Student Loans In United States

A loan given to a student to help him pay for higher education is termed as Student Loan. In the United States, these loans are usually given by the government.

Higher education loans differ from grants and scholarships. A student loan has to be repaid by the student after completion of his studies while grants and scholarships do not have to be repaid. Normally a student loan can be in the form of a federal loan that is given to a student or as a private loan that is given to the student and the student’s parents.

Federal student loans are made directly to the students. They are given to supplement the student’s personal and family resources. A federal student loan can be subsidized or unsubsidized depending on the financial need of the students. Both subsidized and unsubsidized loans are guaranteed by the United States Department of Education either directly or through guarantee agencies. Nearly all students are eligible for federal student loans which have grace period of six months. Subsidized federal student loans are given to students who have to prove their financial need for the loans. While in an unsubsidized student loan, the government does not pay the interest amount on the loan. The interest is allowed to accrue during the college and the student must pay after completion of studies.

Parents have an option of borrowing money to cover the educational expenses of higher education. This type of loan is called Parent Loan of Undergraduate Student. In this type of loan, no grace period is provided and payments start as soon as the loan is disbursed.

Private Student Loan is loan that is extended by banks and other financial institutions directly to the student. A Private Student Loan has a grace period of six months and payments have to be made after completion of the studies. There are occasions when the grace period is extended up to 12 months and this is subject to approval by the lending authority. Most private loan programs are tied to one or more financial indices such as the Wall Street Journal Prime Rate or the BBA LIBOR rate plus an overhead charge. This type loan invariably has a one time origination fee which depends upon the loan amount.

By Nigel Kerry


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