Lesson 9 of 11 14 min
Student Loans
Federal vs. private loans, interest, and repayment options.
Written by Mateo LermaLast reviewed 4 sourcesEditorial standards
All lessons in Money After High School
Step 1: The lesson
How do student loans work?
Federal student loans come from the U.S. Department of Education. They have fixed interest rates set by law, don't require a credit check for most undergraduates, and come with borrower protections and repayment options.
- Subsidized loans: for students with financial need. The government pays the interest while you're in school at least half-time.
- Unsubsidized loans: interest starts building as soon as the money is paid out, even while you're in school.
Private student loans come from banks and other lenders. They usually depend on credit (often needing a co-signer), may have variable rates, and typically offer fewer protections. Most experts suggest using federal loans first.
Key term
Capitalization
When unpaid interest is added to your loan balance. After that, you pay interest on the interest.
Rules change
Federal loan limits and repayment plans are set by law and have changed in recent years. Always check studentaid.gov for current rules before you borrow.
A common guideline
Try to keep total student loan borrowing below what you expect to earn in your first year after graduating.
Step 2: See it
Total interest on a 10-year loan at a hypothetical 6.5%
$10,000 borrowed: about $114 a month and $3,626 in total interest. $30,000 borrowed: about $341 a month and $10,877 in total interest. $50,000 borrowed: about $568 a month and $18,129 in total interest.
Step 3: Real-world example
Interest while you're in school
Caleb borrows $5,000 in unsubsidized federal loans his first year at a hypothetical 6% rate. He doesn't make payments during school.
- Interest builds at about $300 a year while he's in school.
- By the time repayment starts about 4½ years later, roughly $1,350 in interest has built up.
- If that interest is capitalized, he'll start repayment owing about $6,350 — on a $5,000 loan.
Paying even the interest during school — say $25 a month from a part-time job — keeps the balance from growing.
Step 4: Try it
Student loan calculator
Try $30,000 at 6.5% for 10 years. Then see what borrowing $10,000 less would save.
Your numbers
Results
Monthly payment
$340.64
120 payments at 6.5% APR
Amount borrowed
$30,000
Total interest
$10,877
27% of what you pay
Total of payments
$40,877
- Principal (amount borrowed) $30,000
- Interest $10,877
Show year-by-year breakdownHide breakdown
| Year | Principal | Interest | Balance left |
|---|---|---|---|
| 1 | $2,203 | $1,885 | $27,797 |
| 2 | $2,350 | $1,738 | $25,447 |
| 3 | $2,507 | $1,580 | $22,940 |
| 4 | $2,675 | $1,412 | $20,264 |
| 5 | $2,855 | $1,233 | $17,410 |
| 6 | $3,046 | $1,042 | $14,364 |
| 7 | $3,250 | $838 | $11,114 |
| 8 | $3,467 | $620 | $7,647 |
| 9 | $3,700 | $388 | $3,947 |
| 10 | $3,947 | $140 | $0 |
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Step 5: Knowledge check
Quiz: Student Loans (3 questions)
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 6: Summary
Summary: Student Loans
Federal student loans have fixed rates and protections; subsidized loans don't build interest while you're in school, and unsubsidized loans do. Private loans usually need good credit or a co-signer and offer fewer protections. Watch out for capitalized interest, borrow only what you need, and check studentaid.gov for current rules.
Step 7: What you should remember
Key takeaways: Student Loans
- Federal first, private last.
- Subsidized: no interest in school. Unsubsidized: interest from day one.
- Capitalized interest grows your balance.
- Borrow less than your expected first-year salary.
- Rules change — check studentaid.gov.
Key terms in this lesson
Finished the lesson?
Mark it complete to track your progress.
Sources and further reading
Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.
- 1.Federal Student Loans (opens in a new tab)
Federal Student Aid (U.S. Department of Education) · studentaid.gov
- 2.Interest Rates and Fees for Federal Student Loans (opens in a new tab)
Federal Student Aid (U.S. Department of Education) · studentaid.gov
- 3.Federal Student Loan Repayment Plans (opens in a new tab)
Federal Student Aid (U.S. Department of Education) · studentaid.gov
- 4.Student loans (opens in a new tab)
Consumer Financial Protection Bureau · consumerfinance.gov
Last checked September 2026: Federal student loan types, rates, and repayment rules. Rules and numbers like these can change — check the official source before making a decision.
Cite this lesson
Financial Literacy Club. (2026, September). Student loans. https://learnwithflc.org/courses/money-after-high-school/student-loans
Spot an error or an out-of-date number? Tell us and we'll fix it. Read our editorial standards.