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Student Loans in the USA


Student loans are the most frequently used financial aid to cover tuition costs. Every year, millions of American and international students apply for a loan in the United States. Nowadays, studying without some financial aid is almost impossible and families have to spend enormous money just to get that higher education diploma. 

Unlike grants and scholarships, student loans require the lent money to be paid back and with an interest rate in addition. While the general meaning of loans is known to everybody, the education loans are a bit different and require further attention. To choose the best student loans, families have to examine all options and consider their financial situation. 

Loan Types 

Deciding to get a loan, families have to choose the type they want at first. There are two kinds of loans for students and their families. 

Federal Loans

The first one is federal student loans issued by the U.S. government. Most families start with the federal help as these loans are generally more affordable. It’s generally accepted that they have lower interest rates than the second type. An interest rate is the percentage of the funds you’ll get to overpay. 

The terms and conditions of these loans are set by the federal law and are standard for all students. They also have a few benefits that private loans, another type of families apply to, usually lack. One of the biggest benefits are fixed interest rates that remain untouched during the whole period of repayment. Thus, the current interest rates vary depending on the type of loans that are as follows: 

Direct Subsidized loans finance undergraduate students based on need. They cover the costs of the  regular 4-year college or university studies. The main advantage of subsidized loans is the lack of interest rates; for a student, at least. The rate is set on 5.05% but these expenses are repaid by the government while a student is either in school at least half-time, is on a period of deferment, and during six months after graduation. This is the preferable type of government student loans, though the eligibility criteria are high and always need-based. 

Direct Unsubsidized loans are much like the first type except a few differences. The major one is that the need to repay interest rates is the responsibility of a student. However, these loans are available for graduate students as well and are not based on the financial status of an applicant. Graduates and professional students get the interest of 6.6%. Though, students can choose to start paying interest after graduation and the 6-month “grace” period. The interest rate for such loans is 5.05% as well. 

The amount of money students get by Direct loans is determined by their schools. Each academic year has a certain limit that varies for dependent and independent applicants. The first year sets the limit on $5,500 for dependents and $9,500 for independent students respectively, second year – $6,500 and $10,500, third year and beyond – $7,500 and $12,500.

In addition to Direct loans, the government also offers Direct Plus loans that are available for graduates and parents of undergraduate students. The interest rates of such loans are higher – 7.6%. The maximum amount of aid per a student is the whole attendance cost minus all additional assistance they already have. 

Looking for the solution on how to apply for student loans, families should look for the Free Application for Federal Student Aid that is the key to federal aid. 

Private Student Loans

Those students who cannot or will not get a federal loan, apply for a private one which is the second main type of student loans in the country. They are offered by banks, individuals, or private companies and usually have different terms and conditions. The interest rates are usually higher and can reach up to 13-14%. In addition, the rate isn’t fixed meaning that it can be changed any time during the repayment period, mostly increasing. The repayment periods for private student loans vary from 10 years to 20 and longer. Great Lakes student loans, for example, offer even longer repayment periods, just like many other private lenders.

Before applying for a federal or private loan, every student or a parent has to make sure they are eligible for the specific kind of aid they apply for. 

The federal offers require a student to be a U.S. citizen or have a green card, have a valid social security number, and maintain positive academic progress. 

For private loans, a student must be of age, be a U.S. citizen or a permanent resident, have a good credit history, a valid social security number, and a cosigner. 

Later, one can refinance student loans and, thus, save a few thousands of dollars. 

International Student Loans

Private loans are the only solution for international students who come to the U.S. to study. Federal aid isn’t available, so they must turn to private grants and loans. Though some establishments include FAFSA to the list of requirements, it is only to get a comprehensive assessment of their financial status. Foreigners cannot get help from the government. 

When it comes to private student loans, many banks welcome international students provided they offer all necessary documents and get a student visa. 

There’s also a list of several student loans that offer great terms and interest rates specifically for international students. Most of them require a U.S. cosigner with a good credit history. The interest rates vary but are closer to the private loans than to the rates the government offers. 

To see the list of all loans and select the best option, a student can visit the website of the U.S. Department of Education or make a call to several private lenders.