Student loans In The United States

Student loans In The United States

Student loans in the United States are a form of financial aid used to help more students access higher education. Student loan debt has been growing rapidly since 2006, rising to nearly $1.4 trillion by late 2016, roughly 7.5% GDP. Approximately 43 million have student loans, with an average balance of $30,000. Loans usually must be repaid, in contrast to other forms of financial aid such as scholarships, which never have to be repaid, and grants, which only rarely have to be repaid. Research indicates the increased usage of student loans has been a significant factor in college cost increases.

Student loans play a very large role in U.S. higher education.Nearly 20 million Americans attend college each year. Of that 20 million, close to 12 million – or 60% – borrow annually to help cover costs. In Europe, higher education receives much more government funding, so student loans are much less common.In parts of Asia and Latin America government funding for post-secondary education is lower – usually limited to a few flagship universities, like the Mexican UNAM – and there are no special programs under which students can easily and inexpensively borrow money.However, in the United States, much of college is funded by students and their families through loans, although public institutions are funded in part through state and local taxes, and both private and public institutions through Pell grants and, especially with older schools, gifts from donors and alumni.Some believe this substantially increases intergenerational correlations in income (having two generations of a family have similar earning ability), although other factors, including genetics, have been estimated to play a larger combined role.Nonetheless, higher education in the United States has been shown to be an excellent investment both for individuals and for the public, even though differences in the returns to educational investment across schools has been overstated in many cases.

Student loans come in several varieties in the United States, but are basically split into federal loans and private student loans. The federal loans, for which the FAFSA is the application, are subdivided into subsidized (the government pays the interest while the student is studying at least half-time) and unsubsidized. Federal student loans are subsidized at the undergraduate level only. A subsidized loan is by far the best kind of loan, but an unsubsidized federal student loan is far better than a private student loan. Some states have their own loan programs, as do some colleges.In almost all cases, these student loans have better conditions – sometimes much better – than the heavily advertised and expensive private student loans.Student loans may be used for any college-related expenses, including tuition, room and board, books, computers, and transportation expenses.An unusual provision in the law prohibits student loans from being discharged through bankruptcy.

The main types of student loans in the United States are the following:-Federal student loans made to students directly:-These loans are made regardless of credit history approval is automatic if the student meets program requirements. The student makes no payments while enrolled in at least half-time studies. If a student drops below half time or graduates, there is a six-month grace period. If the student re-enrolls in at least half-time status, the loans are deferred, but when they drop below half time again they no longer have access to a grace period and repayment must begin. All Perkins loans and some undergraduate Stafford loans receive subsidies from the federal government. Amounts of both subsidized and unsubsidized loans are limited. There are many deferments and a number of forbearances one can get in the Direct Loan program.For those who are disabled, there is also the possibility of 100% loan discharge if you meet the requirements.Due to changes by the Higher Education Opportunity Act of 2008, it became easier to get one of these discharges after July 1, 2010.There are loan forgiveness provisions for teachers in specific critical subjects or in a school with more than 30% of its students on reduced-price lunch , and qualify for loan forgiveness of all their Stafford, Perkins, and Federal Family Education Loan Program loans totalling up to $77,500.In addition, any person employed full-time by a public service organization, or serving in a full-time AmeriCorps or Peace Corps position qualifies for loan forgiveness after 10 years of 120 consecutive payments without being late.
    
Federal student loans made to parents:- Much higher limit, but payments start immediately. Credit history is considered; approval is not automatic.
    
Private student loans, made to students or parents:-Higher limits and no payments until after graduation, although interest starts to accrue immediately and the deferred interest is added to the principal, so there is interest on the interest. Interest rates are higher than those of federal loans, which are set by the United States Congress. Private loans are, or should be, a last resort, when federal and other loan programs are exhausted. Any college financial aid officer will recommend you borrow the maximum under federal programs before turning to private loans.

Federal loans to students:-United States Government-backed student loans were first offered in 1958 under the National Defense Education Act (NDEA), and were only available to select categories of students, such as those studying toward engineering, science, or education degrees. The student loan program, along with other parts of the Act, which subsidized college professor training, was established in response to the Soviet Union’s launch of the Sputnik satellite, and a widespread perception that the United States was falling behind in science and technology, in the middle of the Cold War. Student loans were extended more broadly in the 1960s under the Higher Education Act of 1965, with the goal of encouraging greater social mobility and equality of opportunity.Prior to 2010, Federal loans included both direct loans—originated and funded directly by the United States Department of Education—and guaranteed loans—originated and funded by private investors, but guaranteed by the federal government. Guaranteed loans were eliminated in 2010 through the Student Aid and Fiscal Responsibility Act and replaced with direct loans because of a belief that guaranteed loans benefited private student loan companies at taxpayers expense, but did not reduce costs for students.Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guaranty agencies. Nearly all students are eligible to receive federal loans (regardless of credit score or other financial issues). Federal student loans are not priced according to any individualized measure of risk, nor are loan limits determined based on risk. Rather, pricing and loan limits are politically determined by Congress. Undergraduates typically receive lower interest rates, but graduate students typically can borrow more. This lack of risk-based pricing has been criticized by scholars as contributing to inefficiency in higher education.Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. The dependent undergraduate limit effective for loans disbursed on or after July 1, 2008 is as follows (combined subsidized and unsubsidized limits): $5,500 per year for freshman undergraduate students, $6,500 for sophomore undergraduates, and $7,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. For independent undergraduates, the limits (combined subsidized and unsubsidized) effective for loans disbursed on or after July 1, 2008 are higher: $9,500 per year for freshman undergraduate students, $10,500 for sophomore undergraduates, and $12,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. Subsidized federal student loans are only offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college owe $10,000 upon graduation.

Stafford loan aggregate limits:-Students who borrow money for education through Stafford loans cannot exceed certain aggregate limits for subsidized and unsubsidized loans. For undergraduate dependent students, the maximum aggregate limit of subsidized and unsubsidized loans combined is $57,500, with subsidized loans limited to a maximum of $23,000 of the total loans.[19] Students who have borrowed the maximum amount in subsidized loans may (based on grade level—undergraduate, graduate/professional, etc.) take out a loan of less than or equal to the amount they would have been eligible for in subsidized loans. Once both the subsidized and unsubsidized aggregate limits have been met for both subsidized and unsubsidized loans, the student is unable to borrow additional Stafford loans until they pay back a portion of the borrowed funds. A student who has paid back some of these amounts regains eligibility up to the aggregate limits as before.

Content Credit :- tubidy

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