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💳 Credit & Debt · Lesson 9 of 10 · 8 min

Student Loans 101

🎓 Student loans are the rare debt people sign up for at 18 — before they fully understand interest — for a number that can rival a mortgage. The degree can absolutely be worth it, but borrowing blind is how a smart investment turns into a decade-long hangover.

💡 Key idea

Federal loans (lower rates, flexible repayment, forgiveness options) before private. Borrow only what you NEED, and know your repayment plan before the bills hit.

🧠 Why it matters

Student loans come in two flavors. FEDERAL loans (from the government) generally offer lower fixed rates, an income-based REPAYMENT option (for loans taken out from July 2026 on, that's the Repayment Assistance Plan), and forgiveness paths like Public Service Loan Forgiveness — exhaust these FIRST. Since July 2026, federal borrowing for grad school and for parents is capped, so some students need private loans to fill gaps. PRIVATE loans (from banks) fill gaps but have fewer protections and often variable rates. Core rules: borrow only what you NEED (not the max offered), know that interest accrues — sometimes even while you're in school — and understand your repayment plan before the bills start. Compare total cost against your expected starting salary: a degree that pays off is an investment, but over-borrowing for a low-earning path is a trap. When in doubt: federal before private, need before want.

🌍 In the real world

💡 Two students borrow for the same degree. One takes the full amount offered and spends the extra; the other borrows only tuition and works part-time. Same diploma — but years apart on the day they're finally debt-free.

📌 Takeaways

  • Federal loans usually beat private (rates, repayment, forgiveness) — use them first
  • Borrow only what you need, not the maximum offered
  • Know your repayment plan and total cost before you sign

📖 Terms in this lesson

Co-signer: Someone who signs your loan and becomes fully responsible for it if you don't pay.

Student loan: Money borrowed for education; federal loans have more protections than private ones.

✅ Test yourself

Which should you generally exhaust first?
  1. Private loans
  2. Federal loans (more protections and flexible repayment)
  3. Credit cards
  4. Payday loans

Answer: B · Federal loans (more protections and flexible repayment)

Federal loans typically offer lower rates, income-driven repayment, and forgiveness options.

Smart rule when taking student loans?
  1. Borrow the maximum offered
  2. Borrow only what you actually need
  3. Ignore the interest
  4. Never check repayment terms

Answer: B · Borrow only what you actually need

Borrowing only what you need keeps the debt — and the years repaying it — smaller.

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