Student loans

While a student loan may seem onerous to an 18-year-old freshman or his or her parents, it could very well prove to be a wise investment for a young person's future earning power.

Although some loans are offered directly by an education institution as part of its package of financial aid or by non profit organizations, most loans are either federal education loans or private loans. Here's a brief description of both:

• Federal education loans are guaranteed by the federal government. These low-interest loans are not payable until graduation, assuming that the student remains in school at least on a half-time basis. They are not based on the borrower's proven ability to repay. Where financial need is proven, these loans are subsidized by the government, which pays interest to the lender while the student is in school. Where financial need has not been demonstrated, these loans are not subsidized and the student will have to pay the accrued interest. Application is through the educational institution's financial aid office. The two largest programs are the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDSLP) program, which include Federal Stafford loans. Other major programs include the Federal Perkins Loan Program, which is based on exceptional financial need, and the Federal Parent Loan for Undergraduate Students (PLUS), which is available to parents whose dependent children are attending college. States also offer education loans. Each program offers varying loan amounts and obligations, and carries its own criteria. A large number of graduates defaulted on their student loans in the 1970s and 1980s by declaring bankruptcy, forcing taxpayers to pay off these debts, but bankruptcy rules have been changed to stem such defaults. In an act called "loan forgiveness," part or all of a student loan might be "erased" if the graduate assumes certain jobs involving community service. Some professional organizations help lift the debt load of graduates who take certain positions within the profession. For instance, a legal association might help a graduate who takes a job at a legal assistance clinic serving the impoverished. Students and graduates who are considering the consolidation of their college loans should weigh the long-time costs first or they might end up paying a relatively high amount of interest.
  
  
• Private loans are unsubsidized by the government, secured by assets and based strictly on the borrower's proven ability to pay. These loans are available through corporations, and banks and other financial institutions. Lenders have specific criteria and a student might have to be pursuing a certain kind of major to be eligible. Repayment on these loans generally begins immediately.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.