers, IBR and PAYE both forgive after 20 years.
PAYE is being phased out by July 1, 2028 under the OBBB Act. Existing PAYE borrowers can stay on the plan through that date. Borrowers still on PAYE must choose another plan before July 1, 2028, or are moved to RAP (or IBR for loans RAP can't take). A borrower with any loan made on or after July 1, 2026 can't use PAYE.
If you're on PAYE today: Don't panic, your existing terms continue through July 2028. Use the time to evaluate whether IBR (similar terms, longer history) or RAP (different formula) makes more sense for your situation, and switch deliberately rather than being auto-enrolled.
RAP, new July 2026 plan
The Repayment Assistance Plan (RAP) launches July 1, 2026 as part of the OBBB Act. RAP is the only income-driven plan for borrowers with loans made from that date and uses a unique formula: a tiered percentage (1–10%) of your total AGI (not discretionary income), divided by 12, then reduced by $50 for each dependent. The minimum monthly payment is $10. Interest an on-time payment doesn't cover isn't charged, and when a payment cuts principal by less than $50, ED reduces principal by up to $50 more, so your balance doesn't grow on RAP.
| Annual AGI bracket | RAP rate |
|---|---|
| $0 – $10,000 | $10/mo minimum |
| $10,001 – $20,000 | 1% |
| $20,001 – $30,000 | 2% |
| $30,001 – $40,000 | 3% |
| $40,001 – $50,000 | 4% |
| $50,001 – $60,000 | 5% |
| $60,001 – $70,000 | 6% |
| $70,001 – $80,000 | 7% |
| $80,001 – $90,000 | 8% |
| $90,001 – $100,000 | 9% |
| $100,001+ | 10% |
Example: $50,000 AGI, 2 dependents
$50,000 falls into the 4% bracket → $50,000 × 4% = $2,000/year ÷ 12 = $167/month minus ($50 × 2 dependents) = $67/month.
Forgiveness: after 360 qualifying payments, 30 years (longer than IBR's 20-year window). Forgiven amount taxable as ordinary income.
Important RAP rules: A borrower with any loan made on or after July 1, 2026 repays all their Direct Loans under RAP or Tiered Standard; IBR, PAYE, Graduated and Extended are closed to them. PAYE and ICR borrowers must choose another plan before July 1, 2028; IBR borrowers can stay. Parent PLUS loans are never RAP-eligible, even after consolidation.
Public Service Loan Forgiveness (PSLF)
PSLF forgives the entire remaining balance on Direct Loans after 120 qualifying monthly payments (10 years) made while working full-time for a qualifying employer. Crucially, PSLF forgiveness is tax-free at the federal level, unlike IDR forgiveness, which becomes taxable in 2026.
Qualifying employers:
- U.S. federal, state, local, or tribal government agencies (any level)
- U.S. military (active duty & civilian DoD)
- 501(c)(3) tax-exempt nonprofit organizations
- AmeriCorps and Peace Corps service
- Other not-for-profit organizations providing certain qualifying public services (limited)
Qualifying payments: Each must be (1) made on time, in the full scheduled amount, (2) on or after October 1, 2007, (3) under an income-driven plan (IBR/PAYE/RAP) or the Standard 10-year plan, and (4) made while you were employed full-time (≥30 hrs/week) by a qualifying employer.
PSLF application process: Submit the Employment Certification Form (PSLF Form) annually so payments get counted correctly. After your 120th qualifying payment, submit the PSLF Application for Forgiveness. The Department of Education then verifies and discharges the remaining balance, typically 6–18 months processing.
⚠ PSLF disqualifiers: FFEL Loans, Perkins Loans, and private student loans are NOT eligible. Consolidate into a Direct Consolidation Loan first to make payments count. Also, payments made on the Standard 10-year plan technically count, but if you stay on Standard you'll pay off the loan in 10 years anyway, defeating the purpose. PSLF only "saves" you money if you're on an IDR plan with payments lower than your original Standard payment.
Direct Consolidation Loan
A Direct Consolidation Loan combines multiple federal loans into one new federal loan with a single monthly payment. Unlike refinancing, consolidation keeps your federal protections, IDR plans, PSLF eligibility, deferment/forbearance, and discharge benefits all transfer.
The new interest rate is the weighted average of your existing loans' rates, rounded up to the nearest 1/8 of 1%. There's no rate reduction, consolidation is a convenience tool, not a money-saver.
Reasons to consolidate:
- Make ineligible loans PSLF-eligible, FFEL or Perkins loans only count after consolidation into Direct.
- Unlock IDR for older loans, FFEL loans become eligible for Direct Loan income-driven plans once consolidated (a consolidation loan made on or after July 1, 2026 can use only RAP or Tiered Standard).
- Simplify multiple servicers, one payment instead of 4 different bills.
- Get out of default, consolidation can rehabilitate defaulted federal loans (with conditions).
Warning: Consolidation can reset your IDR forgiveness count. PSLF credit carries over as a weighted average of the payments already made on the loans you consolidate. Check both counts at StudentAid.gov before consolidating.
Refinancing: when, how, who should
Refinancing means replacing existing student loans (federal or private) with a new private loan from a bank, credit union, or online lender (SoFi, Earnest, Splash Financial, Laurel Road, ELFI, College Ave, etc.). The goal is a lower interest rate and/or shorter term, saving you interest over the life of the loan.
The federal refi trade-off: Refinancing federal loans into a private loan permanently surrenders federal protections, IDR plans, deferment, forbearance, PSLF eligibility, and discharge upon death/disability. You can never go back. This is why refinancing federal loans is a one-way decision that should only be made when all three conditions apply:
- You have stable, high income and won't realistically need IDR's safety net
- You're not pursuing PSLF or any forgiveness program
- The new rate is at least 1.5–2 percentage points lower than your weighted-average federal rate
Refinancing private loans is a different story, there are no federal protections to give up. Always shop refinancing offers periodically (every 6–12 months) if your credit has improved or rates have dropped. Use rate-shopping tools that show offers from multiple lenders with one soft credit pull.
Example: $50,000 federal at 7% refinanced to private at 5%
Federal 10-year @ 7%: $581/mo, $19,665 total interest
Private 10-year @ 5%: $530/mo, $13,639 total interest
Savings: $6,026 in interest + $50/mo cash flow
Cosigner trap: Most private refinances initially require or recommend a cosigner if your credit is borderline. Look for lenders offering cosigner release, usually after 12–48 on-time payments and meeting credit/income requirements on your own.
Deferment, forbearance & default
Federal loans give you tools to pause payments during financial hardship, but each comes with strict rules and consequences:
Deferment (up to 3 years)
Available for in-school enrollment, unemployment, military service, cancer treatment, economic hardship, and graduate fellowships. Subsidized loans don't accrue interest during deferment, unsubsidized and PLUS loans do, and unpaid interest may capitalize when deferment ends. Apply through your servicer with documentation.
Forbearance (up to 12 months at a time, 36 months total)
Discretionary or mandatory pause on payments for general hardship, medical expenses, or specific situations (AmeriCorps, dental/medical residency, National Guard activation). Interest accrues on all loan types during forbearance. For most loans it no longer capitalizes when forbearance ends, but it is still owed and your next payments go to it first. Use sparingly: months of forbearance can add a lot of interest.
Delinquency & default
Late payments are reported to credit bureaus after 90 days (delinquency). After 270 days of nonpayment, federal loans default, a serious credit-killer. Default consequences include the entire loan becoming due immediately, wage garnishment, tax refund seizure, Social Security garnishment, and a credit score drop of 100+ points. Cure default through loan rehabilitation (9 reasonable monthly payments) or consolidation (with conditions).
Better than forbearance: Switch to an income-driven plan first. If you're truly unemployed or low-income, IBR may give you a $0 monthly payment, and RAP one of $10, that still counts toward forgiveness, vastly better than forbearance, where interest builds with no progress.
Tax implications & deductions
Student loans interact with the tax code in three meaningful ways:
1. Student Loan Interest Deduction (above-the-line)
Deduct up to $2,500 of student loan interest paid per year directly from your gross income, no need to itemize. The deduction phases out for higher incomes: for 2026 it starts shrinking above $85,000 of modified AGI (single) / $175,000 (married filing jointly) and is gone at $100,000 / $205,000. Your servicer sends Form 1098-E in January showing total interest paid the prior year.
2. IDR forgiveness becomes taxable in 2026
The American Rescue Plan Act exemption that made all student loan forgiveness tax-free expired December 31, 2025. From 2026 onward, IBR/PAYE/RAP forgiveness is treated as ordinary federal taxable income. State treatment varies, most conform to federal, but some states (e.g., Mississippi, North Carolina) tax forgiveness regardless of federal rules.
3. PSLF forgiveness remains tax-free
Forgiveness via PSLF is exempt from federal income tax under IRC §108(f). State tax treatment varies but most states follow federal. Teacher Loan Forgiveness ($5K/$17.5K), military LRP, and total/permanent disability discharge are also generally tax-free.
Employer student loan repayment benefits: Under SECURE Act 2.0, employers can match employee student loan payments with 401(k) contributions, and up to $5,250/year of direct employer student loan payments is tax-free to the employee (made permanent by the 2025 law, and indexed for inflation after 2026). Ask your HR department.
7 strategies to pay off student loans faster
- Make biweekly half-payments instead of one monthly payment. 26 half-payments = 13 full payments per year (vs 12), you sneak in an extra payment annually with no budget pain. Saves 1.5–2 years on a 10-year loan.
- Pay during school. Even paying just the monthly interest on unsubsidized loans during school keeps it from piling up. A $40K balance accruing 6.52% over 4 years runs up about $10,432 of interest if unpaid, all owed before payments reach principal.
- Use the avalanche method. If you have multiple loans, pay minimums on all and direct extra to the highest-rate loan first. PLUS loans (9.07%) get crushed before subsidized (6.52%).
- Apply windfalls to principal. Tax refunds, work bonuses, gifts, make a one-time extra principal payment. Specify "apply to principal" in writing or your servicer may apply it to future scheduled payments instead.
- Refinance high-rate private loans aggressively. If your credit improves or rates drop, re-refinance private loans every 12–18 months. Even 1% lower saves thousands.
- Use employer loan repayment benefits. $5,250/yr of employer payments is tax-free. Some companies offer matching loan payments up to $10,000+ annually.
- If pursuing PSLF, don't pay extra. Counterintuitive but correct, extra payments only reduce your balance, not your time to forgiveness. Save that money instead and let PSLF discharge the remainder tax-free at year 10.
8 common student loan mistakes to avoid
- Refinancing federal loans without considering PSLF or IDR. One-way decision, irreversible loss of safety net. Federal protections are worth more than 1% APR savings for most borrowers under 30.
- Missing the recertification deadline on IDR. Forget to update income and your payment defaults to the Standard 10-year amount, could 5x overnight. Set a calendar reminder for your annual recertification.
- Ignoring PSLF certification. File the Employment Certification Form annually so qualifying payments accumulate properly. Years of payments can be lost to paperwork errors if you wait until year 10 to apply.
- Consolidating loans you've made progress on. It can reset your IDR count (PSLF credit carries over as a weighted average). Never consolidate without checking what you'd lose.
- Using forbearance when IDR would give a $0 payment. Forbearance accrues interest with no payment count toward forgiveness. IDR at $0/mo still counts toward 20/25/30-year forgiveness clock.
- Falling for forgiveness scams. No company can "get you" loan forgiveness for a fee, everything is free at StudentAid.gov. If someone calls offering a "Biden forgiveness application" for a $399 fee, hang up.
- Defaulting because you "can't afford" payments. You always have IBR/RAP options even at very low income, call your servicer before going 90 days late.
- Not checking which servicer holds your loans after July 2026 transitions. Moving off SAVE, which a court ended in March 2026, can shuffle servicers. Keep your contact info updated at StudentAid.gov.
Glossary of key student loan terms
AGI (Adjusted Gross Income): Your total income minus above-the-line deductions; appears on Form 1040, line 11a. Used to determine IDR payment amounts.
Capitalization: When unpaid interest is added to your loan principal, increasing the amount on which future interest accrues.
Discretionary income: AGI minus 150% of the federal poverty line for your family size. Used in IBR and PAYE formulas (RAP uses raw AGI instead).
FAFSA (Free Application for Federal Student Aid): Annual federal application that determines eligibility for grants, work-study, and federal student loans.
FFEL Loans: Federal Family Education Loan Program, pre-2010 federal loans guaranteed by the government but issued by private lenders. Discontinued in 2010 but still being repaid by many.
Forbearance: Temporary postponement of payments where interest still accrues. Use as a last resort.
IDR (Income-Driven Repayment): Umbrella term for plans where payments are based on income and family size, currently IBR, PAYE and ICR (both ending by July 2028), and RAP (from July 2026).
Loan servicer: Company that handles billing, customer service, and applications for your federal loans (e.g., Nelnet, MOHELA, Aidvantage, EdFinancial).
PLUS Loan: Federal Direct Loan for parents of undergrads (Parent PLUS) or graduate students (Grad PLUS). Higher rates and fees.
PSLF (Public Service Loan Forgiveness): Tax-free forgiveness after 120 qualifying payments while working full-time for a qualifying public-service employer.
Subsidized vs Unsubsidized: Subsidized loans don't accrue interest while you're in school or in deferment. Unsubsidized loans accrue interest immediately upon disbursement.
Frequently asked questions
How much will my monthly student loan payment be?
Your monthly payment depends on your loan balance, interest rate, repayment plan, and term length. On the Standard 10-year plan at 6.52% (the 2026-27 undergraduate rate): a $20,000 loan = $227/mo, $35,000 = $398/mo, $50,000 = $568/mo, $75,000 = $852/mo, $100,000 = $1,137/mo. Income-driven plans like IBR cap your payment at 10% of discretionary income (AGI minus 150% of poverty line), which can be substantially lower depending on income. Use the calculator above for a personalized estimate.
When do student loan payments start after graduation?
Federal Direct Loans (Subsidized and Unsubsidized) have a 6-month grace period, payments begin 6 months after you graduate, withdraw, or drop below half-time enrollment. PLUS loans don't have a grace period, but you can request a deferment until 6 months after graduation. The grace period is fixed and used only once per loan; you can't restart it by going back to school later.
What's the new RAP plan in 2026?
The Repayment Assistance Plan (RAP) launches July 1, 2026 as the federal government's new income-driven repayment option. Monthly payments are 1% to 10% of your annual AGI divided by 12, minus $50 for every dependent you claim. Minimum payment is $10/month. Interest an on-time payment doesn't cover isn't charged, and ED adds up to $50 a month toward principal when your payment doesn't cut the principal by that much. Any remaining balance is forgiven after 360 qualifying payments (30 years). A borrower with any loan made on or after July 1, 2026 repays all their loans under RAP or the Tiered Standard plan. Parent PLUS loans (and consolidation loans that repaid them) can never use RAP.
What happened to the SAVE plan?
A court order ended the SAVE plan on March 10, 2026. Servicers are sending SAVE borrowers 90-day notices between July and October 2026 to choose another plan; a borrower who doesn't choose is placed in the Standard or the Tiered Standard plan, depending on when their loans were disbursed. You should not plan around SAVE.
What 2026 federal student loan interest rate should I use?
For loans first disbursed July 1, 2026 to June 30, 2027: Direct Subsidized & Unsubsidized for undergraduates 6.52%, Direct Unsubsidized for graduate students 8.07%, and Direct PLUS loans 9.07%. Loans first disbursed in 2025-26 carry 6.39%, 7.94% and 8.94%. These rates are fixed for the life of the loan. Private loan rates vary widely (typically 5%–15% based on credit).
Is PAYE still available in 2026?
For people already on it, yes, until mid-2028. The 2025 law winds PAYE down: pick a different plan before its July 1, 2028 cutoff, or the Department of Education switches you to RAP (IBR for any loan RAP won't take). Taking out any new federal loan from July 2026 onward also takes PAYE off the table, since all of that borrower's loans then go on RAP or Tiered Standard.
Should I stay on IBR or switch to RAP?
It depends on your loan balance, income, and family size. IBR offers a 20-year forgiveness window (10% of discretionary income) for new borrowers and is capped at the standard 10-year payment. RAP uses a different formula (1–10% of AGI, minus $50/dependent) with a longer 30-year forgiveness. Higher earners with no dependents often pay more on RAP; lower-income borrowers with multiple dependents may pay less. Use the calculator above to compare side by side.
How is discretionary income calculated for IBR and PAYE?
Discretionary income = AGI − (1.5 × Federal Poverty Line for your family size). For 2026, the FPL is $15,960 for a family of 1, $21,640 for 2, $27,320 for 3, and $33,000 for 4 (in the 48 contiguous states and DC). So a single borrower earning $60,000 has discretionary income of $60,000 − ($15,960 × 1.5) = $36,060. IBR (new borrower) payment = 10% × $36,060 ÷ 12 = $300.50/month.
Will my forgiven student loan balance be taxed?
Yes, for forgiveness occurring in 2026 or later, the forgiven amount is treated as ordinary taxable income at the federal level. The American Rescue Act exemption that ran through end of 2025 has not been extended. This applies to IBR, PAYE, and RAP forgiveness. Public Service Loan Forgiveness (PSLF) remains tax-free.
Should I refinance my federal student loans?
Refinancing federal loans into a private loan permanently gives up federal protections: income-driven repayment, forbearance, deferment, PSLF eligibility, and death/disability discharge. Only refinance if (a) you have stable high income and won't need IDR, (b) you're not pursuing PSLF, and (c) the new rate is at least 1.5–2% lower than your weighted-average federal rate. Use the refinance section above to estimate savings.
How does Public Service Loan Forgiveness (PSLF) work?
PSLF forgives the remaining balance on federal Direct Loans after 120 qualifying monthly payments (10 years) made while working full-time for a qualifying employer (government or 501(c)(3) nonprofit). Payments count under an income-driven plan (including RAP and IBR, under the 2025 law) or the 10-year Standard plan. PSLF forgiveness is tax-free at the federal level. Consolidating keeps your PSLF count as a weighted average of the payments already made; check your count at StudentAid.gov.
How much can extra payments save on student loans?
Extra payments go entirely to principal and dramatically reduce total interest. On a $40,000 loan at 6.52% on the standard 10-year plan ($455/month, $14,552 total interest), an extra $100/month pays it off in 7.7 years and saves $3,645 in interest. An extra $200/month pays it off in 6.3 years and saves $5,809. The earlier in the loan, the bigger the savings.
Can I deduct student loan interest on my taxes?
Yes. Up to $2,500 of the interest you paid during the year comes straight off your income, whether you itemize or take the standard deduction. Income limits apply: under IRS Rev. Proc. 2025-32, the 2026 deduction is reduced once modified AGI passes $85,000 ($175,000 on a joint return) and disappears at $100,000 ($205,000 joint). The interest figure to claim is on the Form 1098-E your servicer sends.
What's the difference between subsidized and unsubsidized loans?
The difference is who pays the interest before repayment starts. On a subsidized loan, which only undergraduates with financial need can get, the government covers it while you're in school, for the 6-month grace period and during deferment, so you enter repayment owing what you borrowed. On an unsubsidized loan, open to undergraduate and graduate students, interest runs from the day the money is disbursed, and whatever you haven't paid by the time repayment begins is still owed: your first payments go to it before they touch principal. (Since July 1, 2023 it is no longer added to principal when repayment starts.) Paying the interest as it accrues while you're in school avoids it.
What is loan capitalization and why does it matter?
Capitalization is when unpaid interest gets added to your loan principal. After that, future interest is calculated on the larger balance, interest on interest. Since July 1, 2023 it happens far less: at the end of a deferment on an unsubsidized loan, when you leave IBR (or your IBR payment reaches the Standard cap), and when loans are consolidated. It no longer happens when repayment starts or after most forbearances. Paying interest as it accrues still matters: a $30,000 unsubsidized loan accrues about $7,800 of interest over 4 years of school at 6.52%, owed before any payment reaches principal.
Can I pay off my student loan early without penalty?
Yes, federal student loans and most private student loans have no prepayment penalty. You can pay extra at any time. When making extra payments, write 'apply to principal' or designate it as a principal-only payment in your servicer's portal. Otherwise the servicer may apply it as a 'paid ahead' status and skip your next scheduled payment, which doesn't reduce interest costs the same way.
What if I can't afford my student loan payments?
Don't ignore the bill, defaulting destroys your credit, triggers wage garnishment, and adds collection fees. Better options: (1) Switch to an income-driven plan, IBR can drop your payment to $0 if your income is very low, and RAP to $10, and those payments still count toward forgiveness; (2) Request deferment if you qualify (unemployment, economic hardship, etc.); (3) Forbearance as a last resort (interest accrues); (4) Consolidate to potentially lower payment via longer term. Call your servicer immediately, they have several tools to help you avoid default.
How does federal student loan default work?
Federal Direct Loans default after 270 days (about 9 months) of nonpayment. Consequences: entire balance becomes due immediately, credit score drops 100+ points, IRS tax refund seizure, federal benefit (including Social Security) garnishment, wage garnishment up to 15% of disposable income, and loss of eligibility for future federal aid. Cure default through 'rehabilitation' (9 reasonable monthly payments, typically very low under IDR rules) which removes the default from your credit report after completion, or through 'consolidation' (faster but default stays on credit history).
Can my student loans be discharged in bankruptcy?
Generally no, federal and most private student loans are exceptionally hard to discharge in bankruptcy. You'd need to prove 'undue hardship' through a separate adversary proceeding (Brunner Test in most circuits), which is expensive and rarely successful. Recent guidance from the DOJ (Nov 2022) made the process less hostile for borrowers facing genuine hardship, but bankruptcy discharge is still a long shot. Total and permanent disability discharge through StudentAid.gov is far more accessible if applicable.
Are private student loans dischargeable in bankruptcy?
Private 'qualified educational loans' face the same undue hardship test as federal loans, very hard to discharge. However, private loans that don't meet the IRS definition of a 'qualified education loan' (e.g., loans for unaccredited schools, loans exceeding cost of attendance, bar exam loans, refinanced loans without educational connection) may be dischargeable like regular consumer debt. Consult a bankruptcy attorney for your specific situation.
What happens to student loans when I die?
Federal Direct Loans are discharged upon death, your estate is not responsible. Your family must submit a death certificate to the loan servicer. Parent PLUS loans are also discharged on death of either the student OR the parent borrower. Private loans vary widely: SoFi, Sallie Mae, College Ave, and most major lenders offer death discharge, but check your loan agreement. Cosigners may still be liable on private loans without explicit cosigner release at death.
How does Total and Permanent Disability (TPD) discharge work?
TPD discharge cancels federal Direct Loans for borrowers who become totally and permanently disabled. Three qualification paths: (1) VA disability rating of 100% or 'unemployable due to service-connected disability,' (2) Social Security Disability Insurance (SSDI) determination with no scheduled review for 5+ years, (3) certification of total and permanent disability by a physician, nurse practitioner, physician assistant or certified psychologist. Apply through StudentAid.gov. Discharged amount is no longer federally taxable as of 2018+.
Can my employer help pay my student loans?
Yes, under SECURE Act 2.0 + extensions, employers can: (1) Match your student loan payments with 401(k) contributions (treated as if you contributed to your 401(k), so you get the match without putting in the cash), (2) Pay up to $5,250/year directly toward your student loans tax-free to you (made permanent by the 2025 law, and indexed for inflation after 2026). Major employers offering significant student loan repayment benefits include Aetna, PwC, NVIDIA, Google, Estée Lauder, Fidelity, and many more.
Should I prioritize student loan payoff or 401(k) investing?
Generally: (1) Always contribute enough to your 401(k) to get the full employer match, that's free money. (2) Then pay extra on student loans if your interest rate is above ~7% (Parent PLUS at 9.07% for 2026-27 loans definitely). (3) For rates 5–7%, it's a toss-up, paying off debt is psychologically powerful, but historical stock market returns (~7–10%) usually beat it on pure math. (4) For rates under 5% (rare for federal but possible after refinancing), prioritize investing, your money compounds at higher returns than the loan costs.
What is the SAVE plan and what happened to it?
SAVE (Saving on a Valuable Education) was the Biden administration's most generous IDR plan, 5–10% of discretionary income, no spousal income inclusion for separate filers, interest non-accumulation for low payments. A court order ended it on March 10, 2026. Servicers are giving SAVE borrowers 90 days' notice (sent July to October 2026) to choose a new plan; anyone who doesn't choose is placed in the Standard or the Tiered Standard plan. Confirm your plan at StudentAid.gov.