Student Loans

Student Loans (US)

Framing — read first. This is general educational information, not financial, tax, or legal advice. US student-loan policy is exceptionally volatile (2024-2026): the SAVE plan was struck down, the One Big Beautiful Bill Act (OBBBA, 2025) is rewriting repayment, and PSLF regulations changed. Every dollar figure, percentage, plan name, and deadline below is stated “as of 2026” and can change without notice — verify the current rule at studentaid.gov before relying on it or advising anyone. When unsure, send the borrower to studentaid.gov and their loan servicer.

This skill is a spoke of the consumer-finance hub (note only — do not modify the hub); route there for sibling personal-finance topics (banking, taxes, insurance, budgeting, investing, estate planning). The consumer-credit-and-debt hub is a sibling family — route there for credit-report/score, collections, lending, and consumer-credit-law topics. For neighboring topics see the cross-references at the end.

1. Federal vs private — the decision that governs everything

Federal loans (US Dept. of Education / Federal Student Aid) carry borrower protections private loans do not: fixed rates set by Congress, income-driven repayment, forgiveness programs (PSLF, IDR forgiveness), generous deferment/forbearance, and death/disability discharge. Get federal first by filing the FAFSA.

Private loans (banks, credit unions, online lenders) are credit-underwritten, often need a cosigner, may carry variable rates, and have no IDR, no PSLF, and no statutory deferment/forbearance. Discharge on death/disability is at the lender’s discretion (many but not all offer it).

The refinancing trap (most important single point). Refinancing federal loans into a private loan is permanent and forfeits all federal protections — IDR, PSLF, federal forgiveness/discharge, and federal deferment/forbearance. A lower rate rarely justifies losing those for a borrower who might ever need income-driven payments or public-service forgiveness. “Should I refinance?” → only consider it for private-only debt, or for a high earner with stable income who will never use federal benefits. (CFPB has cited lenders for implying borrowers keep federal benefits after refinancing — they do not.)

2. Federal loan types

• Interest rates are fixed for the life of each loan, set annually by Congress for loans disbursed July 1–June 30. Look up the current year’s rates at studentaid.gov — do not quote a remembered number.
• Capitalization = unpaid interest added to principal (you then pay interest on interest). On unsubsidized/PLUS loans it can occur after the grace period and at the end of deferment or forbearance. Avoid it by paying interest as it accrues (e.g., while in school).
• Annual/aggregate borrowing limits exist (e.g., dependent undergrad first-year subsidized cap; lifetime undergrad subsidized aggregate). OBBBA also introduced new borrowing limits — verify current limits at studentaid.gov.
• Servicers collect payments and administer plans: MOHELA, Aidvantage, Nelnet, EdFinancial (assignments change). Find yours by logging into studentaid.gov → account dashboard. The servicer is who you actually call.

3. Repayment plans (the comparison)

2026 status — IN FLUX. A court order ended the SAVE plan (effective ~March 10, 2026); borrowers were moved off it and must pick another plan. Under OBBBA, borrowers who take out a new loan or consolidate on or after July 1, 2026 repay under the new Repayment Assistance Plan (RAP) or a Tiered Standard plan, and legacy IDR plans (ICR/PAYE, and SAVE) are being phased out for them. Confirm which plans you can actually enroll in today at studentaid.gov/courtactions and studentaid.gov.

• IDR mechanics: payment tied to income & family size; recertify income annually; spousal income may count depending on plan and tax-filing status; amount forgiven under IDR can be taxable (federal tax treatment has changed repeatedly — verify).
• Use the official Loan Simulator at studentaid.gov/loan-simulator to compare your actual numbers; it reflects current plan availability better than any static table.

4. Forgiveness & discharge (federal only)

• PSLF (Public Service Loan Forgiveness): 120 qualifying monthly payments (≈10 yrs) while working full-time for government or a 501(c)(3) nonprofit, on Direct Loans under a qualifying plan (Standard or IDR). Tax-free forgiveness. New PSLF regulations took effect ~July 1, 2026 — verify qualifying-employer and payment rules. Use the PSLF Help Tool and submit the employment-certification form annually.
  • PSLF Buyback: lets you pay for past months that didn’t count because you were in an ineligible deferment/forbearance, converting them to qualifying payments once you’d otherwise reach 120.
• IDR forgiveness: remaining balance forgiven after the plan’s full term (20–25 yrs, RAP longer) — separate from PSLF, no employer requirement.
• Teacher Loan Forgiveness: up to $17,500 (highly qualified math/science/special-ed; otherwise up to $5,000) after 5 complete & consecutive years at a qualifying low-income school. Cannot double-count the same service for both TLF and PSLF simultaneously.
• Borrower Defense to Repayment: discharge for school misconduct/misrepresentation (e.g., fraud). Heavily litigated/paused at times — verify processing status.
• Closed-School Discharge: if your school closed while enrolled or shortly after withdrawal.
• Total & Permanent Disability (TPD) Discharge: via SSA, VA, or physician certification; also discharges TEACH-grant obligations.
• Death Discharge: federal loans (incl. Parent PLUS, on the student’s or parent’s death) are discharged on proof of death.

Bankruptcy is a separate path. Discharging student loans in bankruptcy (the undue hardship / Brunner standard, adversary proceeding) is cross-referenced, not covered here → bankruptcy-ch7-ch13.

5. Deferment vs forbearance (temporary relief)

Both pause payments; the difference is who pays interest:

Rule of thumb: prefer deferment if eligible (free interest subsidy on subsidized loans). Use forbearance only if you don’t qualify for deferment, and pay accruing interest if you can to avoid capitalization. For long-term affordability, an IDR plan is usually better than repeated forbearance (forbearance months generally don’t count toward PSLF/IDR forgiveness; certain IDR payments can be $0 and still count).

6. Delinquency & default

• Delinquent = 1 day past due; reported to credit bureaus typically at 90 days. Default on most Direct Loans = ~270 days (about 9 months) past due.
• Consequences of default (federal, without a court judgment):
  • Entire balance accelerated; collection costs added.
  • Treasury Offset Program: seizure of tax refunds and federal benefits (including a portion of Social Security).
  • Administrative Wage Garnishment (AWG): ED can order your employer to withhold up to 15% of disposable pay administratively — no lawsuit or court order required.

    NC note: North Carolina generally bans wage garnishment for ordinary consumer debts, but federal AWG for student loans bypasses that protection because it operates under federal law. (NC’s general garnishment rules themselves → north-carolina-credit-and-debt-law.)

  • Loss of eligibility for further federal aid; damaged credit.
• Getting out of default:
  1. Loan Rehabilitation: agree to and make 9 on-time monthly payments (income-based, can be modest) over ~10 months. After completion the default notation is removed from your credit report (late-payment history may remain). Involuntary collections generally stop after ~5 rehab payments. One rehab per loan.
  2. Consolidation: combine defaulted loan(s) into a new Direct Consolidation Loan (with 3 on-time payments or by agreeing to IDR) — faster, but the default record stays on your credit report.
  3. Pay in full / settlement (rare).
• Fresh Start: the temporary post-pandemic program that auto-restored defaulted borrowers to good standing ended October 2, 2024. Don’t rely on it; verify any successor program at studentaid.gov.

7. FAFSA & borrowing wisely

• File the FAFSA every year (it’s free; at studentaid.gov) — it’s the gateway to grants, work-study, and federal loans, and many states/schools require it.
• Borrow only what you need. Prefer grants/scholarships → subsidized → unsubsidized → (last) PLUS/private.
• Favor federal over private; keep subsidized over unsubsidized when both are offered.
• Know your servicer, keep your studentaid.gov login current, and never pay a company for help you can get free from your servicer or studentaid.gov (student-loan “debt relief” scams are common — CFPB warns against advance-fee operators).

References / verify current (as of 2026 — confirm before relying)

Federal Student Aid (US Dept. of Education) — primary, authoritative:

• Repayment plans overview — https://studentaid.gov/manage-loans/repayment/plans
• Income-driven repayment — https://studentaid.gov/manage-loans/repayment/plans/income-driven
• IDR / SAVE court actions (check for current status) — https://studentaid.gov/announcements-events/idr-court-actions · https://studentaid.gov/courtactions
• One Big Beautiful Bill Act (OBBBA) updates — RAP & new rules — https://studentaid.gov/announcements-events/big-updates
• Loan types & interest rates — https://studentaid.gov/understand-aid/types/loans/interest-rates · https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized
• Interest capitalization — https://studentaid.gov/help-center/answers/article/what-is-loan-capitalized-interest
• Forgiveness, cancellation & discharge — https://studentaid.gov/manage-loans/forgiveness-cancellation · PSLF: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service · PSLF Help Tool: https://studentaid.gov/pslf/
• Deferment & forbearance — https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief
• Default & collections — https://studentaid.gov/manage-loans/default · Rehabilitation FAQ: https://studentaid.gov/articles/rehab/ · Default FAQ: https://studentaid.gov/articles/default/
• Find your servicer — https://studentaid.gov/manage-loans/repayment/servicers
• Loan Simulator (compare your real numbers) — https://studentaid.gov/loan-simulator
• FAFSA — https://studentaid.gov/h/apply-for-aid/fafsa

Consumer Financial Protection Bureau (CFPB) — consumer-protection angle:

• Federal vs private; repay your debt — https://www.consumerfinance.gov/paying-for-college/repay-student-debt/federal-and-private-student-loans/
• Should I consolidate or refinance? — https://www.consumerfinance.gov/ask-cfpb/should-i-consolidate-refinance-student-loans-en-561/
• What are IDR plans? — https://www.consumerfinance.gov/ask-cfpb/what-are-income-driven-repayment-idr-plans-and-how-do-i-qualify-en-1555/
• Tips for borrowers / avoiding scams — https://www.consumerfinance.gov/paying-for-college/repay-student-debt/student-loan-debt-tips/

Cross-references (consumer-finance family)

• bankruptcy-ch7-ch13 — discharging student loans in bankruptcy; undue hardship / Brunner; adversary proceeding. (This skill does not cover bankruptcy discharge.)
• credit-reports-and-scores — how delinquency/default/forgiveness affects a credit score and how negative items age on a report.
• north-carolina-credit-and-debt-law — NC’s general garnishment ban, wage-exemption rules, and statute of limitations (note: federal student-loan AWG bypasses NC’s general garnishment limits).
• consumer-finance — the parent hub for this skill; route here for other personal-finance spokes (personal banking, income taxes, personal & health insurance, medical bills, budgeting, investing & retirement, estate planning).
• consumer-credit-and-debt — the sibling hub; route here for consumer-credit/debt spokes (credit reports/scores, collections, FDCPA rights, identity theft, predatory lending, mortgages, auto loans, bankruptcy, consumer-credit law).