A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education. It also differs in many countries in the strict laws regulating re-negotiating and bankruptcy.
In the United States, there are three types of student loans: two of them are federally subsidized and unsubsidized sponsored by the federal government and the other type is private student loans.[1]
Repaying a student loan is different, too. In most cases, payment can be deferred on the principal and the interest until the student is out of school. Repayment typically begins anywhere from six to twelve months after they leave school, regardless of whether or not they complete their degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.
The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaided interest and penalties becomes capitalized.
The Mastery Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract. Direct student loans can be obtained by filling out the government FAFSA form, and each school will determine eligibility of a student for direct federal loans.[citation needed]
The legislation which covers repayment of student loans is 11 U.S.C. § 523. This often means that student loans are not discharged in a bankruptcy unless the bankrupt can demonstrate "undue hardship".[6] There are many documented cases of Americans committing extreme actions because of large student loan balances. This seems particularly true in the case of private loan balances.[7]
There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.
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United States
The United States uses a federally guaranteed student loan program to help college students pay for their education. The program allows students to borrow money with interest and subsidized loans allow them to defer payment until they are no longer in school. And although these are loans, with interest, the student loans are generally offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities.In the United States, there are three types of student loans: two of them are federally subsidized and unsubsidized sponsored by the federal government and the other type is private student loans.[1]
Qualification
Most college students in the United States qualify for some type of student loan, although the amount they can borrow may vary based on several factors. Income level, parents' income level, and other financial considerations are all weighed to determine the amount you are eligible to borrow under the federal student loan program.Repayment
A student loan has major differences over conventional loans - 6% interest rates (higher than most home loans) and inability to negotiate. The interest rate on a student loan will generally be at least two percentage points lower than the going market rate for conventional loans, but this will vary somewhat.Repaying a student loan is different, too. In most cases, payment can be deferred on the principal and the interest until the student is out of school. Repayment typically begins anywhere from six to twelve months after they leave school, regardless of whether or not they complete their degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.
The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaided interest and penalties becomes capitalized.
The Mastery Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract. Direct student loans can be obtained by filling out the government FAFSA form, and each school will determine eligibility of a student for direct federal loans.[citation needed]
Criticism
In coverage through established media outlets, many borrowers have expressed feelings of victimization.[2][3][4] There is a comparison between these accounts and the college credit card trend in America during the 2000s.[5]The legislation which covers repayment of student loans is 11 U.S.C. § 523. This often means that student loans are not discharged in a bankruptcy unless the bankrupt can demonstrate "undue hardship".[6] There are many documented cases of Americans committing extreme actions because of large student loan balances. This seems particularly true in the case of private loan balances.[7]
Australia
Tertiary student places in Australia are usually funded through the HECS-HELP scheme. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. The debt does not attract normal interest, but grows with CPI inflation. Discounts are available for early repayment. The scheme is available to citizens and permanent residents. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.[8]There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.
United Kingdom
Main article: Student loans in the United Kingdom
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