Student Loans: The Government's Role

Student loans are lending vehicles designed to help people finance the pursuit of higher education. They are available for use at colleges, universities and in some technical training programs. The federal government’s role in student loans varies based on the type of loan in question and the stage of the loan in regard to financing and repayment.

Types of Student Loans

The role of the U.S. government in student financial aid is impacted by the type of loan. The options available for students include:

Federal loans – This type of loan is backed by the federal government and involves a number of oversights to make financing an education more affordable and accessible for people of varying incomes. Banks who write these loans have assurances the federal government will cover the financing if the student defaults. There are multiple types of federal student loans and student loan programs. Each one provides students with access to low-interest rate loans. Some, however, come with a government subsidy, which stops the accrual of interest and the need for repayment while a student is in school.

Private loans – When students do no choose to go through federal programs to obtain financing, they can apply for private student loans. These receive limited government oversight in regard to repayment and interest.

The Role of Government during the Application Process

Federal student loans involve a fair amount of oversight from the government during the application process. The federal student loan program is meant to clear barriers to higher education. Inasmuch, the government makes the application process simple and qualifying quite easy.

To obtain student loans backed by the government, people have to fill out a FAFSA, which is a free application for federal student aid. This form asks basic questions about the person, the educational program being pursued and income. Once this is filled out, it is forwarded on to potential lenders who review and approve federally backed loans. Some federal loan types do not involve credit checks for approval either.

Government’s Role during School Years

Depending on the type of federal loan applied for, the government’s role during the actual usage phase can prove to be quite extensive. Some federal student loans come with these benefits that make them quite attractive:

Low interest rates

Subsidized interest payments during school. This means the federal government pays the interest on loans so students do not have to. This is income based and will typically extend until six months after graduation. Some student loans backed by the government will involve the accumulation of interest and the need to start making payments as soon as possible.

Oversight of disbursement so funding goes directly to the school to pay tuition and fees. The remainder is released from the school to the student.

After Graduation

Once students graduate, the federal government’s touch on this type of student loan funding remains present. Federal student loans generally have easy repayment terms and may also offer deferments and forbearances, which help when former students fall behind on payments.

The government’s involvement in student loans is quite extensive. From the application process through repayment years, there are some benefits and safeguards that do go along with this type of funding.

 


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