Student loan types and repayment plans
"Student loan" covers several different federal loan types, each with its own rules for who can borrow it, when interest starts costing you, and how it can eventually be repaid or forgiven. Getting those rules backwards — not realizing interest was piling up during a grace period, or consolidating a loan that was already on track for forgiveness — can cost real money or years of progress. This guide walks through the loan types, what happens between graduation and your first payment, the repayment and forgiveness options federal loans open up, and when consolidating actually helps.
Last reviewed September 2026
The three federal loan types
A subsidized loan is available only to undergraduates who show financial need, and its defining feature is that the federal government pays the interest while you're enrolled at least half-time, during your grace period, and during any deferment. Nothing builds up in the background — the balance you graduate with is the balance you started repaying.
An unsubsidized loan is open to undergraduates and graduate students regardless of need, but interest starts accruing the moment it's disbursed and keeps running through school, the grace period, and any deferment. None of that is billed along the way — it silently adds up and gets added to your principal once repayment begins.
A Parent PLUS loan is a separate loan entirely: a parent, not the student, borrows it, and it can cover the full remaining cost of attendance after other aid. It requires a credit check for adverse history, carries a higher rate and a meaningfully larger origination fee than either loan above, and legally obligates the parent — not the student — to repay it.
Estimate a subsidized or unsubsidized loan's payment and payoff →
The grace period — and why capitalized interest matters
Most federal student loans give you a six-month grace period after you graduate, leave school, or drop below half-time enrollment before the first payment is due. It exists to give you time to find a job and get finances in order, not as a reason to stop thinking about the loan.
Standard vs. income-driven repayment
The default is the standard 10-year plan: a fixed payment sized to pay off the loan, plus all its interest, in 120 months — the same fixed-rate amortization math behind any installment loan. It's the plan that minimizes total interest paid, provided the payment fits your budget.
Income-driven repayment plans instead set your payment as a percentage of discretionary income, which can shrink it substantially if you're early in your career or between jobs, at the cost of a longer timeline and more total interest paid over the life of the loan. Which specific income-driven plans are open to you, and their exact terms, have changed more than once in recent years — check studentaid.gov for the current rules before choosing one.
Loan forgiveness: PSLF and beyond
Public Service Loan Forgiveness cancels the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer — and the amount forgiven isn't taxed. Only certain repayment plans count toward those 120 payments, so the plan you pick early on can determine whether years of payments actually count.
- Certify your employment yearly rather than waiting until you think you've hit 120 payments — it catches plan or paperwork problems while they're still fixable.
- A Parent PLUS loan can reach an income-driven plan and PSLF only through a Direct Consolidation Loan, and only onto a narrower set of plans than a student's own loans qualify for.
- Loan forgiveness rules are set by statute and regulation, both of which change — verify current eligibility directly with your servicer or studentaid.gov rather than relying on older guidance.
When consolidating helps — and when it doesn't
A Direct Consolidation Loan combines multiple federal loans into one, with one servicer and one monthly payment, at a rate set by law: the balance-weighted average of the old rates, rounded up to the nearest 1/8 of a point. It never lowers your rate — the best it does is match it, rounded slightly up.
What it can do is unlock a new term length (which can raise total interest if you stretch it out) and, importantly, it's the only path for a Parent PLUS loan to reach an income-driven plan. But consolidating loans already making progress toward PSLF resets the payment count to zero on the new loan — a genuinely costly mistake if you're partway through the 120 payments.
Terms in this guide
- Subsidized loan — A federal student loan (available only to undergraduates with financial need) where the government pays the interest while you're in school at least half-time, during the grace period, and during deferment. Nothing capitalizes onto the balance during those windows, unlike an unsubsidized loan.
- Unsubsidized loan — A federal student loan open to undergraduates and graduate students regardless of financial need, where interest accrues from disbursement and capitalizes onto the balance once repayment starts — unlike a subsidized loan, where the government covers interest while you're in school.
- Grace period — A window after leaving school — six months for most federal student loans — before payments must begin. Interest keeps accruing on unsubsidized loans during it, and any that accrued capitalizes onto the balance once repayment starts.
- Capitalized interest — Unpaid interest that gets added to a loan's principal balance, so future interest accrues on the larger amount. It typically happens on an unsubsidized student loan when accrued interest isn't paid during school or a deferment and is rolled in once repayment starts.
- Direct Consolidation Loan — A federal loan that pays off multiple federal student loans and replaces them with one new loan, one servicer, and one monthly payment. Its rate is the balance-weighted average of the old loans' rates, rounded up to the nearest 1/8 of a point — never lower than what you already had.
- Public Service Loan Forgiveness (PSLF) — A federal program that forgives a borrower's remaining Direct Loan balance after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer. Only certain repayment plans count toward the 120, and forgiven amounts under PSLF aren't taxed.
- Parent PLUS loan — A federal loan a parent (not the student) borrows to cover a dependent undergraduate's remaining costs, up to the full cost of attendance. It requires a credit check for adverse history, carries a higher rate and origination fee than a student's own federal loans, and is the parent's legal obligation to repay.
- Cosigner — Someone who signs onto a private student loan (or other loan) with the borrower and becomes equally responsible for repaying it. Most undergraduates without an established credit history need one to qualify or to get a competitive rate.