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Educational Loan

By: EconomyWatch Content Date: 25 November 2009

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The escalating expenses of higher education have resulted in an increase in the number of scholarships and grants offered to students by the government as well as the educational institutions. Such sources of financial assistance help to significantly lower, if not eliminate the burden of education expenses. However, these resources are still inadequate to satisfy the mushrooming number of college students. An educational loan is the best substitute for scholarships/grants for financing further studies.

Subsidized Loans: An Answer to Educational Loan Reservations

Students are often hesitant to apply for an educational loan due to qualms about interest payment. If the burden of interest becomes too high, a student may end up defaulting on payments. This may lead to detrimental outcomes, such as wage garnishment and bankruptcy.

Subsidized loans are a great way of minimizing the risk of non-payment or default. A subsidized loan enables one to enjoy interest holidays. A student, who is a holder of a federal subsidized educational loan, is freed from the obligation of making interest payments during the duration of the course. During this period the burden of interest payment is borne by the federal government.

In addition, a student need not make payments towards a subsidized federal educational loan, including interest and principal, for a specific grace period even after graduation. Generally, this period is around six months and after it terminates, the standard monthly payments become due.

Benefits of a Subsidized Educational Loan

A subsidized loan is the best alternative for a student seeking financial assistance with an educational loan because:

· It has low and fixed interest rates.

· Obtaining a subsidized loan does not require a credit check, and thus students with poor credit histories also qualify easily.

· Some subsidized loans may qualify for a deferred payment plan, if the student’s initial income is irregular.

· The federal government guarantees the lending institution that the outstanding loan amount will be repaid if a student defaults on the monthly payments.

However, a subsidized educational loan generally has a tight cap on the amount that can be borrowed annually, depending on the specific circumstances and financial status. Nonetheless, the benefits of a subsidized loan outweigh its limitations, enabling students to relieve their burden of debt and focus on studying hard.