Finance and Credit Professional

Nowadays, few students go through college without some sort of financial assistance: about 65% of undergraduate students finish with debts owing. The average obligation is around $19,000 but higher for graduate students ($27,000 to $100,000+.). The causes are myriad, ranging from low family income, through high costs of education, to too expensive tastes of the individual. Whatever the reason or reasons, most students turn to a student loan corporation to finance the continuance of their education.

A Short Simplified History

It used to be that student loans are made only by the schools as an extension of their scholarship programs. Some students don’t qualify for scholarship grants because of economic capability, but nonetheless needed some financial assistance. These students or their families thus turn to formal and non-formal lending institutions such as banks, to obtain the necessary funds.

The Higher Student Act of 1965 mandated the Guaranteed Student Loan Program, so student loans came into vogue and student loan mechanisms were established in almost all reputable schools across the country. The student loan corporation was thus formed with the unification of the school’s loan portfolio with that of the government’s and of the private financing firms, wherever available.

Unified Lending

The sources of funds for a typical student loan corporation include: private investors such as philanthropic and private financing institutions, Stafford Parent Loans for Undergraduate Students (PLUS) Program, Stafford Loan Program (the erstwhile Guaranteed Student Loan Program) and the school student loan portfolio, if any.

The lending policies and guidelines of these sources are often streamlined and or modified to make it easier for students to apply and obtain loans from the student loan corporation.

Interest Rates

Interest rates for student loans granted by a typical student loan corporation range from 6.8 percent per annum for Stafford loans; to 8.5% for PLUS loans. However, a student loan corporation may offer interest charge discounts up to 1.5% to attract more clients. Others offer rebates for up-to-date or prompt repayments; while still others grant additional payment deductions on systematized payments such as salary deduction schemes. Each student loan corporation has its own unique menu of options from shortened application process to repayment rebates. It thus pays to research a bit for the most favorable terms offered.

Basically, loan interest rates for a certain year are pegged July 1, largely determined by basing on the Federal loan rates, which in turn are based on the last 91-day Treasury auction rate in May and the average constant maturity Treasury yield (CMT) for that year.

The current rates projected for the School Year 2007-2008 in the United States are:

Stafford Loan (In-School Rate Projection): 6.77%

Stafford Loan (Repayment Rate Projection): 7.37%

PLUS Loan (Rate Projection): 8.17%

It’s Here To Stay

The student loan corporation is today a fixture in the educational landscape in the US and elsewhere. As the costs of living and that of education continue to rise every year, the necessity for student loan corporations will likewise increase. After all, an educated citizenry is an imperative for every country’s progress, and the student loan corporation is one method of achieving it year after year.

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