Obtaining a college education in the 21st century is expensive, but it is also necessary in order to achieve some measure of success in the employment market. However, those students who do not qualify for grants or need additional funding beyond what their grants provide need to subsidize those funds with student loans.

What is a Student Loan?

A student loan is a source of funding for those students who either do not qualify for grants or scholarships or have exhausted all sources of funding for the current school year and still need to meet their educational obligations. Unlike grants and scholarships, student loans must be repaid; however, the student does not have to make payments until after they graduate and obtain their degrees. Most student loans have a grace period after graduation: the Stafford Student Loan is six months while the Perkins Student Loan is nine months. There is no grace period for Plus Loans or Federal Consolidation Loans—the student must begin repayment as soon as they graduate or drop out of school. Private loans vary, so you need to check with the individual lender(s).

Benefits of Student Loans

Many students would not be able to attend college without the advantage of student loans. Even those whose families meet the requirements for the various need-based grants do not always obtain awards that are sufficient to cover the entire cost of their educations. For instance, the Perkins Federal Student Loan allows a students to borrow $4,000 each year as long as he/she signs a Promissory Note while the Stafford Student Loan allows $2,625 the first year, $3,500 the second year and $5,500 during the third and fourth years. With the cost of a college education today costing more than $20,000, even the combination of these two loans leaves a huge gap in the funding students need.

In spite of the limitations of Federal Student Loans, there are many private student loans in addition to the Plus Loans we mentioned in the preceding topic. In addition, when the student graduates he or she has the option to apply for student loan consolidation in order to avoid making several different payments on different loans and being financially strapped. Student loan consolidation allows students to consolidate their loans into one lower monthly payment at interest rates that are below those they would on an ordinary consolidation loan.

Financial Hardship Circumstances

Those students who are unable to obtain employment in their fields of choice—or secure employment in other fields—can apply for a deferment or forbearance on federal student loans. The monthly payments must exceed 20 percent of the borrower’s monthly income in order for the borrower to qualify unless the student is in poor health or has unforeseen personal problems that prevent him/her from making the payments. The deferment prevents the borrower from ruining his/her credit or accruing the additional costs of collection activities.