Student Loan

Student Loan Definition and Meaning

A student loan is money you borrow to pay for education. The lender advances you a principal amount, which you typically repay with monthly installments.

Comprehensive Breakdown of Student Loans

Student loans are loans taken out to finance education costs. Many people take out student loans to pay for college tuition and fees, room and board, and supplies. 

Private student loans require a credit check, while most federal loans don't. If you're taking out student loans that require a good credit score and you don't qualify on your own, you may need a co-signer. 

The amount of time you're given to repay a student loan depends on the type you take out. Some student loans allow you to finish school before starting repayment, while others expect you to begin making payments right away.

Types of Student Loans

There are two main types of student loans: federal and private.

Federal student loans are issued by the U.S. Department of Education. These loans offer a number of benefits. 

Federal student loans have fixed interest rates set by the government, and those rates tend to be reasonable. Federal student loans also offer borrowers different repayment plan options, including income-driven repayment plans.

Federal student loans also come with borrower protections, like the option to pause loan payments during a period of financial hardship. Some federal student loan borrowers may also be eligible to have a portion of their balance forgiven after a period of time.

However, the federal government can garnish the wages of people who stop making their student loan payments. It can also withhold tax refunds and use the money to cover overdue student loan balances. 

For this reason, it’s pretty rare to successfully use debt settlement to address a federal student loan balance—meaning, get the government to agree to accept a sum that’s smaller than the total loan balance that’s owed. It’s also rare for federal student loans to be discharged in bankruptcy. 

Private loans, on the other hand, are issued by banks and other lenders. Their rates are not capped by the government like federal student loans, so they can be more expensive. (For highly qualified applicants, however, private student loans may offer lower interest rates and better terms.) They also don't come with the same protections as federal loans.

Private student loan borrowers don't have access to income-based repayment plans or loan forgiveness programs. Some private lenders let borrowers pause loan payments during periods of hardship, but lenders generally make those decisions on a case-by-case basis.

It's not easy to get private student loans settled or discharged in bankruptcy. But it's typically easier to settle or discharge private student loans than it is for federal loans. 

Both federal and private student loans can be consolidated. But federal borrowers who consolidate into private loans give up protections like repayment plans based on income or the option to temporarily pause loan payments.