Most students in United States colleges receive some form of financial aid or college loans. Loans are regarded as “financial aid,” but higher education loans differ from scholarships and grants in that they have to be paid back. There are several types of loans come in the United States:
- Federal student loans made to students directly: Students must have at least half time status. If a student drops below half time status, the account will go into its 6 month grace period. If the student re-enrolls in at least half time status, the loans are deferred, but if they drop below half time again they will no longer have their grace period. Amounts are quite limited as well.
- Federal student loans made to parents: These loans have much higher limits, 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. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances. Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.
For loans made directly to students, the students can obtain a deferment or forbearance one can get in the Direct Loan program.
Disabled students also have the opportunity to obtain a 100% loan discharge if they meet the requirements.
Due to changes made by the Higher Education Opportunity Act of 2008, it will become much easier to get a loan discharge as of July 1, 2010.
There are loan forgiveness provisions for teachers and health professionals who agree to serve in low-income areas for a period of time. Currently, certain loan forgiveness or discharges are considered income by the Internal Revenue Service.
Types of Federal Loans
- A Federal Perkins Loan, or Perkins Loan, is a need-based student loan offered by the U.S. Department of Education to assist American college students in funding their post-secondary education. The program is named after Carl D. Perkins, a former member of the U.S. House of Representatives from Kentucky.
- A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.
- The William D. Ford Federal Direct Loan Program (also called FDLP, FDSLP, and Direct Loan Program) provides “low-interest loans for students and parents to help pay for the cost of a student’s education after high school. The lender is the U.S. Department of Education … rather than a bank or other financial institution.”