Student loans are financial aids taken for the purpose of education. They have to be repaid with interest once graduation is completed, and the repayment schedule begins from six months after graduation. Loans are disbursed to either students or their guardians by the federal government, banks, private moneylenders or the school itself. Most loans have 10-year repayment periods and their rates of interest change on the 1st of July every year.
There are different types of loans available to the students – Stafford loans, Perkins loans, PLUS loans and private educational loans.
Stafford loans are disbursed by the federal government. To be eligible, the student must be enrolled in an accredited educational institution at least half-time. The student begins repayment after completing graduation. Stafford loans may be subsidized or unsubsidized. In a subsidized loan, the interest is charged only when the student begins repayment; but in an unsubsidized loan, the interest begins from the day the loan is disbursed. Commencing from July 1, 2005, the rate of interest on a Stafford loan is 5.30% for the repayment period and 4.70% for the grace period.
Perkins loans are disbursed by the school rather than the federal government. Again, a student must be enrolled in an accredited education institution at least half-time to be eligible for it. A Perkins loan charges lower interest rates than a Stafford loan, about 5%.
PLUS loans are loans taken by the parents for their children’s educational needs, if the children are dependent. The student must be enrolled in an accredited educational institution at least half-time to be eligible. Parents are responsible for the repayment of PLUS loans. A Perkins loan is a low interest loan, charging rates of interest from 4.17% (it may go up to 6.10%, depending on the period of repayment).
Private loans are given by banks and private moneylenders. They charge a high rate of interest and there is less flexibility in their repayment methods. The rates of interest differ from one lender to another.
Students can take different types of loans for their education at the same time. Several loans can be consolidated into a single loan with a single repayment plan to avoid confusion. These consolidated loans also help in reduction of interest rates.
In the United States of America, at least 66% of the undergraduate students are using some kind of student loan to complete their educations. In the year 2003-2004, undergraduate students borrowed $19,202 per annum on an average in Stafford and Perkins loans. The average came to $23,814 if PLUS loans are also taken into account. The average figures for graduate students were even higher. Every year there is an estimated 3% increase in the amount of average loans taken.
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