Student loan
Encyclopedia
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education. It also differs in many countries in the strict laws regulating re-negotiating and bankruptcy.
and the other type is private student loans.The unsubsidized program allows students to borrow money with interest accruing during school and subsidized loans allow them to defer interest accrual until they are no longer in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities. Private lenders are also currently guaranteed a return on their investment due to legislatively enacted changes in 2005, prohibiting the discharge of any student loan, unless the debtor is able to demonstrate "undue hardship."
plan is an alternative to paying back student loans, which allow the borrower to pay back the loan based on how much he/she makes, and not based how much money is actually owed.
Repayment typically begins anywhere from six to twelve months after a student leaves school, regardless of whether or not they complete their degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.
The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaided interest and penalties becomes capitalized.
The Master Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract. Direct student loans can be obtained by filling out the government FAFSA form, and each school will determine eligibility of a student for direct federal loans.
The legislation which covers repayment of student loans is 11 U.S.C. § 523. This legislation directs that student loans are not discharged in any bankruptcy proceeding unless the bankrupt can demonstrate "undue hardship" which is left to the sole discretion of the particular judge hearing the case.
There are many documented cases of Americans committing extreme actions because of large student loan balances. This seems particularly true in the case of private loan balances.
After the passage of the bankruptcy reform bill of 2005, even private student loans are not discharged during bankruptcy. This provided a credit risk free loan for the lender, averaging 7 percent a year.
In 2007, the Attorney General of New York State, Andrew Cuomo
, led an investigation into lending practices and anti-competitive relationships between student lenders and universities. Specifically, many universities steered student borrowers to "preferred lenders" which resulted in those borrowers incurring higher interest rates. Some of these "preferred lenders" allegedly rewarded university financial aid staff with "kick backs." This has led to changes in lending policy at many major American universities. Many universities have also rebated millions of dollars in fees back to affected borrowers.
The biggest lenders, Sallie Mae and Nelnet, are frequently criticized by borrowers. Despite the fact that Representative and Speaker of the U.S. House John Boehner is one of their biggest political allies, these lenders often find themselves embroiled in lawsuits, the most serious of which was filed in 2007. The False Claims Suit was filed on behalf of the federal government by former Department of Education researcher, Dr. Jon Oberg, against Sallie Mae, Nelnet, and other lenders. Oberg argued that the lenders overcharged the U.S. Government and defrauded taxpayers of millions and millions of dollars. In August of 2010, Nelnet settled the lawsuit and paid $55 million.
The New York Times recently published an editorial endorsing the return of bankruptcy protections for private student loans in response to the economic downturn and universally increasing tuition at all colleges and graduate institutions.
. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. The debt does not attract normal interest, but grows with CPI inflation. Discounts are available for early repayment. The scheme is available to citizens and permanent humanitarian visa holders. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.
There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.
United States
In the United States, there are three types of student loans: two of them are federally subsidized and unsubsidized sponsored by the federal governmentGovernment-sponsored enterprise
A government-sponsored enterprise is a financial services corporation created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent...
and the other type is private student loans.The unsubsidized program allows students to borrow money with interest accruing during school and subsidized loans allow them to defer interest accrual until they are no longer in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities. Private lenders are also currently guaranteed a return on their investment due to legislatively enacted changes in 2005, prohibiting the discharge of any student loan, unless the debtor is able to demonstrate "undue hardship."
Income Based Repayment
The Income Based RepaymentIncome Based Repayment
There are a number of loan repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income. Income-Based Repayment is a fairly new option that became available July 1, 2009...
plan is an alternative to paying back student loans, which allow the borrower to pay back the loan based on how much he/she makes, and not based how much money is actually owed.
Qualification
Most college students in the United States qualify for some type of student loan, although the amount they can borrow may vary based on several factors. Income level, parents' income level, and other financial considerations are all weighed to determine the amount they are eligible to borrow under the federal student loan program.Repayment
A student loan has major differences over conventional loans - 6% interest rates (higher than most home loans) and inability to negotiate. The interest rate on a student loan will generally be at least two percentage points lower than the going market rate for conventional loans, but this will vary somewhat.Repayment typically begins anywhere from six to twelve months after a student leaves school, regardless of whether or not they complete their degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.
The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaided interest and penalties becomes capitalized.
The Master Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract. Direct student loans can be obtained by filling out the government FAFSA form, and each school will determine eligibility of a student for direct federal loans.
Criticism
In coverage through established media outlets, many borrowers have expressed feelings of victimization by the student loan corporations. There is a comparison between these accounts and the college credit card trend in America during the 2000s, though the amounts owed by students on their student loans are almost always higher than the amount owed on credit cards. Many anecdotal accounts of the hardships caused by excessive student loan debt levels are chronicled by the organization Student Loan Justice which is founded and led by consumer rights advocate and author, Alan Collinge.The legislation which covers repayment of student loans is 11 U.S.C. § 523. This legislation directs that student loans are not discharged in any bankruptcy proceeding unless the bankrupt can demonstrate "undue hardship" which is left to the sole discretion of the particular judge hearing the case.
There are many documented cases of Americans committing extreme actions because of large student loan balances. This seems particularly true in the case of private loan balances.
After the passage of the bankruptcy reform bill of 2005, even private student loans are not discharged during bankruptcy. This provided a credit risk free loan for the lender, averaging 7 percent a year.
In 2007, the Attorney General of New York State, Andrew Cuomo
Andrew Cuomo
Andrew Mark Cuomo is the 56th and current Governor of New York, having assumed office on January 1, 2011. A member of the Democratic Party, he was the 64th New York State Attorney General, and was the 11th United States Secretary of Housing and Urban Development...
, led an investigation into lending practices and anti-competitive relationships between student lenders and universities. Specifically, many universities steered student borrowers to "preferred lenders" which resulted in those borrowers incurring higher interest rates. Some of these "preferred lenders" allegedly rewarded university financial aid staff with "kick backs." This has led to changes in lending policy at many major American universities. Many universities have also rebated millions of dollars in fees back to affected borrowers.
The biggest lenders, Sallie Mae and Nelnet, are frequently criticized by borrowers. Despite the fact that Representative and Speaker of the U.S. House John Boehner is one of their biggest political allies, these lenders often find themselves embroiled in lawsuits, the most serious of which was filed in 2007. The False Claims Suit was filed on behalf of the federal government by former Department of Education researcher, Dr. Jon Oberg, against Sallie Mae, Nelnet, and other lenders. Oberg argued that the lenders overcharged the U.S. Government and defrauded taxpayers of millions and millions of dollars. In August of 2010, Nelnet settled the lawsuit and paid $55 million.
The New York Times recently published an editorial endorsing the return of bankruptcy protections for private student loans in response to the economic downturn and universally increasing tuition at all colleges and graduate institutions.
Australia
Tertiary student places in Australia are usually funded through the HECS-HELP schemeTertiary education fees in Australia
As a general rule, all students who attend Australian tertiary education institutions are charged higher education fees. However, several measures are in place to relieve the costs of tertiary education in Australia....
. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. The debt does not attract normal interest, but grows with CPI inflation. Discounts are available for early repayment. The scheme is available to citizens and permanent humanitarian visa holders. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.
There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.
See also
- College tuition in the United States
- EdFundEDFUNDEdFund is the United States' second largest provider of student loan guarantee services under the Federal Family Education Loan Program . It is organized as a non-profit public benefit corporation. EdFund offers students and their families a wide range of information on the value of higher...
- Free educationFree educationFree education refers to education that is funded through taxation, or charitable organizations rather than tuition fees. Although primary school and other comprehensive or compulsory education is free in many countries, for example, all education is mostly free including...
- Higher Education Price IndexHigher Education Price IndexThe Higher Education Price Index is a measure of the inflation rate applicable to United States higher education; more precisely, the increase in costs in a defined basket of goods and services typically purchased by institutions of higher education...
- Post-secondary education
- Private universityPrivate universityPrivate universities are universities not operated by governments, although many receive public subsidies, especially in the form of tax breaks and public student loans and grants. Depending on their location, private universities may be subject to government regulation. Private universities are...
- Student benefitStudent benefitStudent benefits are transfer payments that are given to students for purposes of full-time study, and require progress in studies, or obtaining academic credits. Student benefits are found in countries where education is free of charge, e.g. Finland and Sweden...
- Student debtStudent debtStudent debt is a form of debt that is owed by an attending, withdrawn or graduated student to a lending institution. The lending may usually be a student loan, but debts may be owed to the school if the student has dropped classes and withdrawn from the school Student debt is a form of debt that...
- Student loans in the United StatesStudent loans in the United StatesWhile 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:...
- Tuition agencyTuition agencyA tuition agency is a commercial organisation which specialises in introducing tutors to students requiring help in the academic area. Tuition agencies exist largely due to the problems parents and students face in finding a specialist who can help them with the study of one or more specific...
- Tuition centerTuition centerTuition center is a special term for private educational institutions; they are especially abundant and ubiquitous in Malaysia,India,The Middle East and Singapore. Many school teachers earn their supplementary income through tuition centers and agencies...
- Tuition fees
- Tuition freezeTuition freezeTuition freeze is a government policy restricting the ability of administrators of post-secondary educational facilities to increase tuition fees for students. Although governments have various reasons for implementing such a policy, the main reason cited is improving accessibility for working-...
Further reading
- Manning, Robert D.Robert D. ManningRobert D. Manning is an American financial expert in consumer credit and financial services. Up until 2008, Manning was a professor of finance at Rochester Institute of Technology's E...
(1999). “Credit Cards on Campus: The Social Costs and Consequences of Student Debt.” Washington, D.C.: Consumer Federation of AmericaConsumer Federation of AmericaThe Consumer Federation of America is a non-profit organization founded in 1968 to advance consumer interests through research, education and advocacy....
. - Schemo, Diana Jean, "Private Loans Deepen a Crisis in Student Debt", The New York Times, June 10, 2007
- "New Default Rate Data for Federal Student Loans: 44% of Defaulters Attended For-Profit Institutions", The Pew Charitable TrustsThe Pew Charitable TrustsThe Pew Charitable Trusts is an independent non-profit, non-governmental organization , founded in 1948. With over US$5 billion in assets, its current mission is to serve the public interest by "improving public policy, informing the public, and stimulating civic life."-History:The Trusts, a single...
, Project on Student Debt, Berkeley, California, December 15, 2009
External links
- "UNITED NATIONS: Education Policy and Reform"
- "Big Money On Campus". U.S. News & World ReportU.S. News & World ReportU.S. News & World Report is an American news magazine published from Washington, D.C. Along with Time and Newsweek it was for many years a leading news weekly, focusing more than its counterparts on political, economic, health and education stories...
. October 19, 2003. - "College, Inc.", PBS FRONTLINE documentary, May 4, 2010
- "Federal Loan Consolidation"