In the United States, student loans have been available for more than 40 years: even a year of university tuition is beyond the means of the average American family, so more than half of students study on credit. And loans are more often taken not by the parents of yesterday’s schoolchildren, but by the students themselves. We tell you why.
A bit of statistics.
There are three types of educational loans in the U.S.: private, parental, and federal. Private loans are taken by only 7% of students: such loans are taken out by banks at a solid interest rate, which can grow every year, and they are harder to get – you need a guarantor with a good income and a favorable credit history, who has American citizenship or a green card. Parental loans make up about 15 percent of student loans, while federal student loans make up 78 percent of all student loans.
Humanities and creative arts majors can pay back loans for up to 30 years.
It’s easier to
It is easier to get a federal loan and pay it off than a parent’s loan. The student’s parents will have to prove their ability to pay, and loan payments start as early as 2 months after the loan is disbursed – while the child is in university, at least the interest will have to be paid.
Federal student loans are available regardless of a student’s or family’s ability to pay, the government acts as a guarantor, and the first payments can be postponed until the student finishes college.
Parent loans are available for 10 years, and federal loans are available for 10 to 25 years.
In some cases the state pays the interest on the loan, and the loan can be repaid for up to 25 years.
It is more advantageous
Parent loans have an annual interest rate of 9 percent, while federal education loans have lower rates, up to 8.25 percent. Federal loans are divided into several types: the Perkins loan, the subsidized Stafford loan, and the unsubsidized Stafford loan. The second type is the most advantageous: the interest rate is only 3.4%, the state pays interest on the loan, and it can be paid back for up to 25 years. The state also assumes paying interest on the Perkins loan, but the interest rate is higher – 5%, and the repayment period is 10 years. If a student takes out a non-subsidized Stafford loan, interest is added to the amount owed. Federal loans need to begin repayment six to nine months after graduation.
What about return?
Despite a number of benefits and government support, it is not easy to pay back student loans: education is expensive, and salaries of yesterday’s graduates are not very high.
For example, a degree in film and film directing at Columbia University in New York costs $300,000, the average debt of graduates is $181,000, and most of them earn less than $30,000 a year.
Technical graduates pay back debts the fastest, but humanities and creative professionals can take up to 30 years to pay back their loans. Because of this, they have to put off buying a home and starting a family, forego health insurance, and suspend their retirement savings.
The total amount of student loan debt is now about $1.5 trillion, which is comparable to the overall size of the U.S. education market.