A student loan is money borrowed to pay for education, repaid over years after the education is complete. The two systems that supply it — federal loans, made by the US government under fixed terms, and private loans, made by banks and lenders under market terms — differ in almost every respect that matters: the interest rate, who pays the interest while the borrower is in school, the repayment options, and what happens if the borrower cannot pay. This guide explains the federal loan types and their 2026–27 rates, how interest accrues during school and capitalises, the borrowing limits, the private-loan comparison, and the framework for deciding how much to borrow. Repayment plans, forgiveness programmes, and the SAVE-to-RAP transition are covered in the companion repayment guide linked at the end; this guide covers the borrowing side.

The two kinds of student loan

Federal Direct loans are made by the US Department of Education through the school, at rates set annually by statute — the 10-year Treasury note yield plus a fixed margin, capped by law — and under uniform terms for all borrowers: no credit check for the student borrower (except for PLUS loans), no cosigner, access to income-driven repayment and forgiveness programmes, and discharge options for death, disability, and school closure. Private student loans are made by banks, credit unions, and specialist lenders at rates that depend on the borrower’s and cosigner’s credit, usually variable or fixed at the lender’s discretion, with repayment terms set by contract and none of the federal protections. The federal loan is the default choice for almost every borrower; the private loan is the supplement where federal limits or eligibility do not cover the cost.

The distinction matters most when repayment goes wrong. A federal borrower who loses income can move to an income-driven plan, defer, or forbear, and can pursue forgiveness programmes; a private borrower has only the lender’s hardship provisions, which are contractual, time-limited, and revocable. The interest-rate difference is secondary to that difference in downside protection, and it is the reason financial aid offices advise exhausting federal eligibility before considering any private loan, whatever the advertised private rate.

Federal loan types and the 2026–27 rates

Direct Subsidized loans are for undergraduates with financial need: the government pays the interest while the borrower is enrolled at least half-time, during the six-month grace period after leaving school, and during authorised deferment. Direct Unsubsidized loans are available to undergraduates and graduates regardless of need, with the borrower responsible for all interest from disbursement. Direct PLUS loans — Parent PLUS for parents of dependent undergraduates, Grad PLUS for graduate students — cover up to the cost of attendance less other aid, require a credit check (no adverse credit history), and carry the highest rate and the highest origination fee. Grad PLUS is closed to new borrowers from 1 July 2026 under the 2025 reconciliation law; graduate borrowing beyond the unsubsidised limit must now come from private sources or other aid.

Rates for loans first disbursed 1 July 2026 to 30 June 2027 are fixed for the life of each loan: 6.52% for undergraduate Subsidized and Unsubsidized, 8.07% for graduate and professional Unsubsidized, and 9.07% for PLUS. The prior year (2025–26) was 6.39%, 7.94%, and 8.94% respectively. The fixed-rate feature matters: a loan taken at 6.52% stays at 6.52% for its whole term, whatever happens to market rates, and each year’s new loans carry that year’s rate, so a borrower who borrows in four successive years holds four loans at four rates, with the servicer applying payments across them.

How interest accrues in school, and capitalisation

Interest on an unsubsidised loan accrues daily from the day the money is disbursed, at the loan’s fixed rate on the outstanding balance. The daily accrual on a $5,500 loan at 6.52% is about $0.98 a day — $358 a year. Over four years of school, unpaid interest of roughly $1,430 accumulates, and when the grace period ends it capitalises: it is added to the principal, and interest thereafter is charged on the enlarged balance, including on the interest itself. The capitalised loan of about $6,930 then accrues interest on the full amount for the whole repayment term, so the unpaid in-school interest costs far more than its face value over ten years.

Paying the interest while in school — about $30 a month on a $5,500 loan — prevents capitalisation and holds the balance at the amount borrowed. It is the cheapest money a student borrower will ever spend: $30 a month during school saves several hundred dollars over the repayment term, and it establishes the habit of servicing the debt. Subsidised loans need no such payment, because the government pays the in-school interest, which is why subsidised eligibility should be used first and in full before unsubsidised borrowing. The calculator on this page shows the capitalised balance and the payment it implies; the borrowing decision should be made with the capitalised figure in view, not the amount originally disbursed.

Borrowing limits, and the private-loan comparison

The annual and aggregate federal limits are stated in the hub page’s companion section: $5,500 to $7,500 a year for dependent undergraduates ($31,000 aggregate), higher for independent students, $20,500 a year for graduate unsubsidised loans ($138,500 aggregate). The limits exist to bound the government’s exposure and the borrower’s debt; they are not a recommendation, and borrowing to the limit every year is a decision that should be justified by the expected earnings of the course, not by the availability of the money. A borrower whose expected starting salary is $50,000 and who borrows $31,000 faces a standard payment of about $352 a month at 6.52% over ten years — roughly 8% of gross pay, which is manageable; the same borrowing against a $30,000 starting salary is 14% of gross pay, which is not.

Private loans fill the gap between the cost of attendance and federal aid, and they should be compared on total cost over the expected repayment period, including the rate type (fixed or variable), the fees, the cosigner requirement and the cosigner-release conditions, and the hardship provisions. A variable rate that starts below the federal rate can exceed it within a few years, and the cosigner — usually a parent — is liable for the full balance, with the debt affecting the cosigner’s credit. Shop private loans as a last resort, compare at least three lenders on the same terms, and prefer a fixed rate with a cosigner-release provision. The absence of federal protections is a cost, even though it does not appear in the monthly payment.

How much to borrow: the framework

Decide from the payment backwards. Estimate the starting salary of the intended career from reliable sources — the Bureau of Labor Statistics, professional associations, the school’s own outcomes data where it is audited — and apply the rule that total borrowing should not exceed the first-year salary, and that the standard ten-year payment should not exceed about 10% of gross monthly pay. A $55,000 starting salary supports about $45,000 of borrowing at 6.52% over ten years (payment about $510 a month, 11% of gross — slightly over the guide, so borrow less or plan a longer term). A $35,000 starting salary supports about $25,000 of borrowing. These are rules of thumb, not guarantees, and they assume the borrower enters repayment on schedule and stays employed; the margin for a delayed start or a lower salary is the borrower’s own savings, not the loan.

Reduce the amount borrowed before reducing the quality of the education, where the choice exists: grants and scholarships first, work-study and part-time work second, family contributions third, loans last, and the cheapest loan type first within the loan category. Every dollar not borrowed is a dollar that does not accrue interest, and the cheapest borrowing is the borrowing that never happens. Revisit the total each year: the decision is made four times, once per year of study, and the cumulative total is what determines the payment, so the annual decision should be made with the running total in view.

Frequently asked questions

What is the federal student loan rate for 2026-27?

6.52% for undergraduate Direct Subsidized and Unsubsidized loans, 8.07% for graduate/professional Direct Unsubsidized loans, and 9.07% for Direct PLUS loans, for loans first disbursed 1 July 2026 to 30 June 2027. Each loan’s rate is fixed for its life.

Should I pay student loan interest while in school?

On unsubsidised loans, yes if possible — about $30 a month on a $5,500 loan at 6.52% prevents the interest capitalising and being charged interest itself for the whole repayment term. On subsidised loans the government pays the in-school interest, so no payment is needed.

What is the maximum I can borrow in federal student loans?

Dependent undergraduates: $5,500–$7,500 a year, $31,000 aggregate ($23,000 subsidised). Independent undergraduates: up to $57,500 aggregate. Graduate students: $20,500 a year in unsubsidised loans, $138,500 aggregate including undergraduate borrowing.

Are private student loans worse than federal loans?

Usually, for the borrower. Private loans price on credit, often carry variable rates, require a cosigner, and lack income-driven repayment, forgiveness, and the discharge options of federal loans. They are a supplement where federal aid does not cover the cost, not a substitute.

What is Grad PLUS, and is it still available?

Grad PLUS was a federal loan for graduate and professional students covering up to the cost of attendance less other aid. It was closed to new borrowers from 1 July 2026; graduate borrowing beyond the unsubsidised limit now comes from private loans or other aid.

How much student debt is too much?

A common rule: keep total borrowing below the expected first-year salary, and keep the standard ten-year payment under about 10% of gross monthly pay. Decide the amount from the payment it implies, not from the maximum available.