Student Loan

Student loan summary:

  • A student loan is money borrowed from a lender to help cover education-related expenses.

  • The U.S. government offers federal student loans, often with a lower interest rate.

  • Banks or other financial institutions may provide private student loans that typically have fewer benefits than federal student loans.

Student loan definition and meaning

A student loan is money borrowed to help cover the cost of an education. It may cover tuition, housing, books, lab fees, and other education-related expenses. Typically, there are two types of student loans:

  • Federal student loans: Offered by the U.S. government. Federal student loans usually have lower interest rates than private student loans and offer flexible repayment options. They also provide opportunities for some degree of debt forgiveness.

  • Private student loans: Available through banks and other private financial institutions. Normally, a private student loan has a higher interest rate than a federal student loan. Private loans generally don’t offer flexible repayment options or any degree of debt forgiveness.

Key concept: A student loan is money borrowed to cover the cost of education.

More about student loans

Many students count on student loans to fund their higher education. It’s not at all unusual for a new graduate to have multiple student loans taken out at different times during their academic career.

If you have multiple student loans, it’s possible to consolidate them. Debt consolidation could help you streamline your finances. Federal and private student loans can be consolidated. The U.S. Department of Education allows borrowers to consolidate federal student loans for free. Consolidating won't lower the interest rate on any of the debt. Private student loans can be consolidated by taking out a new private loan.

It’s possible to consolidate federal loans into a private loan. If you do, you lose perks like income-based repayment plans. Refinancing federal student loans with a private loan is a strategy to approach with extreme caution. It could make sense if you can get a significantly lower interest rate and you don’t expect to need federal student loan benefits.

Student loans: a comprehensive breakdown

Student loans allow millions of people a chance to gain an education when they otherwise might not. Even so, they aren't without thorns. The most obvious is the financial burden when you leave school with a small mountain of student loan debt.  

According to the National Consumer Law Center (NCLC), student loans can be discharged (forgiven) in bankruptcy, but it's rare. Student loans aren't automatically discharged, even if bankruptcy is approved. Instead, you have to take special steps to convince the court that you’re facing undue hardship, and the hardship isn’t expected to end. Even then, the discharge of student loans isn't guaranteed. 

The U.S. Department of Education suggests the following if you’re having a tough time making student loan payments: 

  • Apply for an income-driven repayment plan

  • Apply for a fixed payment repayment plan

  • Update your current income-driven repayment plan

  • Get temporary relief through deferment or forbearance

  • Review your loan forgiveness options

If your student loans are private and you’re having a difficult time making payments, here are a few coping strategies:

  • If you have a co-signer on the loan, let them know you’re struggling.

  • If you can’t make the entire monthly payment, figure out how much you can afford to pay.

  • Contact your lender and let them know about your situation.

  • Be prepared to provide documentation, like pay stubs, bank statements, and bills.

  • Ask about your options for reducing your payment.

If you’re hoping to avoid student loans or to borrow as little as possible, here are a few strategies:

  • Complete your first two years of studies at a local community college

  • Take your time getting through school by signing up for classes as you can afford to pay for them

  • Look for grants and scholarships year-round

  • Ask your school about work-study programs

Student Loan FAQs

You can consolidate federal student loans through the US Department of Education for free. This combines your payments into one, which can make managing your loans easier. However, it won't lower your interest rate.

You can consolidate private student loans with a new private student loan. It's not always a good idea to pay off federal student loans with a private student loan because you'd lose certain benefits, like income-based repayment plans, that are only available if you have federal student loans.

In a few circumstances, it could make sense. For example, if you know you won’t need income-based repayment plans in the future and you can get a significantly lower interest rate by consolidating now, consolidating federal to private might offer a financial advantage.



It's possible to discharge student loan debt in bankruptcy, but rare. You'd have to prove that you wouldn't be able to maintain even a minimal standard of living if you had to repay the debt. This is called "undue hardship." Because most student loans offer income-driven repayment plans, that's a hard burden to meet.

Debt resolution usually isn't an option for student loans. If you have federal student loans, there are programs that can help you get your loans out of default. If you're behind on private student loans, you'll need to contact your lender to learn more about your options.

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