Student loans in the United States
Overview
Student loans in the United States are a form of financial aid used to help more students access higher education. Student loan debt has been growing rapidly since 2006, rising to nearly $1.6 trillion by late 2019, roughly 7.5% of GDP. Loans usually must be repaid, in contrast to other forms of financial aid such as scholarships, which never have to be repaid, and grants, which rarely have to be repaid.
Types of Student Loans
There are several types of student loans in the United States. The two main types are federal loans and private student loans.
Federal Student Loans
Federal student loans are loans provided by the U.S. government. These loans have many benefits, including fixed interest rates and income-driven repayment plans. However, they also have strict eligibility requirements.
Direct Subsidized Loans
Direct Subsidized Loans are federal student loans for eligible students to help cover the cost of higher education at a community college, university, career, trade, or technical school. The U.S. Department of Education offers Direct Subsidized Loans to eligible students who demonstrate financial need.
Direct Unsubsidized Loans
Direct Unsubsidized Loans are federal student loans that are available to both undergraduate and graduate students. Unlike Direct Subsidized Loans, Direct Unsubsidized Loans are available to students regardless of financial need.
Direct PLUS Loans
Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for education expenses.
Private Student Loans
Private student loans are loans provided by private lenders like banks, credit unions, and state-based or state-affiliated organizations. They do not offer the same benefits as federal student loans.
Repayment of Student Loans
Repayment of student loans depends on the type of loan. Federal student loans have more repayment options than private student loans.
Federal Student Loan Repayment
Federal student loan repayment plans include the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and Income-Driven Repayment plans.
Standard Repayment Plan
The Standard Repayment Plan is the basic repayment plan for loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program.
Graduated Repayment Plan
Under the Graduated Repayment Plan, payments start out low and increase every two years.
Extended Repayment Plan
The Extended Repayment Plan allows you to repay your loans over an extended period of time.
Income-Driven Repayment Plans
Income-Driven Repayment Plans are designed to make your student loan debt more manageable by reducing your monthly payment amount.
Private Student Loan Repayment
Private student loan repayment options vary by lender. Some lenders offer repayment plans similar to federal student loans, while others require full payments as soon as the loan is disbursed.
Impact of Student Loans
The impact of student loans on the individual and the economy is a subject of ongoing debate. Some argue that student loans increase access to higher education and lead to higher lifetime earnings, while others argue that they increase inequality and limit economic mobility.