A loan given to a student to help him pay for higher education is termed as
Student Loan. In the United States, these loans are usually given by the
government.
Higher education loans differ from grants and scholarships. A student loan
has to be repaid by the student after completion of his studies while grants and
scholarships do not have to be repaid. Normally a student loan can be in the
form of a federal loan that is given to a student or as a private loan that is
given to the student and the student’s parents.
Federal student loans are made directly to the students. They are given to
supplement the student’s personal and family resources. A federal student loan
can be subsidized or unsubsidized depending on the financial need of the
students. Both subsidized and unsubsidized loans are guaranteed by the United
States Department of Education either directly or through guarantee agencies.
Nearly all students are eligible for federal student loans which have grace
period of six months. Subsidized federal student loans are given to students who
have to prove their financial need for the loans. While in an unsubsidized
student loan, the government does not pay the interest amount on the loan. The
interest is allowed to accrue during the college and the student must pay after
completion of studies.
Parents have an option of borrowing money to cover the educational expenses
of higher education. This type of loan is called Parent Loan of Undergraduate
Student. In this type of loan, no grace period is provided and payments start as
soon as the loan is disbursed.
Private Student Loan is loan that is extended by banks and other financial
institutions directly to the student. A Private Student Loan has a grace period
of six months and payments have to be made after completion of the studies.
There are occasions when the grace period is extended up to 12 months and this
is subject to approval by the lending authority. Most private loan programs are
tied to one or more financial indices such as the Wall Street Journal Prime Rate
or the BBA LIBOR rate plus an overhead charge. This type loan invariably has a
one time origination fee which depends upon the loan amount.
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