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Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually carry lower interests than other loans, and are usually issued by the government.
Australia
In Australia, students can pay for university courses using the Higher Education Contribution Scheme (HECS). The selection criterion for HECS is based on the rank achieved in the secondary school final examination. HECS fees are government-subsidised, and are substantially cheaper than full-fee paying 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 provides 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, through the Canada Student Loans Program, in addition to loans provided by their province of residence. Loans issued to full-time students are interest free while a student is in full-time studies. Part-time students must make interest payments while in study and begin payments of principal and interest when they cease to be a part-time student. Grants may supplement loans to aid students that face particular barriers to accessing post-secondary education, such as students with a permanent disability or students from low-income families.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 most cases, the province of residence is the province one lived in before they become a post-secondary student.
Canada Student Loans (CSL) of up to $210 per week of full-time study or 60% of the student's assessed need (the lesser of these) can be issued per loan year (August 1 to July 31). Loans issued through provincial programs will normally provide students with enough funding to cover the balance of their assessed need. Part-time loans of up to $4,000 can be made but a student can not be more than $4,000 in debt on part-time loans at any one time. All Canadian students may also be eligible for the Canada Millennium Scholarship Foundation Bursary (CMS Grant), and other grants provided by their province of residence.
For example, students in British Columbia may be eligible for a maximum of $14,300 combined loan and grant funding per year.
History
From the Department of Human Resources:- The CSLP was created in 1964. Since its inception, the Program has supplemented the financial resources available to eligible students from other sources to assist in their pursuit of post-secondary education. Between 1964 and 1995, loans were provided by financial institutions to post-secondary students who were approved to receive financial assistance. The financial institutions also administered the loan repayment process. In return, the Government of Canada guaranteed each Canada Student Loan that was issued, by reimbursing the financial institution the full amount of loans that went into default.
- In 1995, several important changes were made to the CSLP, reflecting the changing needs of the parties involved in the loan process. The Government of Canada developed a formalized "risk-shared" agreement with several financial institutions, whereby the institution would assume responsibility for the possible risk of defaulted loans in return for a fixed payment from the Government. During this period, the weekly federal loan amount was increased to a maximum of $165.
- On July 31, 2000, the risk-shared arrangement between the Government of Canada and participating financial institutions came to an end. The Government of Canada now directly finances all new loans issued on or after August 1, 2000. The administration of Canada Student Loans has become the responsibility of the National Student Loans Service Centre (NSLSC). There are two divisions of the NSLSC, one to manage loans for students attending public institutions and the other to administer loans for students attending private institutions.
Professional students
Most charter banks in Canada have specific programs for professional students which can provide more funds than usual in the form of a line of credit, sometimes with lower interest rates as well. Students may also be eligible for government loans that are interest free while in school on top of this line of credit, as private loans do not count against government loans/grants.Germany
General
German universities are usually free of charge for students (although many Federal States of Germany plan to introduce a student fee of about €1000 per year in 2007). Giving out student loans is seen as a means to pave the way to higher education for lower class children whose parents couldn't afford to fund their children's education otherwise. The federal law that regulates student loans is called "Bundesausbildungsförderungsgesetz" (Federal Education and Trainings Assistance Act) or "BAföG" for short, and student loans are usually referred to simply as "BAföG" by students (as in "I'm getting BAföG"). Eligible groups include high school students, part-time and full-time university students, second path education students (i.e. those starting to study after having been in the work-force before) and students of schools for professional training.Eligibility dependent on parent income
The eligibility for BAföG-Loans is (usually) dependent from parent income, as parents are required by law to fund their children's education (including higher education), and therefore students could theoretically sue their parents for funds for their education (although this is rarely done for obvious reasons.) For low-income families, BAföG-loans take over when these obligations can not reasonably be met by parents.BAföG-loans are usually given out half as zero-interest loan (to be repaid only after the receiver exceeds a certain income level after graduation), and half as grant money to university students. High school students get the full amount as grant money if they are eligible. The current maximum amount per month (for a university student) is 521 Euros. This can be lowered gradually if student or parent income or student assets exceed certain amounts. Thus the amount paid out can be lower than the maximum amount and even loans of 1 Euro per month are given out if the calculation returns that amount. Such low grants seem nonsensical at first, but they are usually accepted by students (loans can be refused by the student), because eligibility for a BAföG-Loan (even of 1 Euro per month) makes the student eligible for some other benefits like cut-rate telephone service or waiving of public television licence fees (which otherwise have to be paid by everyone who owns a working TV-Set.)
Generally, BAföG-loans are independent from student intelligence or grades at least for two years, after that a certain minimum grade level has to be met, and proof of participation in required but ungraded courses is to be provided to stay eligible. Change of field of study is allowed once during the first two years without becoming ineligible. For university studies, every field of study has predefined a maximum study duration (usually around 5 years), after which the student becomes ineligible for BAföG. Further funds can be granted as low-interest loan for another two years if certain criteria (like reasonable likelihood that the student will graduate during that time) are met.
Eligibility independent from parent income
In some cases, like most notably if the student has worked full time for a number of years before returning to student status, BAföG eligibility is calculated independent from parent income, because parents' obligation to fund their children's education ends once the children enter the work-force full-time. In those cases only student income and assets are consulted for BAföG eligibility and amount calculation.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.
India
Loans for education are mostly available from nationalised banks. Some details Found in *StudentIndia.com
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 to recent graduates, having high loan debts and health employers, having tightly controlled government funding.
In the 2005 general election one of the election policies from the Labour Party was:
During our next term in govt, we will abolish all interest charges on student loans for all students and NZ based graduates from 1 April 2006.— * Retrieved October 2005.
Sweden
Student grants and student loans in Sweden are administered by the Swedish National Board of Student Aid, a Swedish government agency. Students living with their parents often only take the student grant, while other students tend to take both the student grant and the student loan. A full-time student gets SEK 2,492 (about $ 350) a month in student grant, and can borrow up to SEK 4,764 (about $ 650) a month, which gives a total of SEK 7,259 (about $ 1,000). During the summer months the student gets no student grants or student loans. Thus a full-time student get SEK 24,920 (about $ 3,500) a year in student grant, and can borrow up to SEK 47,640 (about $ 6,500) a year, which gives a total of SEK 72,590 (about $ 10,000). No income tax is paid on student grants and student loans. In Sweden the universities are free of charge for students.
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 tuition fees, if any, the students' parents must pay. The family's 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 in England and Wales, with only the final 25% being means-tested (taking the total available up to as much as £4,000). There is also extra money (currently roughly another £1000) if you go to university in London, where it is deemed the extra cost of living necessitates a higher loan. Scotland has a slightly different assessment method where more of the loan is means tested with a minimum loan of only £840. However much you get, 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 students have completed their course and are 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 repaid 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. For students beginning courses before 1998, the arrangements for repaying and deferring are different. Although Scottish students have their tuition fees covered by the SAAS during their time of study, much of this is actually repaid in a Graduate Endowment.
The Higher Education Act 2004 will make significant changes to the loans system in England, Wales and Northern Ireland from 2006. Up front tuition fees will be abolished, with the fee being added to students' loans 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. For students who have already started their courses, and as such are still paying the up-front fees, can now add these fees to their loans if they want. Critics claim these top-up fees will create tiers of "expensive" and "cheap" universities, and make university financially inaccessible to many students. As a result, there have been national demonstrations and protests by students' unions.
United States
Loans for Higher Education
While included in the term "financial aid" Higher Education Loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:- Federal Student Loans made to students directly: No payments until after graduation, but amounts are quite limited
- 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 will start to accrue immediately.
FEDERAL LOANS TO STUDENTS
See Perkins Loan, Stafford loan, and College Consolidation Loan
Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.
The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants and work-study. They may be subsidized by the U.S. Government, or may be unsubsidized depending on the student's financial need.
Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of 6 months, which means that no payments are due until 6 months after graduation, or 3 months after the borrower becomes a less-than-full-time student without graduating. Both types have a fairly modest annual limit regardless of the student's actual cost of education. The present limit in January 2006 is $2,800 per year for freshman undergraduate students and increases each year to $5,500 per year for junior and senior undergraduate students.
Subsidized Federal student loans are offered to students with a demonstrated financial need: generally requiring a low family income. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.
Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. or example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. Those who borrow $10,000 during college will owe $10,000 PLUS INTEREST upon graduation. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can also choose to pay the interest while still in college.
Federal student loans for students of medicine have higher limits, $8,500 for subsidized Stafford and $30,000 maximum for unsubsidized Stafford. Many students also take advantage of the unsubsidized Perkins loan. For medical students the limit for Perkins is $6,000.
FEDERAL STUDENT LOANS TO PARENTS
See PLUS loan
Usually these are described as PLUS loans (Parent Loans for Undergraduate Students). Unlike loans made to students, parents are able to borrow much more - usually enough to cover any gap in the cost of education. However, there is no grace period whatsoever. Payments start immediately.
Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents are on the hook to pay and if they do not do so, it is their credit that will suffer. Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time 4 years have been paid for through borrowing. The combination of immediate repayment and the ability to borrow substantial sums can be dangerous.
Parents should also be aware that current legislation will raise the interest rate on these loans significantly, to 8.5% as of July 1, 2006.
Private student loans
These are loans made to students by private finance companies: sometimes banks, sometimes specialized education lenders. Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer 6 months.Rates and interest Private student loan rates are lower than non-specialized private loans (e.g. "signature" loans) but slightly higher than government loan rates. That may be changing, as pending legislation would raise government student loan rates to similar rates as private student loans.
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. Beginning a few years ago, money paid toward interest is now tax deductible.
Fees Private loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan, they can be taken out of the total loan amount, or added on top of the total loan amount, often at the borrower's preference. Some lenders offer low-interest, 0-fee loans; but these are usually available only to those with high credit scores of 800 or more. Each percentage on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan. Origination fees are changing per the Higher Education Act (HEA) July 1, 2006 and the source of payment of the 1% mandated fee may vary by lender.
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.
Student loans from private guarantors are based on the contract between student and lender, and do not offer many of the protections that borrowers may expect from government based student loans should they face difficulties during repayment.
The terms for alternative loans can vary greatly from lender to lender and even from the era the loan is made. Some do not even call for expiration of the contract at the death of the borrower, which means the holder of the loan can go after the estate. Deferrments, forebearences, and federally subsidized consolidations may not be available or may be more difficult with substantially shorter duration. Such protections of the borrowers are solely based on the contract and the private guarantor and not by Department of Education policies. Yet, borrowers of privately subsidized student loans face the same restrictions to banckruptcy discharge as are government based loans.
Disbursement: How the money gets to student or school
There are two distribution channels for Federal student loans. The channels are identified by their names: Federal Direct Student Loans and Federal Family Education Loans. Federal Direct Student Loans, also known as Direct Loans, or FDLP loans are funded from public capital originating with the U.S. Treasury. FDLP loans are distributed through a channel that begins with the U.S. Treasury Department, and from there passes through the U.S. Department of Education, then to the college or university and then to the student. Federal Family Education Loan Program loans, also known as FFEL loans or FFELP loans, are funded with private capital provided by banking institutions (i.e., banks, savings and loans, and credit unions). Because the FFELP loans use private capital as their source, students who use FFELP loans are able to take advantage of payment options that are similar to those available to customers who take out a home loan or a consumer loan. For example, some institutions will allow a discount for automatic payments, or a series of on-time payments. In 2005, approximately two-thirds of all federally subsidized student loans are FFELP.According to the U.S. Education Department, more than 6,000 colleges, universities and technical schools participate in FFELP, which represents about 80 percent of all schools. FFELP lending represents 75 percent of all federal student loan volume.
The maximum amount that any student can borrow is adjusted from time-to-time as Federal policies change. A study published in the Winter, 1996 edition of the Journal of Student Financial Aid, titled “How Much Student Loan Debt is Too Much” suggested that debt for the average undergraduate should not exceed 8% of total income after graduation. Some financial aid advisors have referred to the 8% level as “the 8% rule.” Circumstances vary for individuals, so the 8% level is an indicator, not a rule set in stone. A research report about the 8% level is available on the internet at * Follow links to --> Reports and presentations --> How Much Student Loan Debt is Too Much?
For Private Loans it is far simpler. The lender generally disburses the money directly to the school.
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