Clark Howard's student loan guide

Do you need to borrow to fund college education for yourself or your child? I wrote this guide to tell you about my Clark Smart approach to student loans.

Read on and let me help you with the #1 problem in so many people’s financial lives!

Types of student loans available for 2018-2019

Loan type

Interest rate

Amount you can borrow

Does interest accrue while in school?

Direct Subsidized Stafford Loans 5.04% (undergraduate students) $5,500 – $9,500 annually for first-year students NO
Direct Unsubsidized Stafford Loans 5.04% (undergraduate students)

6.59% (graduate students)

$5,500 – $9,500 annually for first-year students

$20,500 annually

PLUS loans 7.59% Up to the cost of attendance minus any other financial aid the child is receiving Repayment of principal and interest begins 60 days after loan is made. Parents can defer payments while the child is in school.
Private student loans Varies Varies Varies

Subsidized Stafford loans are the single best source of money you can borrow for school. The interest is picked up by taxpayers while you're getting your education. New subsidized Stafford loans carry a fixed interest rate starting at 5.04% for the 2018-2019 school year.

Once you exhaust your subsidized Stafford stockpile, you want to move on to unsubsidized Stafford loans. New unsubsidized Stafford loans for the 2018-2019 school year carry a fixed interest rate of 5.04% for undergraduates and 6.59% for graduate students.

You should borrow as little as possible in unsubsidized loans because the interest on these loans accumulates while you’re in school, and you are responsible for the total interest and principal amounts.

As a third option, parents can help their kids by taking out PLUS loans, which are issued at a fixed rate of 7.59%. A parent can borrow up to the cost of attendance.

You apply for federal student loans by visiting and completing the Free Application for Federal Student Aid.

Dangers of private student loans

I want you to avoid private student loans at all costs. Back in 2005, the private student loan industry bought off enough politicians to gain the right to do any and all tactics short of causing you bodily harm in their efforts to collect on their money. You have no wiggle room when it comes to repayment options, like you do with federal loans as I explain below. Private student loans typically can't even be dismissed in bankruptcy.

My rules of student loan borrowing

  • Never borrow more for a four-year degree than the entry-level salary you expect to earn your first year after receiving that degree.
  • Consider doing the first two years of your studies at a community college, and then transferring those credits to the school from which you want your degree.
  • Never borrow any private student loan money! If a degree exceeds what you can borrow under the federal student loan program, you should either pick a cheaper school or work your way through school.

Ways to pay off your student loans


Who qualifies?

What do you get?

Income-based repayment (IBR) Federal student loan borrowers with either Direct or FFEL loans Payment based on their income and family size. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.
Pay As You Earn (PAYE) All federal student loan borrowers Caps your monthly payments on federal loans at 10% of your income. In addition, your outstanding debt is forgiven after 20 years of on-time payments.
Public Service Loan Forgiveness Public service workers (see below) with federal Stafford, Grad PLUS, or consolidation loans in the Direct Loan program. Full loan forgiveness after 10 years of on-time payments.

Are you struggling with federal student loan debt now that you’re out of school? Fortunately, there is a lot of help for you if you limited your borrowing to federal student loan programs. Unfortunately, there are no similar programs to help with repayment of private student loans, which is partly why I advise against them!

The Income-Based Repayment (IBR) and Pay As You Earn repayment (PAYE) program are both income-driven repayment (IDR) plans to help borrowers keep their loan payments affordable with payment caps.

After you qualify, your monthly payment may be adjusted each year based on changes in income and family size. You will have to verify your income every year, which means if you start to make more money, your payments may go up.

With PAYE in particular, your monthly payments are capped at 10% of your income, and all debt is forgiven after 20 years of on-time payments.

There are also two other kinds of IDRs: Revised Pay As You Earn Repayment Plan (REPAYE) and Income-Contingent Repayment Plan (ICR Plan). An explanation of the nuances of each is available at

Federal student loan forgiveness options

There are new student loan forgiveness laws that actually benefit a wide range of workers. Public service employees can qualify for full loan forgiveness after making 10 years of monthly payments on their federal student loans.

Below is a partial list of the public service fields that will qualify for loan forgiveness. Ask your loan servicer for complete details about how to take advantage of this generous program:

  • Government, military service, emergency management, public safety, law enforcement, public health, public education. (In addition, military personnel on active duty will be able to defer payments on their loans, and service members who are returning to civilian life will be able to defer payments for more than a year.)
  • Social work in a public child- or family-service agency; public interest law services, including prosecution or public defense or legal advocacy in low-income communities for a nonprofit organization; public child care; public service for individuals with disabilities; public service for the elderly.
  • Public library sciences, school-based library sciences and other school-based services.
  • Certain employees at nonprofit groups, as defined by the tax code, and full-time faculty members at tribal colleges or universities.

In addition, this comprehensive list compiles some of the most popular loan forgiveness opportunities . A state-by-state list of loan forgiveness programs has also been compiled by the American Federation of Teachers .

RELATED: 3 key things to know about the student loan forgiveness program

A special path to forgiveness for Corinthian students

Students who attended Corinthian College campuses — including Everest College and Wyotech campuses across the country — may be eligible for a special forgiveness process following the company's bankruptcy. Call (855) 279-6207 or visit for more info.

Refinancing private student loans is one of the largest providers of student loan refinancing, allowing you to refinance both private and federal student loans.