Loans for Higher Education
I made my way through college with a combination of "good old fashion work" and a few student loans. The student loans were very helpful and I don't know what I would have done without them.
You do have to use student loans carefully, though as this is not free money. Many college students forget about this and find themselves in debt after graduation without any way to repay the loans.
While included in the term "financial aid" Higher Education Loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:
- Federal Student Loans made to students directly: No payments until after graduation, but amounts are quite limited
- Federal Student Loans made to parents: Much higher limit, but payments start immediately
- Private Student Loans made to students or parents: Higher limits and no payments until after graduation.
FEDERAL LOANS TO STUDENTS
Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.
The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants and work-study. They may be subsidized by the U.S. Government, or may be unsubsidized depending on the student's financial need.
Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of 6 months, which means that no payments are due until 6 months after graduation, or 3 months after the borrower becomes a less-than-full-time student without graduating. Both types have a fairly modest annual limit regardless of the student's actual cost of education. The present limit in January 2006 is $2,800 per year.
Subsidized Federal student loans are offered to students with a demonstrated financial need: generally requiring a low family income. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.
Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Those who borrow $10,000 during college will owe $10,000 PLUS INTEREST upon graduation. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. Students can also choose to pay the interest while still in college.
Federal student loans for students of medicine have higher limits, $8,500 for subsidized Stafford and $30,000 maximum for unsubsidized Stafford. Many students also take advantage of the unsubsidized Perkins loan. For medical students the limit for Perkins is $6,000.
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