Student loans in the United States are a form of financial aid that must be repaid, in contrast to other forms of financial aid such as scholarships and grants. 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 most of the rest of the developed world, higher education is more highly subsidized for students, and funded by consumption and income taxes. However, in the U.S., much of higher education is funded by students and their families. Some believe this increases intergenerational correlations in income, although other transmissions including genetics, work ethic, and preferences for work, leisure, and money play a larger role. Some believe that higher education is an excellent investment in the U.S. but recent research, falling wages employment for recent graduates, suggest there may be a higher education bubble.
Student loans come in several varieties in the United States, but are basically split into federal loans and private student loans, which broadly includes state-affiliated nonprofits and institutional loans provided by schools.
Federal student loans made to students directly: The student makes no payments while enrolled in at least half time status. If a student drops below half time, the account goes into 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. Amounts are quite limited as well. 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 FFEL loans totalling more than ,500, In addition, any person employed full-time (in any position) by a public service organization, or must be serving in a full-time AmeriCorps or Peace Corps position. qualifies for loan forgiveness after 10 years of 120 consecutive payments without being late in a public service position 2007 law mandates. Currently, certain loan forgiveness or discharges are considered income by the Internal Revenue Service due to 26 U.S.C. 108(f).
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, although interest starts to accrue immediately. Private loans may be used for any education related expenses—such as tuition, room and board, books, computers, and past due balances. Students can also use private loans to supplement federal student loans when federal loans, grants, and other forms of financial aid are insufficient to cover the full cost.
Student financial aid in the United States is funding that is intended to help students pay education-related expenses including tuition, fees, room and board, books, and supplies for education at a college, university, or private school. General governmental funding in the form of subsidies for public education is not called financial aid. Financial aid refers to awards to specific individual students. Certain governments, e.g. Nordic countries, provide student benefit. A scholarship is sometimes used as a synonym for a financial aid award, although grants and student loans are also major components of financial aid packages from students’ intended colleges.
Image by Tulane Public Relations (Flickr: Student Orientation) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons