How to pay for college · By CalChannel Editorial Team · Updated September 29, 2026
Student loans let you pay for college now and repay later, but federal and private loans work very differently. Federal Direct Loans for 2026-27 carry fixed rates of 6.52% for undergraduates and 8.07% for graduate students, need no credit check for most students, and come with income-driven repayment through the Repayment Assistance Plan. Private loans may offer lower rates to borrowers with strong credit, but usually require a cosigner and have fewer protections.
Are student loans worth it? It depends on how much you borrow, what kind of loan you use and what you study. Borrowing a modest amount in federal loans for a degree you finish is very different from borrowing heavily in private loans for a program you might not complete.
This guide lays out the real pros and cons, with 2026-27 federal loan terms and the changes that took effect on July 1, 2026.
| Feature | Federal Direct Loans | Private student loans |
|---|---|---|
| Interest rate | Fixed: 6.52% undergraduate, 8.07% graduate, 9.07% PLUS | Fixed or variable, based on credit |
| Loan fee | 1.057% (4.228% for PLUS loans) | Varies by lender |
| Credit check | Not for subsidized or unsubsidized loans | Yes; students often need a cosigner |
| Borrowing limits | Annual and lifetime caps (for example, $5,500 for dependent first-year students) | Often up to cost of attendance minus other aid |
| Income-driven repayment | Yes, through the Repayment Assistance Plan (RAP) | Rarely |
| Forgiveness | PSLF and RAP discharge after 360 qualifying payments | Generally none |
| Deferment and forbearance | Standard federal options | Varies by lender |
Sources: U.S. Department of Education, GENERAL-26-33; Federal Student Aid, OBBBA Important Definitions. Full list at the end of the article.
In This Article
Pros of Student Loans
- Access: loans let you enroll now instead of delaying college to save the full cost
- Fixed federal rates: a federal loan’s rate is set when it’s disbursed and never changes
- No credit check for most students: Direct Subsidized and Unsubsidized Loans don’t depend on credit history
- Subsidized interest: for undergraduates with need, the government pays interest on subsidized loans while you’re in school at least half-time
- Income-driven repayment: under RAP, payments are 1% to 10% of adjusted gross income, with a $10 monthly minimum, and your balance won’t grow if you pay on time
- Forgiveness options: Public Service Loan Forgiveness, and discharge of any remaining RAP balance after 360 qualifying payments
Cons of Student Loans
- Interest adds up: at 6.52%, a $10,000 undergraduate loan repaid over 10 years costs about $114 a month and about $3,640 in total interest
- Fees: federal loans take 1.057% off each disbursement, and PLUS loans take 4.228%
- Long repayment: the Tiered Standard Plan can last 10 to 25 years, and RAP up to 30 years
- Less flexibility after graduation: monthly payments can affect housing, savings and other borrowing
- Hard to discharge: student loans are very difficult to cancel in bankruptcy
- Risk if you don’t finish: you still owe the loan even without a degree
Private Student Loans: Pros and Cons
Private loans can fill gaps after federal limits, and borrowers or cosigners with excellent credit may get a lower rate than the federal rate. Some lenders lend up to a school’s full cost of attendance.
The trade-offs are significant. Private loans usually require a cosigner for students, and the cosigner is legally responsible if you can’t pay. Variable rates can rise. And private loans generally don’t offer RAP, PSLF or federal deferment options, so if your income falls, you have fewer choices.
“A private loan with a slightly lower rate isn’t automatically the better deal. The federal loan’s income-based payments and forgiveness options are a form of insurance, and they matter most for students who aren’t sure what they’ll earn after graduation.”
CalChannel Editorial Team
What Changed in 2026
Federal law changed borrowing for new loans starting July 1, 2026. Grad PLUS loans ended for new graduate and professional borrowers, graduate unsubsidized limits were set at $20,500 a year ($100,000 total) and professional limits at $50,000 a year ($200,000 total), Parent PLUS was capped at $20,000 a year and $65,000 per student, and a $257,500 lifetime limit took effect. New borrowers repay under RAP or the Tiered Standard Plan. Undergraduate limits didn’t change. See our guides to subsidized vs. unsubsidized loans and student loan repayment.
How to Borrow Wisely
Use grants, scholarships and work first. If you need to borrow, take federal subsidized loans, then unsubsidized loans, and consider private loans only after that. Borrow only what you need for the current year, and compare expected earnings in your field with your total debt. California students should also file the FAFSA or California Dream Act Application by March 2 for state grants that can reduce borrowing. See student loans vs. scholarships.
Frequently Asked Questions
Should I choose federal loans over private loans?
For most students, yes. Federal loans need no credit check, have fixed rates and include income-driven repayment and forgiveness options that private loans generally don’t.
What is the federal student loan interest rate for 2026-27?
For loans first disbursed between July 1, 2026, and June 30, 2027, the fixed rate is 6.52% for undergraduates, 8.07% for graduate unsubsidized loans and 9.07% for PLUS loans.
Can private loans have lower rates than federal loans?
Sometimes, for borrowers or cosigners with excellent credit. But private loans usually lack income-driven repayment and forgiveness.
What happens if I can’t repay a federal student loan?
Contact your servicer. You may be able to switch to the Repayment Assistance Plan, where payments are based on income, or use deferment or forbearance. Missing payments can lead to default and serious credit damage.
What happens if I can’t repay a private student loan?
Options depend on the lender and are usually more limited. Missed payments also hurt your cosigner’s credit.
The Bottom Line on Student Loan Pros and Cons
Student loans make college possible for many students, but they cost more than you borrow and can limit your options after graduation. Federal loans, at 6.52% for undergraduates in 2026-27 with income-based repayment, are usually the safer choice. Use private loans only after federal options, and borrow no more than you need. Before you borrow, check whether part-time work could cover part of the gap.
Sources
- U.S. Department of Education. “GENERAL-26-33: Interest Rates for Federal Direct Loans First Disbursed Between July 1, 2026 and June 30, 2027.” fsapartners.ed.gov.
- Federal Student Aid. “Interest Rates and Fees for Federal Student Loans.” studentaid.gov.
- Federal Student Aid. “One Big Beautiful Bill Act: Important Definitions.” studentaid.gov.
- Federal Student Aid. “Federal Versus Private Loans.” studentaid.gov.
CalChannel Editorial Team California college guides
The CalChannel editorial team researches and writes guides to California colleges, admissions and financial aid. We build our college profiles and aid guides from colleges’ own published data, federal IPEDS data and the California Student Aid Commission. Read our editorial policy.
