From FAFSA to Repayment: The Beginner’s Guide to Student Loans

It’s not news that student loan debt is a bit of an epidemic in the U.S.

The average graduate last spring faced more than $37,000 in loans. Many of us can expect a monthly payment of nearly $300 for 10 years.

Everyone assumed kids of my generation needed to go to college, but no one deemed it important to talk to us about how we’d pay for it.

I headed to college from a small town, where most of the parents hadn’t gone to college and most of the teachers had attended a nearby state university at a time when it was much more affordable.

Most of my peers just assumed student loans would be part of our adulthood.

When we applied for them at 17 or 18, the four or five years until we’d start to repay them felt like an eternity.

If my 18-year-old self could have understood how $50,000 in debt with 6% interest would impact the rest of my adult life, I might have worked harder to save money and earn scholarships.

The Perfect Student Loan Scenario

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Ideally, you wouldn’t need loans at all.

You and your parents would spend your childhood saving for college and applying for scholarships, and you’d leave school debt-free (and, hopefully, with a killer job offer).

Lacking ideal finances, maybe you’d supplement your savings and scholarships with federal grants and student loans. But you would never take more than you need, and you’d make monthly payments whenever you could, even while you’re still in school.

You’d leave school with minimal debt and use the salary from your killer job to pay down that debt fast.

But let’s assume your situation hasn’t been ideal.

You needed help to pay for college, you applied for student aid, you took the checks as they came and you went about your life as a college student.

Maybe you’ve even been out of college for five or 10 years now, and you’ve been coasting along with minimum payments or deferment, or you’ve just neglected your loans altogether.

Does that sound more familiar?

If so, this guide’s for you. I’m going to help you answer:

  • Do you need student loans?
  • What kinds of loans can you receive?
  • How can you apply for student loans?
  • When do you have to start paying back your loans?
  • How can you find out how much money you owe?
  • What do “default,” “defer” and “forbearance” mean?
  • What are your repayment options?
  • How does refinancing and consolidation work?

Wherever you are on the path of student loan application or repayment, you’ll probably run into something complicated that raises questions. So we’ll start from the beginning:

1. Do You Need Student Loans?

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Probably the most important question you can ask yourself before starting college is, “Do I actually need loans?”

If you haven’t yet applied for loans, ask yourself if you can pay for college some other way.

2. What Kind of Financial Aid Can You Receive?

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Once you’ve exhausted other payment methods, what are your financial aid options?

Federal Student Loans

You’ll apply for this aid through the Free Application for Federal Student Aid, or the FAFSA, and you have to repay it.

  • Direct Subsidized Loans help cover costs for undergraduate students who demonstrate financial need. Payments are due beginning six months after you leave school or drop below half-time enrollment. You won’t owe any interest for the time you’re in school, during that six-month grace period or any periods of deferment.
  • Direct Unsubsidized Loans help cover costs for undergrad, graduate or professional students regardless of financial need. Payments are due beginning six months after you leave school or drop below half-time enrollment, but you’ll owe interest that accrues as soon as the loan is disbursed.
  • Direct PLUS Loans can help supplement costs not covered by other aid. For undergraduate students, this loan is in your parent’s name. Payments are due beginning with disbursement of the loan.
  • Federal Perkins Loans are made by some schools to undergrad or grad students with exceptional financial need. Payments are due beginning nine months after you leave school or drop below half-time enrollment. You won’t owe any interest for the time you’re in school or the nine-month grace period.

Other Federal Financial Aid

You’ll also apply for this aid through the FAFSA, but you don’t have to repay it:

  • Grants are almost all awarded to students with financial need, attending four-year colleges or universities, community colleges or career schools.
  • Work-Study awards are available to full- or part-time graduate or undergraduate students. They include a set amount of money that you can receive for part-time work as a student, usually through the school and related to civic education and your course of study.

Private Student Loans

If federal aid doesn’t meet your needs, you may want to borrow more money from a private lender, like a bank or credit union.

These loans can be tougher to get if you don’t have any credit history yet, so you may need a co-signer. Remember, a co-signer is responsible for the debt if you don’t pay — even after you die or flee the country!

3. How to Apply for Student Loans

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Regardless of what you believe you’ll need or qualify for, the best place to start for financial aid is filling out the FAFSA.

This application will let you see which of the above types of federal aid you’re eligible to receive. The results may surprise you.

Keep in mind, though: Filling out the FAFSA doesn’t mean you have to accept the aid you’re offered.

You’ll be able to choose which awards and how much money to accept after your school sends your award letter (FAFSA results).

File your FAFSA online at, download a printable PDF or order a paper FAFSA, or visit your school’s financial aid office to ask for assistance.

You’ll need to include your parents’ information if you’re a dependent student, generally defined as: under 24, unmarried, childless and not active duty or veteran of the armed forces.

How to Apply for a Private Student Loan

If the awards you receive in federal student aid and scholarships aren’t enough to cover your college expenses, you may apply for a private loan.

You can talk directly with someone at your local bank or credit union about your loan options, or try an online marketplace like Credible to compare offers from several lenders at once.

4. What NOT to Do With Your Student Loan Check

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Once you know what you’re eligible to receive, you’ll have to choose how much money to actually accept.

Here are two important warnings I wish I’d heard in college to avoid racking up so much debt:

A. Do NOT take all of the money offered if you don’t need it.

You can receive some of your financial aid without accepting all of it.

It’s tempting to take everything if you’re awarded more than you need — it feels like free money!

Putting yourself in debt, though, is sooo not free.

Decide how much money you’ll reasonably need to cover your tuition and expenses each semester and how much you’ll be able to contribute from savings or wages.

To meet your remaining need, accept financial aid awards in this order:

  1. Scholarships and grants (free money)
  1. Work-study (earned money)
  1. Federal student loans (borrowed money)
  1. State or school loans (borrowed money)
  1. Private loans (borrowed money)

B. Do NOT use student loans for extravagant purchases.

You may be offered federal aid beyond what you need to pay tuition. Unless you need the relief, don’t consider this an excuse to avoid working.

If you can cover living expenses by working while you’re a student or over the summer, you’ll avoid a lot of hassle and cost in loans.

And if you do accept the money, only to realize when the check arrives you don’t need it… you don’t have to spend it.

Would it be nice to fund your friends’ Spring Break trip or go on a shopping spree? Of course. But you’ll pay for that extravagance exponentially down the line, and it may not seem worth it in retrospect.

(Or, maybe it will seem worth it. Your call. But at least someone’s telling you to think about it now, instead of regretting it later.)

5. When You Have to Start Paying Back Your Loans

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Ideally, you should start paying back your loans right away, because some loans will accrue interest while you’re in school.

When you must begin making payments on your loans depends on the type of loan (see no. 2).

Once your loan’s grace period ends — usually six or nine months after you leave school — you can start racking up missed or late payments, which can hurt your credit score.

If you miss payments for nine straight months, you’ll default on your loan and the government could start to collect the debt by garnishing your wages or income tax return.

Your private student loans may also have a grace period before you have to make monthly payments. Check with your lender early on to make sure you understand the terms of the loan.

6. Find Out What Kinds of Loans You Have and How Much You Owe

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If you’ve been out of school a few years, not making steady payments and ignoring emails or phone calls from lenders, you might not even know which debts you owe or to whom.

It may seem overwhelming, but the information is simple to retrieve.

For federal student loans, sign in at to see:

  • Which grants and loans you’ve received
  • How much you still owe on each
  • How much interest you owe on each
  • Status of each loan (in repayment, forbearance, default, etc.)
  • Your repayment plan for each loan
  • Loan servicer (to whom you make payments)

If you don’t remember the email address or password, you’ll have to enter some information about yourself and answer security questions.

If you still can’t get into your account, don’t give up! You can always call and speak with someone directly at (800) 557-7394.

For private loans, you may be getting updates from your lender (a bank or credit union). If that’s not helping, enter your information at to see what you owe.

7. What Does It Mean to Default?

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To default on federal loan repayment means you’ve failed to make your monthly payment for 270 days (nine months).

The entire balance of your loan will become due immediately, and if you don’t pay it off, it can go to a collections agency. Plus, your debt will increase because of late fees, additional interest and any fees associated with collection.

The consequences of a defaulted loan are pretty far-reaching:

  • You become ineligible for deferment or forbearance (see below) and other repayment options.
  • You become ineligible for additional federal student aid.
  • The government could withhold your federal and state tax refund to collect on the debt.
  • At the government’s request, your employer could garnish your wages to pay off the debt.

Defaulting on a private student loan isn’t the same as doing so on a federal loan.

A private loan is generally defaulted after 120 days (three months) of missed payments.

When you default on a private loan, the lender, unlike the federal government, will have to go to court — and win — before enforcing measures like wage garnishment to collect on the loan.

Before defaulting on your loan, explore other options!

Even if you can’t afford to pay, federal loans come with a variety of options to help you keep your loan in good standing and protect your credit, including deferment, forbearance, loan forgiveness and income-based repayment.

Keep reading for details!

8. What is Deferment? What is Forbearance?

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When you can’t make scheduled monthly payments on your federal student loans, deferment or forbearance could allow you to temporarily postpone or reduce payments.

You’ll first apply with the lender for a deferment, which delays repayment of your loan. If you have a subsidized loan, you won’t owe additional interest accrued while it’s in deferment.

Unemployment, economic hardship, military service and several other factors could qualify you for deferment.

If you don’t qualify for deferment, your lender may grant a forbearance to allow you to stop making payments or reduce your monthly payments for up to 12 months. You’ll continue to accrue interest, but you can avoid default.

9. How to Repay Student Loans

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You have several options for repaying federal loans. Standard repayment has you paying off your loans over 10 years, but that might mean a monthly payment you can’t afford.

Income-driven repayment plans and Pay As You Earn (PAYE) limit your monthly payments to a certain percentage of your income and extend the period you have to pay.

Learn about these options to avoid default when you can’t afford your monthly payment.

For private student loans, you’ll have to check with your lender to learn your repayment options. Some offer forbearance options, and private loans are easier to discharge with bankruptcy than their federal counterparts.

Private loans don’t have income-based repayment options or much other flexibility.

If you have to choose to make payments on one or the other, pay off your private loans first. They usually have a higher interest rate, and the lack of flexibility means they’re easier to default when you can’t pay.

10. What is Refinancing? What is Consolidation?

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Refinancing or consolidating your loans will generally mean replacing your laundry list of loans with one (or a few) loans that include all of your student debt.

This could simplify your life with one monthly payment instead of several. It may also lower your monthly payment, improve your interest rate and/or give you more time to pay.

However, if you increase the length of your repayment period, you’ll potentially pay more in interest over the life of your loan. You may also lose some of the benefits of your existing loans that could save you money in the long run.

Be sure to do the math to understand the short- and long-term effects before jumping into refinancing or consolidation.

If you refinance with a private lender, you’ll lose all of the protections that come with federal loans, including income-driven repayment, cancellation and forgiveness options.

Learn more about private student loan refinancing here.

You can apply to consolidate your federal student loans with a federal Direct Consolidation Loan, which will help you keep some of the protections and repayment options of federal loans.

If you only need temporary relief from repayment and know you’ll be able to resume payments in the near future, consider whether deferment or forbearance would be better options before refinancing.

11. How Do You Qualify for Student Loan Forgiveness?

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In some cases, you can eliminate some of your student loan debt before you have to repay it.

Federal student loan forgiveness, cancellation or discharge is available for people who work in certain nonprofit or public service positions, including:

  • Peace Corps or ACTION volunteer
  • Teacher
  • Member of the U.S. armed forces
  • Nurse or medical technician
  • Law enforcement or corrections officer
  • Head Start worker
  • Child or family services worker

Check with your loan servicer to find out if your position qualifies.

If you’re in the private sector, you could also look for a job with a company that helps employees repay student loans!

Contrary to popular belief, you can also discharge student loans in bankruptcy — but it’s rare.

12. Who Can Answer Questions About Your Student Loans?

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Whether you’re applying for the first time or you’ve been struggling with payments for a decade, student loans are a scary beast trailing millennials pretty much everywhere we go.

But they’re not a lost cause. We hope this guide helps you unravel the most complicated parts and get back on track.

If you’re still confused, do NOT ignore your loans for another decade and hope they’ll disappear!

(Trust me: I tried that. It does not work.)

Check out these additional resources to learn your options:

  • Your college or university’s student financial aid office. They’re a valuable and accessible resource, even after you graduate.
  • The articles at offer more in-depth information on all of the topics in this guide.
  • Check out inspiring stories of how other Penny Hoarders have repaid thousands of dollars of student loan debt.

Your Turn: What is your biggest question about applying for or repaying student loans?

Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post,, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).