While 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:

* Federal Student Loans made to students directly: No payments until after graduation, but amounts are quite limited
* 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 will start to accrue immediately.

Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.

The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants and work-study. They may be subsidized by the U.S. Government, or may be unsubsidized depending on the student's financial need.

Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of 6 months, which means that no payments are due until 6 months after graduation, or 3 months after the borrower becomes a less-than-full-time student without graduating. Both types have a fairly modest annual limit regardless of the student's actual cost of education. The present limit in January 2006 is $2,800 per year.

Subsidized Federal student loans are offered to students with a demonstrated financial need: generally requiring a low family income. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.

Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. or example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. Those who borrow $10,000 during college will owe $10,000 PLUS INTEREST upon graduation. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can also choose to pay the interest while still in college.

Federal student loans for students of medicine have higher limits, $8,500 for subsidized Stafford and $30,000 maximum for unsubsidized Stafford. Many students also take advantage of the unsubsidized Perkins loan. For medical students the limit for Perkins is $6,000.

Usually these are described as PLUS loans (Parent Loans for Undergraduate Students). Unlike loans made to students, parents are able to borrow much more - usually enough to cover any gap in the cost of education. However, there is no grace period whatsoever. Payments start immediately.

Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents are on the hook to pay and if they do not do so, it is their credit that will suffer. Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time 4 years have been paid for through borrowing. The combination of immediate repayment and the ability to borrow substantial sums can be dangerous.

Parents should also be aware that current legislation will raise the interest rate on these loans significantly, to 8.5% as of July 1, 2006.

Student Loan Information: Inside
[ Loans for Higher Education ] [ Private Student Loans ]
[ Disbursement ] [ Perkins Loan ] [ Stafford Loan ]
[ College Consolidation Loan ] [ PLUS Loan ]