Federal student loans are those subsidized by the government, and generally include many benefits such as low fixed interest rates and repayment plans that are sympathetic of eventual income. Some federal loans also provide the ability for students to defer – or delay – paying off a loan until after they have graduated, obviously considering that many students will not attain a fixed income until this time. Deferment is often provided for students who are suffering through tough financial conditions.
Similarly, many federal loans are need-based, meaning that they are provided to those who cannot afford the cost of college. This is the case with Perkins loans, one of the most common federal loans, which are awarded to students with the highest need. Another common type of federal loan is the PLUS loan, which is designed around the needs of the parents and allows the borrowing of large sums of money so as to cover the entire cost of college.
On the other hand there are private student loans, which are not subsidized or need-based, but are instead made to students by a lender such as a bank, credit union or school. Banks usually have the highest rates, whereas those of private financial institutions and foundations may be much lower. Some colleges may provide a private student loan with an interest rate that is lower than that of a federal student loan. Yet, private loans will often require parents to commit to paying back the money if the student is ultimately unable to.
Which kind of student loan is right for me?
All of this can seem somewhat daunting to young people who may have four, five, six years or more to wait before potentially finding employment and earning money, but the system itself is designed to make this process easier.
As previously stated, the majority of U.S. student loans are federal – those sponsored by the government – and are available to most college students at the same eventual cost, regardless of the amount required and duration of the course, as well as other external factors such as a student’s credit history and his/her parents’ income. It is a system that, at least on the surface and unlike private student loans, appears to disregard such factors as a student’s background and potential earning power once graduating, focusing instead on academic performance. If a student’s grades are good enough to attain a place at college, money will be provided by the government to cover their further education in an affordable manner. Yet, as many postgraduates and ex-students in the U.S. today – and indeed around the world – are well aware, all is not as it appears on the surface.
Are student loans really a good idea?
While investing in financial support for one’s higher education is generally a good idea, the student loan system in the U.S. does not take into account certain eventualities that may seem in hindsight to be only too obvious to many postgraduate students. While career counseling is generally available to prospective students in all high schools, not enough is done to prepare young people for this next step in their lives. Many students end up in the wrong college, wrong program, or bounce around between courses, effectively prolonging the time it will take before they can potentially begin earning, yet continuing to accrue student debt that, in turn, may be gaining interest.
“While investing in financial support for one’s higher education is generally a good idea, the student loan system in the U.S. does not take into account certain eventualities that may seem in hindsight to be only too obvious to many postgraduate students.”
Repayment is ultimately required whether the student finishes their course or not (though, often there is a minimum threshold one must earn before repayments begin) and as such ex-students may find themselves under the strain of mounting debt without the qualifications and consequent earning power to even hope to repay it. Even those who do graduate may suffer from lack of employment opportunities, as have those graduating during the recent economic crisis, yet the federal government appears unsympathetic to such things – indeed, default rates have continued to rise over the past few years.
There is, therefore, an increasing feeling of having been deceived and perhaps even victimized by postgraduates in the U.S. Many have even compared the recent student loan repayment crisis to the trend, around a decade ago, of college students applying for credit cards in order to cover tuition fees and living expenses. Not much has changed since then; in fact, student debts today are much higher than they were back then, the difference being that most students are in debt to the government itself rather than credit card companies.
Ultimately, postgraduates will typically encounter repayment difficulties, perhaps even regardless of the system, but much more can be done to educate young people on such potential difficulties. The decision that one makes when seeking higher education and subsequently obtaining the financial aid to support said education is a huge, often overwhelming one, so the emphasis should be on this decision rather than the result of it. Young people are owed this much by the federal government and its education system, just as they are owed financial support in the first place.