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Bottom Line Up Front

  • Student loan terms can differ broadly across federal and private student loan options. 
  • The terms of your student loan factor heavily into your responsibilities as a borrower.
  • Understanding your student loan terms can help you develop a responsible payment plan.

Time to Read

6 minutes

December 27, 2023

Paying back your student loans? You’re not alone. Recent research from Education Data Initiative shows that over half (54.1%) of independent undergrads accept federal student loans. Whether you have a federal student loan, private student loan or both, it’s important to understand the terms of all your loans so you can set up a responsible repayment plan.

Here’s everything you need to know about student loan terms and how they can impact repayment.

Federal Student Loans vs. Private Student Loans

Before diving into specific loan terms, let’s discuss the 2 main types of student loans: federal and private. They both help you pay for school, but they can vary significantly in their sources, regulations, interest rates, repayment options, borrower protections and eligibility criteria. 

Federal Student Loans

Federal student loans are loans offered by the U.S. Department of Education to eligible students for education-related expenses. 

These loans typically have fixed interest rates and flexible repayment plans, including income-driven options. They don’t usually require a credit check for eligibility, which makes them accessible to a broad range of students. 

Federal student loans also offer benefits such as deferment, forbearance and potential loan forgiveness. In some cases, the government covers the interest during specific periods.

Private Student Loans

Private student loans are offered by banks or credit unions to help students cover educational expenses not met by federal aid, scholarships or grants. 

These loans typically require a credit check and may have fixed or variable interest rates based on the borrower’s creditworthiness. They also typically have fixed repayment plans. 

An Overview of Student Loan Terms

Both federal and private student loans typically have terms and conditions that outline important aspects of the loan, including repayment, interest rates, grace periods and more. However, the specific terms can vary based on the lender (federal vs. private), type of loan and individual circumstances. 

Here’s a general overview of important terms and terminology associated with student loans and how they can factor into your responsibilities as a borrower.

  • Interest rate

This is the cost of borrowing the money and is usually expressed as a percentage. The interest rate on student loans can be fixed (meaning it stays the same over the life of the loan) or variable (meaning it can change over time). 

Federal student loans typically offer fixed interest rates set by the government, providing stability over the loan term. Private student loans may offer fixed or variable interest rates determined by the lender.

  • Repayment period

The repayment period is the length of time you have to repay the loan. 

Federal student loans often offer flexible and extended repayment terms, ranging from 10 to 25 years. Private student loans may have shorter repayment periods and fewer options for extending the repayment term. 

  • Repayment plan

Various repayment plans may be available when your loan comes due. Each plan has different terms regarding how much you’ll pay each month and for how long. 

Federal student loans offer diverse repayment plans, including standard repayment, income-driven repayment plans, graduated repayment and extended repayment. Private student loans usually have fewer repayment plan options, with fixed monthly payments.

  • Grace period

A grace period is a set period of time after you graduate, leave school or drop below half-time enrollment when you’re not required to make payments. The length of the grace period varies by loan type. 

Federal loans typically offer a grace period after leaving school, which provides a buffer before repayment begins. Private loans may or may not offer a grace period. If they do, the length and terms can vary widely.

  • Deferment and forbearance

Deferment and forbearance are options that can allow you to temporarily postpone or reduce your federal student loan payments.

Federal loans generally provide more generous deferment and forbearance options. Borrowers will be allowed to temporarily halt payments during financial hardships or other qualifying situations. Private loans may have more restrictive deferment and forbearance conditions, so they may not offer as much relief if you’re facing financial challenges.

  • Loan forgiveness and discharge

Having your student loans forgiven, or discharged, means you’re no longer obligated to repay the remaining balance of your loans. You may qualify for loan forgiveness or discharge in certain circumstances, such as working in public service or experiencing total and permanent disability.

Federal loans offer various options for loan forgiveness, particularly for those in public service or facing certain hardships. Private loans typically don’t offer forgiveness programs, so borrowers must fully meet repayment obligations.

  • Loan limits

There are limits on the amount you can borrow each academic year, and in total, for both federal and private student loans. 

Federal loans have set borrowing limits based on factors such as the student’s year in school and dependency status. Private loans often allow borrowers to request higher amounts, potentially covering the full cost of education (subject to credit approval).

  • Loan fees

Some loans may have fees associated with their disbursement or repayment. 

Federal loans often have standardized and regulated loan fees, while private loans may have varying fees based on the lender. In either case, fees can impact the overall cost of borrowing.

  • Prepayment

Some loan terms allow you to make extra payments or pay off the loan early without incurring penalties. 

Both federal and private loans generally allow prepayment without penalties, which can help borrowers pay off their loan amounts faster and reduce interest costs.

  • Refinancing

Refinancing through a private lender is an option for both federal and private student loans. Borrowers can combine student loans into 1 private loan to simplify payments, but the terms and benefits may vary by lender.

Keep in mind that once you refinance your federal student loans into private student loans, you won’t be eligible for any benefits such as forbearance or forgiveness that are available on federal student loans.

  • Default

Default results when a borrower doesn’t make payments for an extended period of time. Defaulting on student loans can have serious consequences, such as damage to your credit score, wage garnishment and legal action. 

The terms of federal student loans typically are more forgiving for defaulting, including rehabilitation and flexible repayment options. Private student loan defaults tend to come with stricter penalties, legal action and severe damage to your credit score. 

How Do Student Loan Terms Affect Borrowers?

Student loan terms significantly impact borrowers’ financial commitments, repayment experiences and overall financial stability. Understanding how they affect you is an important part of managing your responsibilities as a borrower—both in accepting student loans and in paying them back.

If you’re a federal student loan borrower

  • The terms typically provide more flexibility and protection than private student loans.
  • Fixed interest rates are predictable and ensure stable payments over time, which makes budgeting more manageable.
  • Repayment options such as income-driven plans and forgiveness programs ease the burden, especially for those with lower incomes.
  • Grace periods and generous deferment or forbearance options offer breathing room during transitional periods or financial hardships.
  • Loan limits and regulated fees promote responsible borrowing.

If you’re a private student loan borrower

  • Interest rates, whether they’re fixed or variable, are often influenced by creditworthiness, which can affect how much you’ll owe.
  • Repayment periods are generally shorter and less flexible, which could lead to higher monthly payments.
  • Grace periods might be limited or non-existent, so borrowers often have to start repaying loans sooner after graduation.
  • Deferment and forbearance options may be limited for borrowers who experience financial difficulties.

Tips for Managing Student Loan Repayment 

When it’s time to start thinking about student loan repayment, the terms of your loans can have a significant impact in how you plan for paying back your loans. Consider the following as you strive to stay on top of student loan repayment:

  • Evaluate repayment plans. For federal student loans, explore and choose a repayment plan that aligns with your current financial capacity. Income-driven repayment plans can provide more manageable payments based on your income. For private student loans, consider discussing flexible repayment options directly with the lender.
  • Consider consolidation or refinancing. Evaluate the benefits and drawbacks of federal student loan consolidation and private student loan refinancing. Federal loan consolidation can simplify payments, but it may not lower your interest rate. Private loan refinancing could reduce interest rates, but you may forfeit some federal loan benefits.
  • Prioritize high-interest loans. Focus on paying down high-interest loans first, whether federal or private. Allocating extra payments toward these loans can save you significant money in the long run.
  • Take advantage of grace periods and deferments. During grace periods—or deferments, if you’re faced with financial challenges—get organized and plan your repayment strategy. Apply for deferments or forbearances if needed, especially for federal loans, to temporarily pause payments without negatively affecting your credit.
  • Explore loan forgiveness opportunities. If you have federal loans, investigate potential loan forgiveness or discharge programs—especially if you work in public service or face financial hardships. Examples include Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness.
  • Regularly review and adjust your strategy. Periodically review your repayment strategy to ensure it aligns with your financial goals and circumstances. Adjustments may be necessary as your financial situation changes.
  • Accelerate payments. Whenever possible, make additional or larger payments toward your loans. Even small, consistent extra payments can significantly reduce the overall interest you’ll pay and help you pay off your loans faster.
  • Communicate with lenders and servicers. Stay in touch with your loan servicers or lenders, especially if you encounter difficulties in making payments. They may have temporary solutions or hardship programs that can assist you during challenging times.

Next Steps Next Steps

  1. Have more questions about student loan terms and borrowing? Check out Navy Federal Credit Union’s Student Loan FAQ section. You’ll find answers to some of the most common questions about applying for and repaying student loans. 
  2. Looking to refinance your student loans? Check to see if you’re eligible to combine your private or federal student loans (or both) into 1 monthly payment. Check out Student and Parent Refinancing options today. 
  3. Need to apply for private student loans but have a limited credit history? Adding an eligible and creditworthy co-signer who is a Navy Federal member could help. In fact, 9 out of 10 of our student borrowers have a co-signer.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.