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What Is A Student Loan

By Exforsys | on January 10, 2007 |
Student Loans

What Is A Student Loan

Most students in the US, Australia, UK and India are not able to sustain themselves financially. As such, they would require financial aid until they are financially stable enough to pay them off someday. This is where student loan comes in.

Student loans come in various forms, but they are usually characterized with considerable monthly or annual interest. Some of the student loans are aided with grants that do not need to be repaid. It all depends on what types of students’ loans are available in every school or country.

In Australia, the Higher Education Contribution Scheme (HECS) is the prevalent form of student assistance available. Based on the secondary school final examination, the HECS will determine the selection of students who will be eligible for their student loan. While there are other student loans in Australia that are less demanding than HECS, they are of higher interests rates and are not subsidized by the government.

India has a more unique system than other countries.  Students in India get educational loans from banks.  Nationalized banks are authorized to administer student loans. While this is very corporate and allow students to have involvement with bank affairs at an early age,  they have relatively higher interest rates than other countries.

The United States has by far, the most diverse forms of student loans available all over the country. There are the federal student loans to students or parents and there are private loans for parents or students.

The Higher Education Act of US Law mandates the existence of federal student loans. The first type involves the direct loan to student from the US Federal government. It not only include school fees, but also other living expenses of the student for his or her entire stay in the university. The student has the option to obtain the federal loan that has or has no government subsidy. All direct federal loans to students have a 6-month grace period after graduation, and almost every student is eligible for regardless of FICO score or family conditions since it is mandated by US federal law to entitle students to have federal loans. Government-subsidized loans are available for Low-income family, these loans sets the interest payments aside from the principal fee. The unsubsidized ones has the interests required to be shouldered by the student himself and he or she can start paying them off even while studying

Some of the direct federal loans to students in the US include the Stafford Law, the Perkins Law, Ford Direct Student Loans, Federal Family Education Loans, and College Consolidation Loan. Medical students are often presented with a different set of terms and conditions given that they have more expenses as compared to other students.

The Federal Loan for Parents is also known as PLUS or Parent Loans for Undergraduate Students. There is no limit as to how much can be borrowed, but payments need to be made immediately after the loan has been made. No grace periods are given since the loans are directed to parents who are already expected to have acquired enough credit savvy and financial stability for having been qualified to do so. While it is classified under student loans, it a loan that parents are responsible for. It is not something that students will be obliged to pay for. Parents who filed for the loan are the ones required to pay for it. Though there have been new legislative policies that allowed graduate students to be able to file for PLUS under their own name and use it for their graduate studies. Interests rates here are considerably higher as compared to direct federal student loans.

Besides various forms of federal loans available for US students, private student loans are also abounding. Here in private loans you can expect higher loan limits and less grace period, but most people in the academe are advocating this to be more effective than being under a federal student loan if harnessed properly.

Eligibility is much more strict, where the companies would pay attention to the financial score of the student and their family situation. Interest rates can be higher since they are not subsidized. There are direct consumer student loans wherein the companies are directly connected to the student and gets to process everything faster.

But school channels, albeit slower in processing, offer more friendly interest rates and its financial burden is often buffered given that the school is channeled in the midst of the transaction.

Whatever type of student loan you acquire, you must make sure that you will commit to be able to pay off everything and that you have read the fine print of all documents before agreeing in any form. While it can be tricky to maneuver, managing student loans is another good skill that will prepare any student for more independence and personal improvement.

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Editorial Team at Exforsys is a team of IT Consulting and Training team led by Chandra Vennapoosa.

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