A student loan is a form of financial aid, designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. This type of loan is substantially lower in interest rate and loan repayment may be deferred while the borrower-student is still in school. Many countries have adopted this type of financial aid; each one differs to the effective law regulating such kind of loan.
In the United States, there are two types of student loan: Federal Student Loan and Private Student Loan.
Federal Student Loan
The federal student loan is sponsored by the federal government and a large number of students preferred this type for it is less expensive and has lower interest rate than private loans – much lower than a credit card interest rate. An undergraduate student with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis. During application, a good credit record will not be necessary and in most cases, a cosigner is not needed. The repayment will start after the student will graduate, leave school or change enrollment status into halftime. If the student is having trouble paying the loan obtained, temporary postponement or lowering the payments may be made. If the former borrower-student chose to work in public service, a portion of his or her loan may be forgiven under some certain conditions or requirements of eligibility.
Private Student Loan
Private student loan includes state-affiliated nonprofits and institutional loans provided by schools. A private loan is not subsidized unlike the federal loan, such case the student will be the one who will pay the interest incurred. In application, it required a good credit record and the cost of the loan depends on it and other pertinent factors. Its variable interest rate is often higher than 18% and substantial incremental of the loan will be the effect. Usually, students are required to pay the loans while still in school. A student-borrower must have a co-signer with a strong credit history. He/she can be a family member, a relative or a friend with a good credit history. You can get in touch with some private lenders who can grant you this type of loan, helping you to utilize private loans to pay for college.
This legislative enactment which helped a lot of financially struggling students is going through an amendment to the Trump administration. Now, most student loan forgiveness and student loan discharges are considered taxable income. For instance, if you have a student loan of $50,000 which later has been forgiven it will consider as income. And if you are working with an income of $35,000, then your total income for the year is $85,000. Borrowers will see their tax bills rise to $10,000 or more.
The Tax Cuts and Jobs Act eliminated the taxability of student loan discharge on people who get it for Death or Total and Permanent Disability which means that if you got a student loan discharged on death or disability, you or your family will no longer face a tax burden. Under this law, tuition and fees deduction has been eliminated on certain income limits and it allows high earner taxpayers to reduce their taxable income by about $4,000.
In the 2016 – 2017 school year, the government allotted 5.7 million of its budget for students with financial need. The US government subsidized student loans to provide significant assistance for student loan borrowers – paying the interest accruing during the school year. There has been a proposal from the present administration that the subsidy for the student loan will be eliminated in the 2019 budget. If such will be the case, these students will still borrow to pay for college but it will be more expensive.
Additionally, the all other repayment plans will be replaced by the single income-driven repayment plan. It would cap borrower's monthly payment at 12.5% of their discretionary income. The student loan forgiveness will be at 15 years for undergraduate borrowers, and for graduate borrowers will be 30 years. Possibly, student loan forgiveness will be tax-free, the government will likely to cover the cost under his new plan.
These are still proposals and legislation most of the time make revisions before passage – hoping revisions will be favorable to the student borrowers.
