Too many students end up with expensive private loans simply because nobody explained the federal options. In 2013 the US government set out to change that.
The story that prompted this post was a familiar one. A first-generation college student believed she had reached her limit on federal aid and turned to private loans worth thousands of dollars, without realising that a federal Parent PLUS loan was available through her mother. Her family had never been through the college system and did not know the process.
What the government planned
In a speech at the University at Buffalo in August 2013, President Obama argued that the government had to do more than bring down the cost of college for future students; it also had to help the people who already had debt find a realistic way to repay it. The administration set out to make borrowers more aware of income-based repayment plans and forgiveness programmes. At the time, around 1.6 million borrowers were enrolled in income-based repayment.
Federal before private
The basic rule has not changed since 2013: exhaust federal options before you consider private loans. Federal student loans have fixed rates set by law, offer income-driven repayment and can qualify for forgiveness programmes such as Public Service Loan Forgiveness. Private loans usually offer none of that.
- Fill in the FAFSA every year, even if you think you will not qualify for grants.
- Accept grants and scholarships first, then federal loans, then consider private borrowing only for the gap.
- Read the repayment terms before you sign, not after you graduate.
Update (October 2026): Federal student lending has changed a great deal. The SAVE repayment plan introduced in 2023 was blocked by the courts, and the 2025 budget law reshaped the system again: it created a new Repayment Assistance Plan from July 2026, set new borrowing limits, ended Grad PLUS loans for new borrowers and capped Parent PLUS borrowing. Rules continue to shift, so always check studentaid.gov and talk to your school's financial aid office before you borrow.
Treat loan money as loan money
A refund cheque from your student loan can feel like free cash. It is not: you will repay every dollar with interest. Budget it for tuition, rent, books and food. Fun money, whether it is concerts, a spring break trip or a casino night out with friends once you are old enough, should come from what you earn, not from what you borrow. Our guide to budgeting your entertainment money shows how to keep the two apart.