Student loans are offered to students who wish to pursue professional education but do not have sufficient financial resources to meet the study expenses. These loans carry low interest rates and flexible repayment options. This form of financial aid is different from grants and scholarships that do not require the students to repay back the amount.

In the US, different types of student loans are available: Federal student loans are directly given to students or their parents who are US citizens or green card holders, and private student loans are mainly given to international students or their parents. The loans can be in the form of a subsidy depending on the requirements and background of the student. Usually, the payment starts after 6 months, and in exceptional cases, such as on the student’s death, the closest relative is required to repay the loans. Some popular Federal loans are Federal Perkins Loans, Stafford loan, Federal Family Education loans, Ford Direct Student Loans, and Federal student loan consolidation.

There are student loan programs for international students studying in the US universities. Canadian Higher Education Loan Program (CanHELP) is one such loan offered to Canadian citizens for studying in approved US institutions. Global Student Loan Corporation (GSLC) offers student loans with a co-signer from the home town. International Student Loan Program (ISLP), Study Abroad Loan Program (SALP), Massachusetts Educational Financing Authority (MEFA), and TERI Professional Education Plan (PEP) are other such loan programs available for international students for pursuing their studies in US.

Private student loans are disbursed by private banks and finance companies and have higher loan limits than Federal loans. These loans have higher, but flexible, interest rates and flexible repayment options. However, a substantial up-front processing fee is involved. Private student loans generally allow a grace period with no payments until the student completes his/her studies. Commercial banks such as Citibank, Bank of America, and Citizens Bank have specific student loan programs that assist the students to meet their expenses in an affordable manner.

There are different options for repaying the loans, and each option has its own advantages and disadvantages. The standard or level repayment option allows for fixed payments for a fixed period of time. This option works only if the loan amount is small. The extended payment plan allows the individual to repay the loan in small amounts across a longer period of time (20 to 30 years). A major drawback with this plan is the high interest rate and the long time period. Graduated repayment plan increases the monthly amount paid every two years. The amount payable monthly is lower than that for the standard plan.

Income contingent plan is calculated on the basis of the monthly income of the individual. These monthly payments are further adjusted on the basis of the rise or fall in the income level. Student consolidation loans combine one or more Federal loans into a new single loan from a single lender. It is a simplified method to manage the repayment process. A main advantage of consolidating the loan is that the consumer can extend the term of the loan and the repayment option is flexible. However, the student loan consolidation rates may not be cheap because of the fixed interest rates.

Short-term effects on loan default include delay in class registration, withholding of diplomas or professional license, legal action, and minimum job opportunities. Hence, timely payments are always recommended. In case of any default payment, notify it to the lender and enquire alternative options for repaying the amount. The institution’s student assistance office will also help in making arrangements for the payment.

The World Bank in conjunction with educational institutions and international governments offers scholarships to students from developed and underdeveloped countries that enable them to pursue their studies abroad. There are also premier colleges that offer loan-free education for selected students with good academic records. Students can also try for endowments or approach companies for financial assistance.