Student loan
A student loan is a type of loan designed to help students pay for tertiary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy. This article highlights the differences of the student loan system in several major countries. The financial risk of student loan defaults can be carried by the tertiary education institution.
A student loan is one of many forms of student financial aid.
Australia
Tertiary student places in Australia are usually funded through the HECS-HELP scheme. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. Discounts are available for early repayment. The scheme is available to citizens and permanent humanitarian visa holders. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.
Canada
The province of British Columbia allows the Insurance Corporation of British Columbia to withhold issuance or renewal of driver's license to those with delinquent student loan repayments or child support payments or unpaid court fines.Students need to meet the qualification with an individual's direct educational costs and living expense to get the certificate to obtain a loan and this policy is directly controlled by the government.
France
Germany
New Zealand
New Zealand provides student loans and allowances to tertiary students who satisfy the funding criteria. Full-time students can claim loans for both fees and living costs while part-time students can only claim training institution fees. While the borrower is a resident of New Zealand, no interest is charged on the loan. Loans are repaid when the borrower starts working and has income above the minimum threshold, once this occurs employers will deduct the student loan repayments from the salary at a fixed 12c in the dollar rate and these are collected by the New Zealand tax authority.Thailand
The public sector is one of the most important sections in Thailand's higher education system. In addition, many public educational organizations usually receive profits from the students' tuition fees and the governments. Specifically, There are six various sections in the public sector's organization: colleges with the limited enrollment，universities which is opening to public, universities which is national autonomous, Rajabhat colleges, Ajamangala Universities of Technology, and polytechnic colleges.India
The Indian government has launched a portal, Vidya Lakshmi, for students seeking educational loans and five banks including SBI, IDBI Bank and Bank of India have integrated their system with the portal. Vidya Lakshmi was launched on the occasion of Independence Day i.e. 15 August 2015 for the benefit of students seeking educational loans. Vidya Lakshmi was developed under three departments of India i.e. Department of Financial Services, Department of Higher Education and Indian Banks Association. Vidya Lakshmi Portal has been developed under the Pradhan Mantri Vidya Lakshmi Karyakram and announced by the finance minister Shri Arun Jaitley in the budget speech of FY 2015–16. As of August 15, 2020, 37 banks were registered on the Vidya Lakshmi Portal and offered 137 loan schemesTo bridge the constraint of increasing institutional fees, NSDL e-Governance in India launched the Vidyasaarathi portal to help students seeking scholarship for studies in India or overseas.
The education loan is expected to grow at a rate of 32.3 percent in 2009-10, 39.8 percent each in 2010-11and 2011-12, and 44.8 percent during the period 2012–13 to 2014–15.
South Korea
's student loans are managed by the Korea Student Aid Foundation which was established in May 2009. According to the governmental philosophy that Korea's future depends on talent development and no student should quit studying due to financial reasons, they help students grow into talents that serve the nation and society as members of Korea. Normally, in South Korea, the default rate of redemption is related to each student's academic personalities. For instance, comparing with other majors, students in fine arts and physics are supposed to possessing a higher default rate. Therefore, students in such majors would be inclined to a higher rate of unemployment and a higher risk of default in redemption. Also, people will tend to have an inferior quality of human capital if the period of unemployment is too long.United Kingdom
Student loans in the United Kingdom are primarily provided by the state-owned Student Loans Company. Interest begins to accumulate on each loan payment as soon as the student receives it, but repayment is not required until the start of the next tax year after the student completes their education.Since 1998, repayments have been collected by HMRC via the tax system, and are calculated based on the borrower's current level of income. If the borrower's income is below a certain threshold, no repayments are required, though interest continues to accumulate.
Loans are canceled if the borrower dies or becomes permanently unable to work. Depending on when the loan was taken out and which part of the UK the borrower is from, they may also be canceled after a certain period of time usually after 30 years, or when the borrower reaches a certain age.
Student loans taken out between 1990 and 1998, in the introductory phase of the UK government's phasing in of student loans, were not subsequently collected through the tax system in the following years. The onus was on the loan holder to prove their income falls below an annually calculated threshold set by the government if they wish to defer payment of their loan.
A portfolio of early student loans from the 1990s was sold, by The Department for Business, Innovation and Skills in 2013.
Erudio, a company financially backed by CarVal and Arrow Global was established to process applications for deferment and to manage accounts, following its successful purchasing bid of the loan portfolio in 2013.
There are complaints that graduates who have fully repaid their loans are still having £300 a month taken from their accounts and cannot get this stopped.
As of January 2025, student loan borrowers in the United Kingdom on repayment plan five will have their loan canceled after 40 years from when they are due to start making payments.
United States
In the United States, there are two types of student loans: federal loans sponsored by the federal government and private student loans, which broadly includes state-affiliated nonprofits and institutional loans provided by schools. The overwhelming majority of student loans are federal loans. Federal loans can be "subsidized" or "unsubsidized." Interest does not accrue on subsidized loans while the students are in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities. Whereas interest for most business investments is tax deductible, Student loan interest is generally not deductible. Critics contend that tax disadvantages to investments in education contribute to a shortage of educated labor, inefficiency, and slower economic growth.Prior to 2010, federal loans were also divided into direct loans and guaranteed loans, originated and held by private lenders but guaranteed by the government. The guaranteed lending program was eliminated in 2010 because of a widespread perception that the government guarantees boosted student lending companies' profits but did not benefit students by reducing student loan costs.
Federal student loans are less expensive than private student loans. The federal government offers direct consolidation loans through the Federal Direct Loan Program. The new interest rate is the weighted average of the previous loans. Private loans don't qualify for this program. The interest rate of borrowers with federal student loans is nearly equal to the weighted average rate on the former loans while the new interest rate of private loans depends on the one-month London interbank offered rate. Therefore, these two student loans are different in both application and definition. Students can apply for student loans with the Department of Education which enables any school to take part in its Direct Loan project.
Some believe that the education of workers would bring societal benefits such as reducing stress on public services, reducing medical expenses, increasing incomes, and promoting employment rates. These people propose that federal student loan rates should be adjusted with specific courses, relative to the rate of risk and societal returns from various studies.
The Master Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract.
Qualification
Most college students in the United States qualify for federal student loans. Students can borrow the same amount of money, at the same price, regardless of their own income or their parents' incomes, regardless of their expected future income, and regardless of their credit history. Only students who have defaulted on federal student loans or have been convicted of drug offenses, and have not completed a rehabilitation program, are excluded.The amount students can borrow each year depends on their education level, and their status as dependent or independent. Undergraduates are eligible for subsidized loans, with no interest while the student is in school. Graduate students can borrow more per year.
Private lenders use different underwriting criteria, including credit rating, income level, parents' income level, and other financial considerations. Students only borrow from private lenders when they exhaust the maximum borrowing limits under federal loans. Several scholars have advocated eliminating the borrowing limit on federal loans and enabling students to borrow according to their needs and thereby eliminating high-cost private loans.