Student loan
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Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually charge lower interest than other loans, and are also usually issued by the government. This article details how the systems work in different countries.
Australia
In Australia, students can pay for university courses using the Higher Education Contribution Scheme (HECS). HECS course places are government-subsidised places competed for using the rank achieved in the secondary school final examination, and are substantially cheaper than full-fee places which have lower entry requirements.
Courses are ranked into three bands, with a year's tuition costing around $4000-$6000 AUD. Students have the option of deferring the HECS fee until they start earning above a certain threshold, whereupon they will repay the government through the tax system; the amount owed is indexed to inflation. Alternatively, students can pay upfront at the beginning of the semester; this option attracts a 25% discount (2004).
Recent legislative changes that allow a high proportion of full-fee paying places, and lower upfront payment discounts have been a source of controversy.
Canada
Government loans
Canadian students are normally eligible for loans provided by the federal government, in addition to loans provided by their province of residence. The loans are normally interest-free until one graduates, and are sometimes supplemented with grants, depending on need.
Students must apply for the Canadian and provincial loans through their province of residence. The rules for what determines your province of residence vary, but normally the province or territory of residence is defined as where you have most recently lived for at least 12 consecutive months, not including any time you spent as a full-time student at a post-secondary institution. In other words, the province of residence is normally the province where you lived before you were a student.
The Canada Student Loan (CSL) provides for a maximum of $165 per week of full-time study, and more money from their province of residence. All Canadian students may also be eligible for the Canadian Millennium Scholarship Foundation Bursary (CMS Grant), and other grants provided by their province of residence.
For students in British Columbia for example, they may be eligible for a maximum of $14,300 combined loan and grant funding per year.
Professional students
Bank of Montreal has a line of credit program for professional and medical students which provides up to $20,000 or $25,000 per year respectively. Students may also be eligible for interest-free government loans on top of this line of credit.
For Canadian students studying abroad, the International Student Loan Program (http://www.InternationalStudentLoan.com) offers funding up to the total cost of education to students enrolled at least half time at approved colleges throughout the world.
Republic of Ireland
Although third-level tuition has been free in the Republic of Ireland since 1997, for other student expenses most of the major banks offer interest-free or cut-rate loans to students. There has been discussion on re-introducing fees, as recommended by the OECD, with deferred payment similar to the Australian system; i.e. a loan from the government repaid after graduation. The suggestion has however, been quite unpopular.
New Zealand
The New Zealand, state provided student loans and allowances are available to tertiary students who satisfy the funding criteria. Full-time students can claim loans for both fees and living costs while part-time students can only claim training institution fees. A non-refundable means-tested student allowance for living expenses can be claimed by students who are over 25 years old or whose parents have a low income.
Loans are repaid by a 10% tax surcharge on income, once the student graduates and is in employment. There is a minimum income level, roughly equivalent to the unemployment welfare benefit payment rate, that is exempt from assessment and an interest rebate that can be claimed for low income and while the student is studying full-time. Loan recipients who leave New Zealand are assessed on their world-wide income for repayment purposes, with a minimum annual payment being required.
In recent years, large student loan debts have meant that many recent graduates have sought higher paying overseas work in preference to remaining in New Zealand. This has led to skill shortages in some professions as local employers have been unwilling or unable to match international salaries. Medical related professions have been particularly hard hit due recent graduates having high loan debts and health employers having tightly controlled government funding.
Sweden
Study support and student loans in Sweden is administered by the Swedish National Board of Student Aid, a Swedish government agency.
United Kingdom
British undergraduate and PGCE students can apply for a loan through their local education authority (LEA) in England and Wales, the Student Awards Agency for Scotland (SAAS) or their local education and library board in Northern Ireland. The LEA, SAAS or education and library board then assesses the application and determines the amount that the student is eligible to borrow, as well as how much, if any, tuition fees the students' parents must pay. The family income, whether the student will be living at home, away from home or in London, disabilities and other factors are taken into account. 75% of the full loan (around £3,000) is available to all students, with only the final 25% being means tested (taking the total available up to as much as £4,000). It is paid in three instalments during each year of the student's course (one per term). Special rules apply for some courses and for part-time courses.
Loans are provided by the Student Loans Company and do not have to be repaid until the student has completed their course and is earning £15,000 a year (£10,000 until April 2005). The interest rate is updated annually and is tied to inflation (currently 2.6%), making the loan interest-free in real terms. The loan is normally re-paid using the PAYE system, with 9% of the graduate's gross salary over £15,000 automatically being deducted to pay back the loan. There is no particular schedule for clearing the debt, but, if it has not been cleared 25 years after repayment began, or the student turns 65 years old, the remaining debt will be cancelled.
The Higher Education Act 2004 will make significant changes to the loans system from 2006. Up front tuition fees will be abolished, with the fee being added to the student's loan for them to pay back after their course is finished. However, instead of the tuition fee being fixed at around £1,150 for all universities (which, due to means testing, not all have to pay), universities will be able to charge variable fees of up to £3,000. See top-up fees for more information.
External links
- The Student Loans Company (http://www.slc.co.uk/)
United States
Federal financial aid programs
The federal government is the largest provider of financial aid. In fact, the federal government provided 75 percent of all available student aid, according to the College Board. So it makes sense to know as much as possible about federal financial aid programs and to apply for federal aid before seeking out more exotic financial aid sources.
The largest and most familiar federal student aid programs are:
- Federal Pell Grants
- Federal Supplemental Educational Opportunity Grant (FSEOG)
- Federal Stafford Loans
- Federal Parent Loan for Undergraduate Students (PLUS) Loans
- Federal Perkins Loans
- Federal Work-Study Program
Federal Pell Grants
The Federal Pell Grant Program is the largest need-based student aid program. According to the College Board, an estimated 3.7 million undergraduates received Pell Grants.
For many students, these grants are the foundation of their financial aid package. Pell Grants are only awarded to undergraduate students who have not earned a bachelor's or professional degree.
To apply for a Pell Grant, you must submit a Free Application for Federal Student Aid (FAFSA).
Awards depend on program funding. You can receive only one Pell Grant in an award year.
The size of a student's Pell Grant award depends on:
- The student's need
- The student's Expected Family Contribution (EFC) and Cost of Attendance (COA)
- Whether the student is enrolled on a full-time or a part-time basis
- Whether the student attends school for a full academic year or less
- How much money the program receives from the federal government
Students who participate in a study-abroad program that costs more than their usual tuition may be eligible for additional Federal Pell Grant aid to help cover those costs. (Check with your financial aid office.)
Federal Supplemental Educational Opportunity Grants (FSEOG)
The Federal Supplemental Educational Opportunity Grants program is one of three federal campus-based programs. The program provides grants to undergraduates with exceptional financial need (students with the lowest Expected Family Contributions) and gives priority to students who receive Federal Pell Grants. Students are automatically considered when they submit a Free Application for Federal Student Aid (FAFSA).
Students can get between $100 and $4,000, depending on when they apply, their level of need, and the funding level of the school the student is attending. Recipients must be U.S. citizens enrolled at least half-time in an undergraduate program at an accredited college or university.
Students at each school are awarded FSEOG aid based on the availability of funds at their school, so there is no guarantee that every eligible student will receive an FSEOG loan.
Nearly one million students receive Federal SEOG loans each year.
Federal Stafford Loans
Formerly called the Guaranteed Student Loan Program, Stafford loans are low-interest loans available to undergraduate and graduate students enrolled at least half-time, without regard to financial need. Federal Stafford Loans let students borrow money for educational expenses directly from commercial lenders such as banks, credit unions, savings and loan associations, and other lending institutions, or, for colleges participating in the Federal Direct Student Loan (FDSL) Program, from the U.S. government. Stafford loans can be either subsidized or unsubsidized.
These loans are similar to Federal Perkins Loans, except that the interst rate is higher and the grace period is shorter.
There are two types of Federal Stafford Loans:
- Subsidized Stafford Loans are awarded to students with demonstrated financial need. (The federal government pays the interest while the student is in school and during any deferment period.)
- Unsubsidized Stafford Loans may be awarded to students who do not have demonstrated financial need and therefore do not qualify for a subsidized loan, or to students who need additional funds. (Interest on the loan accrues while the student is in school and during any deferment.)
You do not have to start repaying the principal of either type of Stafford Loan until six months after you leave school (or after you stop attending at least half-time).
A combination of subsidized and unsubsidized Staffords may be awarded to students with partial financial need, depending on the students' status (dependent vs. independent) and demonstrated level of need. Who's eligible?
Most states require Stafford borrowers to be full-time students (although a few do permit half-time students to borrow under the program). More than 5 million students participate in the Federal Stafford Loan Program each year. How much can I borrow?
If you are a dependent undergraduate, you can borrow up to:
- $2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year
- $3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year
- $5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year
If you're an independent undergraduate or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to:
- $6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (Only $2,625 of this amount may be in subsidized loans.)
- $7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (Only $3,500 of this amount may be in subsidized loans.)
- $10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (Only $5,500 of this amount may be in subsidized loans.)
What interest rate and/or fees will I be expected to pay?
For borrowers who received their loans on or after July 1, 1994, the interest rate is variable (it can change each year of repayment), depending on changes in the federal treasury bill interest rate, but will never exceed 8.25%. The interest rate is adjusted each year on July 1. The current rate is 2.77% for students in school or in the six month grace period, and 3.37% for students in repayment.
If you have a subsidized Stafford Loan, you won't be charged interest while you are enrolled in school at least half-time, during the six-month grace period after you graduate or leaves school, or during any authorized period of deferrment.
If you have an unsubsidized Stafford loan, you'll be charged interest from the day the loan is disbursed until it is repaid in full, including while you are in school, during the six-month grace period, and during any deferment periods. You have the option to pay the interest during these periods, or it can be capitalized.
Federal Stafford Loan borrowers are charged origination fees and insurance fees. These combined fees cannot exceed 4% of the amount borrowed, and they are deducted from your loan before you receive payment. If you don't make your loan payments on time, you may also be charged collection costs and late fees.
How soon do I have to start repaying my Stafford loans?
Subsidized Stafford -- Repayment on both interest and principal is deferred until six months after a student graduates or leaves school.
Unsubsidized Stafford -- Repayment begins when the loan is disbursed, although the borrower may opt to postpone payments until leaving school; however, interest begins to accrue immediately.
Application Procedure:
1. Complete the Free Application for Federal Student Aid (FAFSA) (http://www.fafsa.ed.gov), or the Renewal FAFSA if applicable. After your FAFSA has been processed, your school will review the results and inform you about your loan eligibility.
2. Complete a Federal Stafford Loan Application and Promissory Note (http://www.staffordloan.com). (NOTE: Your school can refuse to certify your loan application, or can certify the loan for an amount less than you would otherwise be eligible for, if the school documents the reason for this action and explains this reasoning to you in writing. The school's decision is final.)
Federal Parent Loan for Undergraduate Students (PLUS) Loans
The Federal PLUS Loan program allows parents of undergraduate students to borrow up to the full cost of their children's education, less any other financial aid for which the student is eligible. For example, if your cost of attendance is $6,000 and you are eligible for $3,000 in other financial aid, your parents can borrow up to $3,000. Because PLUS Loans are not based on financial need, they can be used to cover a student's expected family contribution.
PLUS Loans are available from lenders participating in the Federal Family Education Loan (FFEL) Program, and from postsecondary institutions participating in the Federal Direct Student Loan (FDSL) Program. Parents can apply for either the Direct PLUS Loan or the FFEL PLUS Loan, but not both for the same child for the same enrollment period. (Parents can apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.) Rates and Fees:
The interest rate on these loans varies annually, adjusted on July 1, but may not exceed 9%. The current rate is 4.17%.
Lenders may subtract a 3% loan origination fee and a 1% insurance fee. (Parents receiving a Direct PLUS Loan will be charged a combined 4% fee.) Fees are deducted proportionately each time a loan payment is made.
Eligibility
Borrowers do not have to demonstrate financial need, but they do have to demonstrate that they do not have an adverse credit history. (If a credit problem shows up during the credit check, borrowers may still be able to receive a loan if a relative or friend with a good credit history co-signs the loan or if the borrower can demonstrate extenuating circumstances that led to the credit problem.)
Borrowers can apply for either a Direct PLUS Loan or a FFEL PLUS Loan, but not both, for the same child for the same enrollment period. They can, however, apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.
Application Procedure
A student applying for a line must fill out a Common Loan Application and Promissory Note (http://www.parentplusloan.com). (A FAFSA is not required unless the student's school requires it.)
Repayment
Repayment begins within 60 days of taking out the loan but can be deferred while the student is attending school -- however, interest will continue to accrue during the deferment. The lender will arrange the repayment schedule, which can extend to a maximum of 10 years, excluding any periods of deferment or forbearance. The minimum annual payment is $600.
Federal Perkins Loans
Federal Perkins Loans are low-interest fixed rate loans (currently 5%) for undergraduate and graduate students with exceptional financial need. These loans also offer generous repayment conditions. You don't start repaying the loan, or interest on the loan, until you finish school or drop below half-time status. And, you are given a 9-month grace period before you have to start your repayments. Under certain conditions, you can stop repaying your loan for a short period of time and finish repaying it later.
To be eligible for this program, a student must have applied for a Pell Grant. Perkins Loans are campus-based -- that is, the federal government funds the program but gives the money to the schools, which in turn act as the lenders.
Depending on when you apply, your level of need, and the funding level of the school, you can borrow up to $3,000 for each year of undergraduate study, up to a total of $15,000 and a maximum of 5 years. Graduate students can borrow up to $5,000 per year of graduate or professional study (6 years max). A student can borrow a maximum combined cumulative total of $30,000 for undergraduate and graduate education. However, you may be able to borrow more than this if you are attending a school that has a default rate no higher than 15% and the school chooses to participate under the Expanded Lending Option, or if you are studying abroad. To find out, check with your school.
The interest on the Perkins Loan is subsidized while the student is in school, so students don't pay interest on the loan while they are in school, or during the 9-month grace period available following graduation. Repayment begins 9 months after the student leaves school. Payments must be made regularly -- a minimum monthly payment of $30 is usually required, unless the college agrees to a lower amount. Students have up to 10 years to repay the loan.
Under certain conditions, repayment can sometimes be further deferred, or even cancelled. For example, all or part of your loan may be canceled if you teach in certain areas, become a nurse or medical technician, work in certain law enforcement fields or for child or family service agencies, or serve as a full-time volunteer in specific programs (such as the Peace Corps). You may also be able to defer repayment if you resume your studies on at least a half-time basis.
Students attending school on a less than half-time status should check with their financial aid office to find out when they must begin repaying their loans.
You have up to 10 years to repay.
Federal Work-Study Program (FWS)
The Federal Work-Study (FWS) Program is a federal campus-based program that provides jobs for undergraduate and graduate students with demonstrated need who are enrolled on at least a half-time basis. Students are generally paid at least the prevailing federal minimum wage and may work as many as 40 hours a week (although 10-15 hours is more typical).
A student's FWS award depends on when the student applies, the student's level of need, and the funding level at the student's school.
Most FWS jobs are on-campus jobs, although some are off campus. Students who work on campus usually work for their school. Those working off campus usually work for a private nonprofit organization or a public agency, performing work in the public interest. Some schools may have agreements with private for-profit organizations for FWS jobs -- these must be relevant to the student's course of study.
About 713,000 students received assistance under the Federal Work-Study Program, according to the College Board.
Federal student loan consolidation
One oddity in the offerings by the US Department of Education is the federal student loan consolidation program. Unlike other forms of federal student loans, federal student loan consolidation is a loan issued after the student graduates, as a means of extending the repayment term of federal student loans. While this is more expensive for students in the long term, initially it saves them money by reducing the monthly payment size, which is important for students who are unable to meet significant financial obligations immediately after graduation.
For example, a student with US$25,000 in federal student loans at 3.375% would have an estimated monthly payment of US$245 for 10 years before consolidation, and an estimated monthly payment of US$143 over 20 years after consolidating.
Federal consolidation loans retain the privileges of regular federal student loans, such as the ability to suspend payment for up to 36 months due to economic hardship, or defer payment if the student goes back to school.
Application Procedure:
Fill out a Federal Consolidation Master Promissory Note request (http://www.StudentLoanConsolidator.com)
Repayment:
Repayment terms are governed by the total amount owed. Typically, this is:
- 15 years for $0-$20,000
- 20 years for $20,000-$40,000
- 25 years for $40,000-$60,000
- 30 years for $60,000+
Repayment rates are based on the existing student loan rates at time of application. Students can determine their loan information using the US Department of Education National Student Loan Database System (NSLDS) (http://www.NSLDS.ed.gov/). Federal Student loan rates are set each July for the following year based on the sale price of the 91-day Treasury Bill in the last auction of May.
Private financial aid programs
Overview
In addition to federal assistance, private student loans can often be obtained by students to pay for costs above and beyond what the government is willing to fund. This is especially true for students at undergraduate private institutions, graduate schools, and students attending schools for which federal financial aid is not available, such as K-12 preparatory schools.
Most of the private financial aid programs in the United States are underwritten by TERI, a non-profit education resources company.
Assistance
Private loan programs can provide anywhere from $1,500 to $45,000, depending on the credit history and record of the applicant and any eligible co-signer. Most loan programs have an aggregate limit as well, capping the total amount a student can have borrowed in their lifetime.
Rates and interest
Most private loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge. Because private loans are based on the credit history of the applicant, the overhead charge will vary. Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit.
Eligibility
Private student loan programs generally issue loans based on the credit history of the applicant and any applicable co-signer/co-endorser. This is in contrast to federal loan programs which deal primarily with need-based criteria, as defined by the EFC and the FAFSA. For many students, this is a great advantage to private loan programs, as their families may have too much income or too many assets to qualify for federal aid, but insufficient assets/income to pay for schooling without assistance.
Additionally, many international students studying in the United States can obtain private loans (they are ineligible for federal loans in many cases) with a co-signer that is a United States citizen/permanent resident.
External links
- The Education Resource Institute (http://www.TERI.org/)
- How Minority Students Finance Their Higher Education (http://www.ericdigests.org/2002-3/finance.htm)
- Why Do Students Borrow So Much? Recent National Trends in Student Loan Debt (http://www.ericdigests.org/2001-4/loans.html)
- Student Financial Aid and Women (http://www.ericdigests.org/pre-926/aid.htm)
- Financial Aid for Lifelong Learning (http://www.ericdigests.org/2002-1/aid.html)