How do student loans work?​

Student loans are a great way to help fund your education. Knowing how student loans work is an important step in making sure you get the most out of your federal or private student loans.  

Whether you are looking into student loans as a current student or looking into saving money with a refinance*, here is how student loans work. 

How do student loans work before I start school?

Before you start school, you will need to apply for your student loans and understand how they work. 

The first thing you will want to do when looking to get a student loan is fill out a Free Application for Federal Student Aid (FAFSA). A FAFSA will determine your eligibility for any federal loans, grants or work-study programs. Completing your FAFSA usually takes around 12 minutes if you have all documents and relevant information prepared.   

After your FAFSA, you will receive a report on how much federal student loan you qualify for. Make sure you contact your school to know how you will receive your funds as the timeline of when you get your loan can vary based on school, whether annually, by semester or quarterly. Your loans will be sent to your school for tuition with any remaining funds being given to you in the form of a check. 

How do student loans work while I’m in school?

While you are in school, federal student loans go into deferment if you are a full-time student.  

While your student loans are in deferment, you will not be required to start repaying your loan.  

However, there are two kinds of deferments: subsidized or unsubsidized. With subsidized deferment, you do not need to worry about interest or your loan amount increasing while you are in school. If you have an unsubsidized deferment, your loan interest will increase your total loan balance while you are a full-time student. 

While in school, if your GPA falls below 2.0, you will no longer qualify for federal student loans and may have to look into alternate loans, such as private student loans. Private loans can work differently depending on the lender and loan type you get. 

How do student loans work after I graduate?

After you graduate, you will have to be prepared to start paying back your student loans.  

Depending on your loan, you may get a grace period on your loan before you start your repayment. This grace period typically lasts about six months.   

If you begin the repayment of your student loans after graduating but see rates drop or would like to lengthen the term of your loan, you can refinance your student loan. If you refinance after you graduate and your financial situation improves, it could help you alter your payments to better fit your needs. Refinancing federal student loans will remove any protection or forgiveness that these loans offer. 

Will my student loans change if I enter a graduate program?

If you enter a graduate program, you may wonder how it will affect your current student loans. The good news is that if you are enrolled as at least a half-time student, your federal student loans will be deferred. 

The deferment you will get while you are a student in a graduate program is very similar to the deferment you get when you are a student in an undergraduate program. Your deferment during a graduate program will last up to 36 months. Some federal student loans also offer a six-month grace period. 

Private student loans could look different during a graduate program. Make sure you talk to your lender about repayment and graduate programs. 

Is there a difference between how private and federal student loans work?

Yes, there is a difference between how private and federal student loans work.  

Federal student loans are backed by the U.S. government, while private student loans come from private lenders such as banks or credit unions. 

Depending on your federal student loans and situation, they could offer loan forgiveness programs and deferment options, potentially making repayment easier for students. However, private loans tend to come with better rates than the PLUS federal loans for graduates if the borrower has better credit. Private and federal loans can also be refinanced to change the terms of the loan. 

How can I apply for a student loan today?

You can apply for a student loan today by completing a FAFSA application or finding and comparing private lenders.  

For student loan refinance applications, you can use our marketplace to connect with a lender and start your online application. 

_{*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.]} 

_{Rate has no affiliation with any government agency.} 

_{This is a marketplace operated by Rate, which connects borrowers to our lender partners (Lendkey, Splash Financial and Earnest). Rate is not a student loan lender and does not make credit decisions. All credit decisions are determined by Rate’s student loan lending partners. Rate will receive compensation for products purchased from these lenders. Compensation will not impact how or where products appear on the platform when requesting prequalified rates and loans. Not all lenders participate in the marketplace. Prequalified rates are provided as informational only and intended to provide you with options for a loan with one of our lender partners and are not offers of credit. Rates from lending partners may differ. All prequalification scenarios are based on the information provided by the consumer and a soft credit pull completed by one of Rate’s lending partners. Product availability varies by state. Not financial advice. Extending your repayment term may lower your monthly payment but could result in paying more total interest over the life of the loan. Checking your rate involves a soft credit inquiry only; a hard credit inquiry will be required to complete a full application. This is not an offer or commitment to lend. Debt consolidation combines multiple debts into a single loan but does not reduce the principal owed. Loans secured by collateral put that asset at risk if payments are missed. This may not be the right solution for everyone — consult a financial advisor to explore all options. Refinancing federal student loans into a private loan permanently eliminates access to federal benefits including income-driven repayment plans (SAVE, PAYE, IBR, ICR), Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and federal deferment and forbearance. These benefits cannot be restored. Visit StudentAid.gov or contact your federal servicer before refinancing.}