Read the fine print: student loan terms that matter most | Earnest

Read the fine print: student loan terms that matter most

By Anna Baluch | Published on October 21, 2025

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Before you sign on the dotted line and move forward with a student loan, it’s a good idea to read the fine print and familiarize yourself with common terms in the agreement. By doing so, you’ll find it easier to manage your payments, be able to take advantage of money-saving opportunities, and avoid negative consequences, such as a damaged credit score.

Key details to look for in your loan agreement

What’s the interest rate?

Your interest rate is important as it dictates your overall cost of borrowing for your education. A lower rate can save you money while a higher rate will make your student loan more expensive.

What’s the repayment period?

The repayment period, which is usually between 10 and 30 years, refers to how long you’ll have to repay your student loans. A shorter repayment period will lead to a faster payoff but may come with higher monthly payments.

When is the first due date?

Some private student loans come with a grace period of 6 to 9 months after you graduate or drop below half-time enrollment. Typically, your first payment will be due once this period is up.

Is it subsidized or unsubsidized?

Federal loans can be subsidized or unsubsidized. With subsidized loans, the federal government pays for your interest while you’re still in school and during the first six months after you graduate. Unsubsidized loans, on the other hand, require you to cover all the interest that accrues.

Is forbearance or deferral available?

Forbearance and deferral options are usually available with federal student loans after you experience a financial hardship, unemployment, or serious health issue. While forbearance and deferral may also be offered by private student loan lenders, eligibility criteria vary.

What are the consequences of missing payments?

Unfortunately, missed payments can lead to serious penalties. Depending on the loan type, lender, and your particular situation, these may be fees, or a damaged credit score.

Here’s a list of the student loan terms that will be important to know years after you graduate.

Cosigner

When you apply for a private student loan, most lenders will look at your credit to gauge your ability to make repayments. If you don’t have the best credit score, a cosigner may help you get approved or even improve your terms. Your cosigner can be a trustworthy friend or family member with strong credit that agrees to repay your loan if you’re unable to.

Forbearance

If you’re facing financial hardship due to an unexpected job loss or illness, for example, forbearance might help you out. It’s a period in which the lender or federal student loan servicer temporarily suspends or reduces your monthly payments. Note that if you do take advantage of forbearance, interest will still accrue. Also, each lender has their own terms and eligibility criteria.

Grace period

Once you graduate or stop attending school full-time, the federal government and some private lenders will give you a grace period before you need to start repaying your loans. While a 6-month grace period is typical, Earnest offers a more generous 9-month grace period.

Delinquency

A loan is considered delinquent when you don’t make your loan payment by its due date. Delinquency is simply another way to say “past due.” If you negotiate with your lender, federal student loan servicer, or make a payment, you can bring your loan out of delinquency. Failure to resolve delinquency can lead to credit penalties for years, so it’s important to take action quickly.

Default

If you don’t repay your federal loan for 270 consecutive days, it’ll go into default. Then, you’ll be responsible for paying the amount you owe plus interest, fees, and collection costs. Default criteria for private student loans varies. Unfortunately, lenders will report default to the major credit bureaus and your credit score will take a hit as a result. If you default on federal loans, the federal government may also garnish your wages.

Income-driven repayment

If you take out federal loans, you may qualify for income-driven repayment plans. There are four plans available, including Saving on a Valuable Education (SAVE), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). Depending on the plan, you may be able to reduce your monthly payment or extend your repayment term to 20 or 25 years. Your balance may also be forgiven eventually.

As a result of ongoing court actions, the terms of some Income-Driven Repayment (IDR) plans, including the SAVE plan, may be subject to change. Please refer to studentaid.gov for the current status of these plans.

Discretionary income

Discretionary income refers to the income you have after you pay for basic expenses. Income-driven repayment plans use your discretionary income to determine your monthly payment. This figure is based on factors such as your location, household size, annual income, and the federal poverty guideline.

Student loan forgiveness

Offered by the U.S. Department of Education, student loan forgiveness programs are designed for select borrowers, such as teachers and government employees. If you’re eligible for loan forgiveness, you won’t have to repay some or all of your loan. With the Teacher Loan Forgiveness program, for example, you can qualify for up to $17,500 if you teach full time for five consecutive academic years in certain schools or educational service agencies that serve low-income individuals.

Refinance

Once you graduate, you might be able to refinance your student loans with a private lender. As long as you can land a lower interest rate, you can reduce your interest charges and overall loan cost. Keep in mind that if you refinance federal loans and they turn into private loans, you’ll lose access to federal benefits, such as student loan forgiveness and income-driven repayment plans.

Earnest encourages you to review your loan agreement

At Earnest, we believe knowledge is power. Once you review a loan agreement, don’t hesitate to contact our Client Happiness team for more information or answers to any questions you may have. We offer low rates, flexible payment plans, and don’t charge origination fees or prepayment penalties. Find out why we’re rated so highly on TrustPilot or get a free rate estimate without any impact on your credit score.

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About the Author

Anna Baluch

Anna Baluch is a freelance finance writer from Cleveland, OH. She enjoys writing content that helps people from all walks of life make good financial decisions. Her areas of expertise include student loans, refinancing, mortgages, personal loans, budgeting, and debt management.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.