Student Loans in The United States

Student loans in the United States are a form of financial aid that must be repaid, in contrast to other forms of financial aid such as scholarships and grants. Student loans play a very large role in U.S. higher education. Nearly 20 million Americans attend college each year. Of that 20 million, close to 12 million – or 60% - borrow annually to help cover costs. In most of the rest of the developed world, higher education is provided free (or highly subsidised) at the point of service, and funded through general tax revenues. However, in the U.S., much of higher education is funded by students and their families and is viewed as an investment rather than a basic human right. As a result, students typically graduate with high debt levels, parental financial resources are a strong predictor of educational attainment, and social mobility is low by developed world standards. However, higher education remains an excellent investment in the U.S., with wage premiums exceeding those in the rest of the developed world.

Student loans come in several varieties in the United States, but are basically split into federal loans and private student loans, which broadly includes state-affiliated nonprofits and institutional loans provided by schools.

• Federal student loans made to students directly: The student makes no payments while enrolled in at least half time status. If a student drops below half time, the account goes into a six-month grace period. If the student re-enrolls in at least half time status, the loans are deferred, but when they drop below half time again they no longer have access to a grace period. Amounts are quite limited as well. There are many deferments and a number of forbearances one can get in the Direct Loan program. For those who are disabled, there is also the possibility of 100% loan discharge if you meet the requirements. Due to changes by the Higher Education Opportunity Act of 2008, it became easier to get one of these discharges after July 1, 2010. There are loan forgiveness provisions for teachers and health professionals serving low-income areas, as well loan forgiveness after 10 years for public service in general due to a 2007 law. Currently, certain loan forgiveness or discharges are considered income by the Internal Revenue Service due to 26 U.S.C. 108(f).
• 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 starts to accrue immediately. Private loans may be used for any education related expenses—such as tuition, room and board, books, computers, and past due balances. Students can also use private loans to supplement federal student loans when federal loans, grants, and other forms of financial aid are insufficient to cover the full cost.