Student Loan Information

By: EconomyWatch Content   Date: 1 December 2009

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A student loan is an important source of financial aid for students aspiring to pursue higher education. The increasing dependence on student loans has enhanced the scope of the same. Initially, an education loan program only covered the college or university tuition expenses. Gradually, student loan programs expanded to encompass accommodation costs and other vital education supplies expenses. 

Student Loan Information: Types of Student Loans in the US

Student loans in the US can be broadly categorized into federal and private education loans. A federal student loan is intended for students from financially weak families. These loans are guaranteed by the federal government. This guarantee ensures that in the event of a student’s failure to meet the loan obligations (default), the government will bear the burden of the same.

Federal student loans in the US can be further divided into:

  • Stafford Loans: These loans may be subsidized and unsubsidized. Subsidized Stafford loans are offered on the basis of an applicant’s financial need. Also, the interest on such loans is borne by the government, until the student graduates. Conversely, an unsubsidized Stafford loan is not based on the borrower’s financial need, and the responsibility of interest payments during schooling remains with the student but this can be deferred until completion of graduation. 

  • PLUS Loans: These are intended for parents of dependant undergraduate students. Accordingly, these loans are sanctioned on the basis of the parents’ credit ratings. Additionally, graduate students can apply for a PLUS loan in their name. 

  • Perkins Loans: These are intended for students in extreme financial need. These loans are offered in association with several participating educational institutions across the nation. Due to the limited amount of funds, Perkins loans are generally low.

Some federal student loans may be funded by private financial institutions, though the federal government continues to administer the loans, with respect to their interest rate, fees and maximum borrowing amount.

Those students who fail to secure a federal student loan may consider applying for private student loans, which are offered by private banks and lenders. The interest rates on such loans tend to be higher than that offered by federal student loan programs. However, one may benefit from multiple repayment options. Additionally, a student with a good credit rating may negotiate for lower interest rates and less rigid payment terms.


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