Student loans
While a student loan may seem onerous to an 18-year-old freshman or
his or her parents, it could very well prove to be a wise investment for a young
person's future earning power.
Although some student loans are offered directly by an education institution as
part of its package of financial aid or by non profit organizations,
most student loans are either federal education loans or private loans. Here's
a brief description of both:
- Federal education loans are guaranteed by the federal government.
These low-interest loans are not payable until graduation, assuming
that the student remains in school at least on a half-time basis. They
are not based on the borrower's proven ability to repay. Where financial
need is proven, these loans are subsidized by the government, which
pays interest to the lender while the student is in school. Where financial
need has not been demonstrated, these student loans are not subsidized and the
student will have to pay the accrued interest. Application is through
the educational institution's financial aid office. The two largest
programs for student loans are the Federal Family Education Loan Program (FFELP) and the
Federal Direct Student Loan Program (FDSLP) program, which include Federal
Stafford loans. Other major student loan programs include the Federal Perkins Loan
Program, which is based on exceptional financial need, and the Federal
Parent Loan for Undergraduate Students (PLUS), which is available to
parents whose dependent children are attending college. States also
offer education loans. Each program offers varying loan amounts and
obligations, and carries its own criteria. A large number of graduates
defaulted on their student loans in the 1970s and 1980s by declaring
bankruptcy, forcing taxpayers to pay off these debts,
but bankruptcy rules have been changed to stem such defaults. In an
act called "loan forgiveness," part or all of a student loan might be
"erased" if the graduate assumes certain jobs involving community service.
Some professional organizations help with student loans and lift the debt load of graduates
who take certain positions within the profession. For instance, a legal
association might help a graduate who takes a job at a legal assistance
clinic serving the impoverished. Students and graduates who are considering
debt consolidation of their student loans should weigh the long-time
costs first or they might end up paying a relatively high amount of
interest.
- Private student loans are unsubsidized by the government, secured by assets and
based strictly on the borrower's proven ability to pay. These student loans are
available through corporations, and banks and other financial institutions.
Lenders have specific criteria and a student might have to be pursuing
a certain kind of major to be eligible. Repayment on these loans generally
begins immediately.