Loans

Bank Auto Loans ? Best Loans for Stretch Commuters?

2007-08-11T09:16:00.001-07:00

People have to work to survive. The desire to maintain increasingly indulgent lifestyles drives 13% of workers to travel over 100 miles a day to get to and from work. These so called "stretch commuters" make the majority of these trips by personal vehicle, but when it comes to trading in their tired automobiles for newer models should they just settle for a bank auto loan?

Stretch commuters do not have a lot of time on their hands. They spend most of their working week either at work, or travelling to and from it. When they get home exhausted the last thing they want to do is to look for the best deal for a car loan. Therefore, getting a bank auto loan is the easiest and most convenient option.

Let's quickly take a look at some of the advantages and disadvantages of this.

Advantages of bank auto loans

1. Convenience ? Most consumers with checking accounts have held their account with one bank for a number of years. This may be due to inertia, but it is easier to manage finances if check accounts and a bank auto loan are held in one place.

2. You know your own bank ? banks have strong brands and financial strength. They have spent years building a good reputation in society. This engenders trust from their customers who may find it daunting to take out a car loan from an unknown finance source.

3. Lower rates than car dealers - Bank auto loans will probably be able to provide you with lower interest rates than dealer loans. Most banks will offer to pre-approve customers for their loans so that they will have better bargaining power on the car lot.

Disadvantages of bank auto loans

1. Not necessarily the best rates ? Even though banks have financial strength they may not be able to offer the best car loan rates. In a recent study by bankrate.com, the average interest rate offered on a 48 month bank auto loan was almost 2% higher than those offered by Credit Unions!

2. Placing All your eggs in one basket ? Everyone has heard that saying and although it may be convenient why should consumers place all their finance needs with one institution. There are so many other deals out there.

3. Perfect or excellent credit preferences ? People that have car loan bad credit or a damaged credit score for any other reason may be turned away. They may have to finance their car by taking out a bad credit loan and may find that this is not offered by their bank.

Even though free time may be scarce for stretch commuters, and anyone who has a need to finance a car for that matter, researching all relevant products with banks, credit unions and auto finance specialists is worthwhile. Go online as rates, terms and product benefits can all be researched from the comfort of home. Investing a little time, rather than opting for the ease of taking out a bank auto loan could save consumers money.

Cash Til Payday Loans - When Is The Best Time To Get A Quick Cash Loan

2007-08-05T04:06:00.001-07:00

There are times when a cash advance loan or payday loan may be a good way to get you out of a tight, financial scrape. There are times when a payday loan may be a wise decision. Keep in mind, this is assuming that you definitely have the ability to pay back the loan right away. Here are some examples of times when using a payday loan might be a good idea:

1. If the late fee on not making the payment that you would need to make, would be more than the fee for taking out a payday loan.

2. When, if you don't make the needed payment on time, it could hurt your credit. Your credit is something you cannot erase. Having the payment show up late on your credit, can make it harder for you to obtain a loan for years, while a fee for a payday loan is only temporary.

3. When there is a much more serious, long-term consequence to not paying for your immediate need, more serious than a $30-50 fee.

4. To save yourself from bounced checks, the fees for bounced checks can quickly total much more than the fee for taking out the cash advance loan.

The bottom line is, you want to make sure before you take out a payday loan that you are doing it for the right reasons. The only major consequence to a payday loan is the fee incurred. If having the money right then can get you out of a much more serious bind than a $30-50 fee, then it is probably a good solution to a temporary problem.

The times when a payday loan would not be wise, would be to make an impulse purchase or to have some extra money, when it is not absolutely crucial to have it. The reason for that is that the fees on a cash advance or payday loan, are small for just a few weeks, but if, for any reason you are unable to pay the loan back right away, those fees can add up very quickly and make it more and more difficult to pay the loan back. So, you want to make sure that you are using the loan to pay for a necessity. So, if you are sure that you have enough money coming in to pay back the loan, and in the long run, getting the cash advance or payday loan will either save you money or keep you from serious or long term consequences, then it is probably best to get the loan.

Military Loan and Military Loans

2007-08-05T03:58:00.001-07:00

Military loans are made available to active servicemen and retirees and are one of the great benefits to those who have served their country. A military loan can be a wonderful way for military personnel to make much-needed home improvements, get the car repaired, pay for higher education or even take a family vacation. Military loans are an exclusive service for active duty and retired personnel of the United States Military, and typically offer a lower interest rate than other loans available to the public at large. They can also offer special treatment and quick approval.

When applying for a military loan, you will need to be prepared with all of your military credentials in addition to your personal information. One major difference between most military loans and other types of loans is that no valuable assets will be needed as collateral. These loans are typically known as unsecured loans. Keep in mind that you can usually pay the principal of your military loans early without any interest, fees, or penalties. However, your past credit history does make a difference. So be sure to stay out of debt now and keep your credit history clear. If you have good credit, the military loan lender is more likely to give a good rate.

Good financial management is key with any loan, including a military loan. Even though you will find military loans that have lower interest rates and special advantages, it is still a loan and must be paid back in full. The money from the military loan will be available to you immediately, even if you are stationed overseas. Military loans can be direct deposited into any stateside bank and into most United States banking institutions overseas. The loans can also be mailed.

While the opportunities for military loans sound wonderful, please act with caution. Lenders exist in a competitive market, and some, while pretending to sympathize with U.S. servicemen, may in actuality be taking advantage of them by charging higher rates and offering less favorable terms under the guise of a military loan.

Sometimes conventional lenders will offer the best terms and rates in today's competitive marketplace. Military personnel and retirees should do their research to find the best deal before signing any loan agreement.

Regardless of what loan a person chooses, the money should be used wisely and not squandered. Enter into the search for a loan with a specific purpose and intent for which to spend the money. This will help avoid any problems of debt later down the line. By following the words of the Lord in Proverbs 21:20, "There is a treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up," you can evade the plight of the foolish man.

Guide to Loan Terms

2007-08-05T03:47:00.001-07:00

Listed below is a guide to loan terms. It is a useful list of definitions of loan terms that may or may not be familiar to you. Keep it nearby as you will never know when you might need it for quick reference.

Accrue

Process in which interest accumulates on a borrower's loan.

Amortization

A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest over the term of the loan.

Annual Percentage Rate (APR)

The APR shows the cost of a loan expressed as a yearly interest rate, including the interest and other fees associated with the loan.

Application

First step in the official loan process to gather and record information about the potential borrower.

Borrower

Person who has been approved to receive a loan and is then obligated to repay it.

Capitalization

Adding unpaid accrued interest to the principal balance. Capitalizing interest increases the principal amount of the loan and the total cost of the loan.

Collateral

Property pledged as security for a loan to ensure repayment of a loan.

Credit Agencies/Credit Bureaus

Organizations that collect individual consumer credit information and provide credit reports to potential lenders.

Credit History

History of an individual's debt repayment. For most types of loans, lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Rating

Grade assigned to denote the net worth and credit standing of an individual or a business.

Credit Report

Record that lists all past and present debts and the timeliness of their repayment and documents an individual's credit history.

Debt

Amount owed to another that must be repaid.

Default

Failure to repay a loan according to the terms of the loan.

Delinquency

Failure of a borrower to make a timely payment on a loan.

Interest

Fee charged for the use of money.

Interest Rate

The amount of interest charged on a loan, usually expressed as a percentage.

Lender

Entity that provides loan funds to the borrower. Depending on the type of loan, the lender may be a bank or other financial institution.

Loan

Money borrowed from a lending institution, usually repaid with interest.

Loan Applicant

Party applying to the lender for a loan.

Note

Binding legal document you sign when you get a loan. It lists the conditions under which you're borrowing and the terms under which you agree to pay back the loan (also called a promissory note or a mortgage note).

Payment

Periodic (usually monthly) instalments paid to a lender to be applied toward repaying your loan.

Principal

Loan amount borrowed from a lender, not including interest or additional fees.

Repayment

Process of paying back borrowed money.

Term

Time limit within which a loan must be repaid.

Variable Interest Rate

Interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Education Loans Can Augment The Boundaries Of What You Can Achieve

2007-08-05T03:39:00.000-07:00

Education never ends ? it is not said without reason. We are educated all our lives and getting an education not only is a great achievement but something that gives you the tools to find your own way in the world. Education is indispensable; little do we realize how much more it can bring to us in terms of worldly amplifications. Anyone can have propensity and the natural endowment for education. But one might not have the resources to finance their education. You certainly can't let lack of resources impede you from advancing your prospects through education. Then you accidentally stumble upon the word 'education loans'. Loans for education ? you have never thought about it as a feasible arrangement. Education loans can open newer panoramas in regard to your education aspirations.

Education loans are open to all people in all its myriad forms. Education loans can realize your education plans or the education plans of your children. You can strengthen you own future and the future of your son or daughter with education loans. An extensive range of student and parent loans are presented under the category of education loans. There are many types of education loans. Discerning about the types of education loans will help you in making the accurate decision. The single largest resource of education loans is federal loan. The two main federal education loan programmes are the Federal Family Education Loan Programme and the Federal Direct Loan Programme. In the Federal Family Education Loan Programme the bank, credit union or the school is the lender. While the federal direct loans programme, the department of education is the lender.

Private education loans are offered to people so that they can provide financial backup to their education plans. Private education loans are not endorsed by other government agencies but are provided by other financial institutions. Private education loans programme are optimum for both undergraduate and graduate studies.

Formal education is requisite for future success. Though this is not a hard and fast rule, but education certainly helps you in gaining an upper hand. With universities getting expensive by each day an education loan will certainly give you an incentive to go ahead with your education plans. Each year while contemplating on your education plans the thought of finances almost invariably comes in. While working towards you degree, you are constantly plagued about paying for the education fees, books, and other living expenses. Education loans can provide funding for tuition fees, board and room, books computer, and even student travel. An education loan can help you with all these expenses. Education loans are sufficient enough to take care of all these expenses. If you have been forced to drop your education for any reason, you can still take up your education at any point of time. Irrespective of your age and also where you have left your education.

There are no specific eligibility criteria for education loans. Any person who is in need of sponsorship for education can find an education loan that befits his or her financial necessity. Loan amount on education loans vary with the kind of education you want to pursue. The repayment options with education loans will similarly accommodate your personal financial preferences. You can either repay interest amount while still in school or six months after graduation. Education loans offer upto ten years for repayments. The refund alternatives on education loans also include deferment, forbearance and consolidation. The various sites on education loans can give you innumerable repayment options and monetary remuneration.

Education loans will help you in planning your life after graduation. However, an education loan like every loan is a huge financial obligation. An education loans is generally the first substantial loan for most people and therefore the first major expense. Do not be completely dependent on your education loans for the funding of your complete education. Try to apply for any other financial sustenance like university grants, scholarships, fellowships, work study programmes and assistance ship and any other form of aid. This will certainly encourage a fluid dispensation of your education loans. You can start by going to the financial aid office in your school or university. It will provide you further insight to the kind of education loans, you must apply for.

Education is an experience of life. It is so rewarding in itself that it helps you to manage almost everything in your life. Education loans discipline your impulse towards education and training into a fruitful contrivance. The payoff is delicious in terms of improved quality of life. Education is expensive! Is it? With education loans it can't be. Now, you don't have to take the road in front of you. Make your own road with education loans.

No Credit? ? You Will Need a Bad Credit Loan

2007-08-05T03:24:00.001-07:00

So you have never taken out a loan? You don't have a credit card and you don't have a mortgage? You always pay cash? You're a student, a recent widow, a divorcee or from an ethnic minority group who have a tendency not to have any lines of credit? If you are any of the above then your credit score will not necessarily reflect your ability to pay as you have little or no credit history whatsoever. This will make it difficult to obtain any form of loan and in these circumstances you may have to take out a bad credit loan.

How prevalent is this?

Fair Isaac estimate that 50 million consumers do not have enough credit information on file to generate a credit score. This means that they are being turned away by lenders for things such as a personal loan.

Why does this happen?

Lenders will conduct a credit check. As there is little or no historic data available to measure the risk in loaning the individual money they will not meet their credit score criteria. More and more often, such consumers have to take out a bad credit loan to finance any large ticket purchases like cars as their credit score limits their financing options.

Is this fair?

It seems ludicrous that this is the case, but you have to look at it from the perspective of the lender. If someone walks into your bank or applies online to a lender for a loan, and their credit score is so low or does not exist, the automatic decision you would make is to reject the client. They appear to be too much of a risk.

Establish your credit history

The only way to remedy this is to start establishing a credit history. There are many specialist lenders who offer bad credit loans and bad credit car loans. They accept clients with little or no credit history far more readily. The bad credit loan will have higher interest rates than a standard consumer loan, but if clients make sure they pay on time and in full this will improve their credit score dramatically. They should just make sure that the lender does file credit reports, as not all of them do! In time, a credit score will be established and they can move on to apply for loans with much more favourable interest rates.

Second Mortgage Loans

2007-08-05T03:12:00.001-07:00

A second mortgage is a loan that is secured by the equity in your home. When you obtain a second mortgage loan the lender will place a lien on your house. This lien will be recorded in 2nd position after your primary or 1st mortgage lender's lien, hence the term second mortgage.

A second mortgage is also sometimes referred to as a home equity loan. There is no difference between a home equity loan and a second mortgage. These are just two different terms for the same subject.

A second mortgage can either be a fixed-rate loan or an adjustable-rate credit line. Interest rates and loan program terms will vary from lender to lender so it is important to shop around and compare before committing to any one offer.

Loan proceeds from a second mortgage loan can be used for just about anything. Many consumers take out 2nd mortgage loans to consolidate debt, do home improvements or pay for their kids college education. Whatever you decide to do with your loan proceeds it is important to remember that if you default on your payment you can lose your home so you will want to make sure that you are taking the loan out for a worthwhile purpose.

Another plus of a second mortgage loan is that the interest you pay back on the loan may be tax deductible. Consult your tax advisor regarding your personal situation but in most cases the interest is 100% fully deductible as long as the combined loan to value of your 1st and 2nd mortgage do not exceed the value of your home.

Are Interest Rates Up, Up and Away?

2007-08-05T03:01:00.000-07:00

Interest rates have been at their lowest levels in over 40 years. U.S. consumers have been able to purchase previously unaffordable homes, cars and other toys. Many have used cheap home equity loans to remodel, take vacations and pay off credit cards. Students have taken advantage of the rock-bottom student loan rates.

But, interest rates look to be headed up. Recently, Alan Greenspan and the Federal Reserve escalated the Fed funds rate from 1% to 1.25%. So, what does that mean to you and me?

The increase in rates is important if you have variable (not fixed) loans. For example, if you have adjustable rate mortgage or home equity lines of credit, the interest rates will probably go up (as well as the payments) in the next few months. Each time the Fed increases the Fed funds rate, it will roll down onto your adjustable rate loans and your payments will go up. The speed of increase and the amount of the increase will depend on what index your loan is based on ? check with your lending institution for more information on that.

If you have high credit card debt, the situation may be even more bleak because credit card rates remained high while other rates have been incredibly low. The Fed increases are a good excuse for your credit card company to hike your rates even higher.

So, what can you do if you're looking at rates and payments going up, up and away?

* Your payment increases may be fairly gradual. Depending on the economy, the Fed will continue to increase rates although they have signaled that the increases are likely to be very gradual. If the economic or political situation changes, they always have the ability to lower rates again. The Fed's rate-setting committee is scheduled to meet again Sept. 21, Nov. 10 and Dec. 14, and they may skip a rate increase at one of those meetings if inflation is subdued.

* Check with your student loan lenders to see about consolidating and locking in rates. Good news: interest rates on savings are also likely to increase! So, if you have CD's coming due, check with different financial institutions before automatically rolling them over. If you have money stashed in savings accounts, the rates are probably starting to creep up. I highly recommend ING savings for the highest rates around (www.ingdirect.com). They also give great service, have no fees or hidden costs and are FDIC insured. You can also name your accounts at ING to make it easy to identify what you're saving for.

* What if a new house isn't in your plans for a couple of years? When rates go up, it often cools off real estate prices and balances out the higher rates. Continue to save money in the highest interest short-term accounts you can find (no stocks or other long-term investments). Rates will probably not take huge leaps in the short term.

* If you have an adjustable rate (home or home equity or car loans), you will see higher payments so call your lender to find out what the new payment is "likely" to be. They'll probably put all kinds of disclaimers out about not really knowing, but try to get a worst case scenario and then start pretending you really do have that new payment. Put the extra into a special savings account so you'll have a "slush" fund to cover if you run short one month. At the same time you are building up a cushion for the future, you'll have a good idea of whether or not you can handle the new payment. If not, now's the time to start looking at other alternatives like cutting back, increasing income or even refinancing.

Remember, if you refinance your existing term to a new 30 year term, you'll have lower payments, but you'll pay a lot more for your house because of the additional interest.

* Call your credit card companies and see if they are willing to lower your rates (not all are). Look for good, permanent credit card interest rates that you can transfer higher rate balances to. For example, if most of your cards are 18% or higher, find a good 12% card or lower and transfer as much as you can to that. Playing the 0% credit card shuffle is a dangerous game and can hurt your credit score.

* Reduce credit card debt now! Stop using your cards and pay more than the minimums. If you pay off one card, take that payment and put it on another card. If you receive a pay increase, put it on the cards. The sooner the cards are paid off, the more flexibility you'll have!

All in all, we're quite likely to enjoy reasonable interest rates for some time to come. However, make preparations now and you'll be able to handle whatever comes your way.

125% Equity Home Loans

2007-08-05T02:26:00.001-07:00

If you are a homeowner in need of a home equity loan but you have not yet built up any equity in your home, don't despair. A 125 percent equity home loan may be the answer.

A 125 percent equity home loan is a second mortgage loan that allows you to borrow up to 25% more than the value of your home. For example, if your home is worth $100,000 and you owe $100,000 on the mortgage, this loan program would allow you to still borrow up to $25,000.

The 125 percent equity home loan is offered by various online lenders. Each lender has their own qualification and loan term guidelines but generally this is a credit score driven loan program. Credit score driven means that you have to have a certain credit score to qualify for the loan. In addition, your credit score usually determines the maximum loan amount you may qualify for and the maximum cash in hand you may receive. Also, some 125 percent equity home loan lenders may require seasoning on the length of time you have lived in your home. Three months is normally the minimum.

When it comes to a property appraisal, most 125 percent home equity loan lenders do not require you to obtain one. They generally will use the purchase price of your home as the value if you have lived in your residence for 12 months or less. If you have lived in your home over 12 months, a recent tax assessment, simple drive-by appraisal, or automated value model (avm) can be used. An avm is a computer generated assessment of your home's value which is based on recent home sales of comparable houses in your neighborhood.

No Income Verification Home Equity Loan

2007-08-05T02:12:00.001-07:00

A no income verification home equity loan is a second mortgage loan that does not require you to provide income documentation to qualify for the loan. This type of loan is great for homeowners who need a home equity loan but have hard to document income.

The majority of borrowers with hard to document income are either self-employed or commission based employees. Consumers who fall under these categories may have high income but have a lot of business related deductions that they write off on their taxes. This is good on the one hand as it reduces the taxable income and thus the amount of taxes owed, however, when it comes to getting a home loan it can hurt as most lenders use the average of your last 2 years taxable net income (the amount left after all of your deductions) to determine your income figure for qualifying purposes. This may cause you to have a debt to income ratio problem if you have a high debt load and thus keep you from qualifying for the loan. With a no income verification home equity loan, however, your gross income can be used for qualifying purposes as opposed to the net income.

In order to qualify for a no income verification home equity loan you will, in most cases, need good credit and a high credit score. Expect to pay a higher rate for this type of loan as opposed to a traditional loan in which you have to document your income. Also, even though a no income verification loan does not require you to document your income, some lenders may require that you have a certain dollar value of assets on hand which must be verified. Not all lenders have this requirement though - some lenders offer a program called NINA which stands for "no income no assets" meaning you do not have to document either. Loan guidelines and rates vary from lender to lender so it is a good idea to shop around to increase your chances of getting the best deal available to you.

Student loans in the United States

2007-08-05T01:32:00.001-07:00

While included in the term "financial aid" higher education loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:

Federal student loans made to students directly: No payments while enrolled in at least half time status. If a student drops below half time status, the account will go into its 6 month grace period. If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time again they will no longer have their grace period. Amounts are quite limited as well.
Federal student loans made to parents: Much higher limit, but payments start immediately
Private student loans made to students or parents: Higher limits and no payments until after graduation, although interest will start to accrue immediately. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances. Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.

Federal loans

Federal loans to students

Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.

The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized by the U.S. Government or may be unsubsidized depending on the student's financial need.

Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. The limit effective for loans disbursed on or after July 1, 2007 is as follows: is $3,500 per year for freshman undergraduate students, $4,500 for sophomore undergraduates, and $5,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. Subsidized federal student loans are offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.

Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Those who borrow $10,000 during college will owe $10,000 plus interest upon graduation. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can choose to pay the interest while still in college; however, few students choose to exercise this option.

Federal student loans for graduate students have higher limits: $8,500 for subsidized Stafford and $12,500 (limits may differ for certain courses of study) for unsubsidized Stafford. Many students also take advantage of the Federal Perkins Loan. For graduate students the limit for Perkins is $6,000 per year.

Federal student loans to parents

Usually these are PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Unlike loans made to students, parents can borrow much more — usually enough to cover any gap in the cost of education. However, there is no grace period: Payments start immediately.

Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers. Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time four years have been funded through loans. The combination of immediate repayment and the ability to borrow substantial sums can be expensive.

Under new legislation, graduate students are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.

Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8.5% on July 1, 2006.

Disbursement: How the money gets to student or school

There are two distribution channels for federal student loans. The channels are identified by their names: Federal Direct Student Loans and Federal Family Education Loans. Federal Direct Student Loans, also known as Direct Loans or FDLP loans, are funded from public capital originating with the U.S. Treasury. FDLP loans are distributed through a channel that begins with the U.S. Treasury Department and from there passes through the U.S. Department of Education, then to the college or university and then to the student. Federal Family Education Loan Program loans, also known as FFEL loans or FFELP loans, are funded with private capital provided by banking institutions (i.e., banks, savings and loans, and credit unions). Because the FFELP loans use private capital as their source, students who use FFELP loans are able to take advantage of payment options that are similar to those available to customers who take out a home loan or a consumer loan. For example, some institutions will allow a discount for automatic payments or a series of on-time payments. In 2005, approximately two-thirds of all federally subsidized student loans were FFELP.

According to the U.S. Department of Education, more than 6,000 colleges, universities, and technical schools participate in FFELP, which represents about 80% of all schools. FFELP lending represents 75% of all federal student loan volume.

The maximum amount that any student can borrow is adjusted from time to time as federal policies change. A study published in the winter 1996 edition of the Journal of Student Financial Aid, “How Much Student Loan Debt Is Too Much?” suggested that the monthly student debt payment for the average undergraduate should not exceed 8% of total monthly income after graduation. Some financial aid advisers have referred to the 8% level as “the 8% rule.” Circumstances vary for individuals, so the 8% level is an indicator, not a rule set in stone.

Private student loans

These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies. Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months.

Private student loan types

Private loans generally come in two types: school-channel and direct-to-consumer.

School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are 'certified' by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school.

Direct-to-consumer private loans are not certified by the school; schools don't interact with a direct-to-consumer private loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student. While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days. Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question.

Direct-to-consumer private loans are the fastest growing segment of education finance and, as such, a number of providers are introducing products. Loan providers range from large education finance companies to specialty companies that focus exclusively on this niche. Such loans will often be distinguished by the indication that "no FAFSA is required" or "Funds disbursed directly to you."

Private student loan rates and interest

Private student loan rates are lower than non-specialized private loans (e.g., "signature" loans) but slightly higher than government loan rates. That may be changing, as pending legislation would raise government student loan rates to similar rates as private student loans.

Most private loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge. Because private loans are based on the credit history of the applicant, the overhead charge will vary. Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit. Money paid toward interest is now tax deductible.

Private student loan fees

Private loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan. They can be taken out of the total loan amount or added on top of the total loan amount, often at the borrower's preference. Some lenders offer low-interest, 0-fee loans, but these are usually available only to those with high credit scores (800 or more). Each percentage point on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan. Some have suggested that this makes the interest rate more critical than the origination fee.

In fact, there is any easy solution to the fee-vs.-rate question: All lenders are legally required to provide you a statement of the "APR (Annual Percentage Rate)" for the loan before you sign a promissory note and commit to it. Unlike the "base" rate, this rate includes any fees charged and can be thought of as the "effective" interest rate including actual interest, fees, etc. When comparing loans, it may be easier to compare APR rather than "rate" to ensure an apples-to-apples comparison. APR is the best yardstick to compare loans that have the same repayment term; however, if the repayment terms are different, APR becomes a less-perfect comparison tool. With different term loans, consumers often look to 'total financing costs' to understand their financing options.

Eligible loan programs generally issue loans based on the credit history of the applicant and any applicable cosigner/co-endorser/coborrower. This is in contrast to federal loan programs that deal primarily with need-based criteria, as defined by the EFC and the FAFSA. For many students, this is a great advantage to private loan programs, as their families may have too much income or too many assets to qualify for federal aid but insufficient assets and income to pay for school without assistance.

Additionally, many international students in the United States can obtain private loans (they are ineligible for federal loans in many cases) with a cosigner who is a United States citizen or permanent resident.

The terms for alternative loans vary from lender to lender. A common suggestion is to shop around on ALL terms, not just respond to "rates as low as..." tactics that are sometimes little more than bait-and-switch. Examples of other borrower terms and benefits that vary by lender are deferments (amount of time after leaving school before payments start) and forebearences (a period when payments are temporarily stopped due to financial or other hardship). These policies are solely based on the contract between lender and borrower and not set by Department of Education policies.

Federally subsidized consolidations are not available for alternative student loans, though several lenders offer private consolidation programs. Borrowers of privately subsidized student loans may face the same restrictions to bankruptcy discharge as for government based loans: New legislation makes clear that these loans are, like federal student loans, not dischargeable under bankruptcy. Even before the legislation was passed, however, private student loans that were guaranteed 'in whole or in part' by a nonprofit entity are non-dischargeable in bankruptcy (and most private loans, regardless of the lender, were indeed guaranteed by a nonprofit).

Discharge of student loans

US Federal student loans and some private student loans can be discharged in bankruptcy only with a showing of "undue hardship." Bankruptcy Code Section 523(a)(8) determines what loans can and can not be discharged. The undue hardship standard varies from jurisdiction to jurisdiction, but is generally difficult to meet, making student loans practically non-dischargeable through bankruptcy. While US Federal student loans can be discharged for total and permanent disability, private student loans cannot be discharged outside of bankruptcy.

Criticism of US student loan programs

In 1997, under intense lobbying from student loan companies, The Higher Education Act (HEA) was amended, and defaulted student loans became among the most lucrative and easiest to collect type of debt. These amendments allow for huge penalties and fees to be attached to defaulted student loan debt, take away bankruptcy protection for student borrowers, disallow refinancing of the debt, and also provide for draconian collection and punitive measures to be taken against student borrowers, including wage garnishment, tax garnishment, withholding of professional certifications, termination from employment, Social Security garnishment, and others. According to Harvard professor Elizabeth Warren in a Wall Street Journal piece by John Hechinger, "Student-loan debt collectors have power that would make a mobster envious."

Student loans in the United Kingdom

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British undergraduate and PGCE students can apply for a loan through their local education authority (LEA) in England and Wales, the Student Awards Agency for Scotland (SAAS), or their local education and library board in Northern Ireland. The LEA, SAAS, or education and library board then assesses the application and determines the amount that the student is eligible to borrow, as well as how much tuition fees, if any, the students' parents must pay. The family's income; whether the student will be living at home, away from home, or in London; disabilities; and other factors are taken into account. 75% of the full loan (around £3,000) is available to all students in England and Wales, with only the final 25% being means-tested (taking the total available up to as much as £4,000). There is also extra money (currently roughly another £1,000) if you go to university in London, where it is deemed the extra cost of living necessitates a higher loan. Scotland has a slightly different assessment method where more of the loan is means-tested with a minimum loan of only £840. However much you get, it is paid in three installments during each year of the student's course (one per term). Special rules apply for some courses and for part-time courses.

Loans are provided by the Student Loans Company and do not have to be repaid until students have completed their course and are earning £15,000 a year (£10,000 until April 2005). The interest rate is updated annually and is tied to inflation (currently 3.1%), making the loan interest-free in real terms. The loan is normally repaid using the PAYE system, with 9% of the graduate's gross salary over £15,000 automatically being deducted to pay back the loan. There is no particular schedule for clearing the debt, but, if it has not been cleared 25 years after repayment began, or the student turns 65 years old, the remaining debt will be cancelled. For students beginning courses before 1998, the arrangements for repaying and deferring are different. Although Scottish students have their tuition fees covered by the SAAS during their time of study, much of this is actually repaid in a Graduate Endowment.

The Higher Education Act 2004 will make significant changes to the loans system in England, Wales and Northern Ireland from 2006. Upfront tuition fees will be abolished, with the fee being added to students' loans for them to pay back after their course is finished. However, instead of the tuition fee being fixed at around £1,150 for all universities (which, due to means-testing, not all have to pay), universities will be able to charge variable fees of up to £3,000. For students who have already started their courses and, as such, are still paying the upfront fees, can now add these fees to their loans if they want. Critics claim these top-up fees will create tiers of "expensive" and "cheap" universities and make university financially inaccessible to many students. As a result, there have been national demonstrations and protests by students' unions.

Student loans in Norway

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In Norway, student loans are issued by Statens lånekasse for utdanning (The Norwegian State Educational Loan Fund), commonly referred to as Lånekassen. Loans are issued to students following studies at Norwegian universities and colleges, as well as studies abroad which have been approved by Lånekassen. No interest is paid until graduation. Every semester, providing that the student has passed all exams, part of the loan is converted into a grant.

Student loans in Sweden

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Student grants and student loans in Sweden are administered by the Swedish National Board of Student Aid, a Swedish government agency. Students living with their parents often only take the student grant, while other students tend to take both the student grant and the student loan. A full-time student gets SEK 2,492 (about $370) a month in student grant money, and can borrow up to SEK 4,764 (about $700) a month, which equals a total of SEK 7,259 (about $1,070). During the summer months, the student gets no grants or loans unless taking a summer course. Thus a full-time student gets SEK 24,920 (about $3,700) a year in student grants, and can borrow up to SEK 47,640 (about $7,000) a year, which gives a total of SEK 72,590 (about $10,700). No income tax is paid on student grants and student loans. In Sweden, university studies are free of charge.

Student loans in New Zealand

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The New Zealand state provided student loans and allowances are available 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.

A non-refundable means-tested student allowance for living expenses can be claimed by students who are over 25 years old or whose parents have a low income. This criteria has caused anger among student bodies who point out that it excludes many self-sufficient adults from help due to parental income levels, and also that by age 25 most people have completed tertiary education.

Loans are repaid by a 10% tax surcharge on income, once the student graduates and is employed. There is a minimum income level, roughly equivalent to the unemployment welfare benefit payment rate, that is exempt from assessment.

From 2001, all full-time students have been exempt from interest while studying, and from 2006 all borrowers resident in New Zealand have been exempted interest.

Loan recipients who leave New Zealand are assessed on their worldwide income for repayment purposes, with a minimum annual payment being required. Loan repayents are suspended on request for those on no /low income overseas, however interest still accumulates. From March 22nd 2007, the government is introducing a three year 'loan repayment holiday' for those overseas. In practice this is a uniform extension of the previous ability to waver repayments until a later date. As before interest accumulates during this period.

In recent years, large student loan debts have meant that a majority of graduates have sought higher paying overseas work instead of remaining in New Zealand. This has led to skill shortages ('brain drain') in some professions as local employers have been unwilling or unable to match international salaries. Medical-related professions have been particularly hard hit due to recent graduates, having high loan debts, and health employers, having tightly controlled government funding.

The loan system has changed and modified since its inception in 1992. Initially it provided bulk payments to students and charged lower than market interest rates from initial drawdown. This led some entrepreneurial students to use this money for investment purposes benefiting them but leading to a widespread perception of student excesses. In 2001 a growing debt mountain caused the new Labour government to stop interest payments while students studied and in 2006 they rode to election on the promise of stopping interest for all those remaining in New Zealand.

There is a lot of anger and frustration over the NZ loan system, especially from early generations of borrowers (1992-2001). These students consider themselves the 'guinea pigs' of the loan system, who were charged compounded interest from initial drawdown and then watched as future generations had interest removed completely. This generation suffered from a lack of education about the consequences of debt, and a lack of role-models to look to for advice. It is no coincidence that some of the hardest hit by previous versions of the loan system were from the poorer families the system was suppossed to 'enable'.

The student loan system has succeeded in turning New Zealand into a highly educated economy. However it has also led to a capitalist minded workforce who frequently leave their home country in order to pursue the better career and loan repayment options available overseas.

Student loans in Germany

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German universities are usually free for students (although many Federal States of Germany plan to introduce a student fee of about €1000 per year in 2007). Giving out student loans is seen as a means to pave the way to higher education for lower class children whose parents can't afford to fund their children's education otherwise. The federal law that regulates student loans is called "Bundesausbildungsförderungsgesetz" (Federal Education and Trainings Assistance Act) or "BAföG" for short, and student loans are usually referred to simply as "BAföG" by students (as in "I'm getting BAföG"). Eligible groups include high school students, part-time and full-time university students, second path education students (i.e., those starting to study after having been in the workforce), and students of schools for professional training.

Eligibility dependent on parent income

The eligibility for student loans is (usually) dependent from parent income, as parents are required by law to fund their children's education (including higher education), and therefore students could theoretically sue their parents for funds for their education (although this is rarely done for obvious reasons). For low-income families, BAföG loans take over when these obligations can not reasonably be met by parents.

BAföG-loans are usually given out half as zero interest loan (to be repaid only after the receiver exceeds a certain income level after graduation) and half as grant money to university students. High school students get the full amount as grant money if they are eligible. The current maximum amount per month (for a university student) is 521 Euros. This can be lowered gradually if student or parent income or student assets exceed certain amounts. Thus the amount paid out can be lower than the maximum amount and even loans of 1 Euro per month are given out if the calculation returns that amount. Such low grants seem nonsensical at first, but they are usually accepted by students (loans can be refused by the student), because eligibility for a BAföG loan (even of 1 Euro per month) makes the student eligible for some other benefits like cut-rate telephone service or waiving of public television licence fees (which otherwise are paid by everyone who owns a working TV set).

Generally, BAföG loans are independent from student achievement or grades at least for two years. After that, a certain minimum grade level has to be met and proof of participation in required, but ungraded courses, needs to be provided to stay eligible. Change of field of study is allowed once during the first two years without becoming ineligible. For university studies, every field of study has predefined a maximum study duration (usually around five years), after which the student becomes ineligible for BAföG. Further funds can be granted as low-interest loan for another two years if certain criteria (like reasonable likelihood that the student will graduate during that time) are met.

Eligibility independent from parent income

In some cases, like most notably if the student has worked full time for a number of years before returning to student status, BAföG eligibility is calculated independent from parent income, because parents' obligation to fund their children's education ends once the children enter the workforce full-time. In those cases, only student income and assets are consulted for BAföG eligibility and amount calculation.

Student loans in Ireland

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Although third-level tuition has been free in the Republic of Ireland since 1997, for other student expenses most of the major banks offer interest-free or cut-rate loans to students. There has been discussion on re-introducing fees, as recommended by the OECD, with deferred payment similar to the Australian system; i.e., a loan from the government repaid after graduation. The suggestion has however, been quite unpopular.

Student loans in Canada

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Government Loans

Canadian citizens, permanent residents of Canada, and protected persons (including convention refugees) are normally eligible for loans provided by the federal government, through the Canada Student Loans Program (CSLP), in addition to loans provided by their province of residence. Loans issued to full-time students are interest free while a student is in full-time studies, (as long as the maximum number of eligible weeks has not been reached) - the interest is paid by the government during the interest free period. When they are no longer in school, the loans immediately begin to accumulate interest. Repayment usually begins after 6 months at which time the accumulated interest is added to the loan amount. In most cases, the loan(s) must be repaid within 10 yrs after completion of studies.

Funding is available for part-time students through the CSLP (provincial student loans are not available). Part-time students must make interest payments while in study and begin payments of principal and interest when they cease to be a part-time student. Grants may supplement loans to aid students who face particular barriers to accessing post-secondary education, such as students with permanent disabilities or students from low-income families.

Students must apply for the Canadian and provincial loans through their provincial government. The rules for what determines your province of residence vary, but normally it is defined as where you have most recently lived for at least 12 consecutive months, not including any time you spent as a full-time student at a post-secondary institution. In most cases, the province of residence is the province one lived in before becoming a post-secondary student.

Canada Student Loans (CSL) of up to $210 per week of full-time study or 60% of the student's assessed need (the lesser of these) can be issued per loan year (August 1–July 31). Loans issued through provincial programs will normally provide students with enough funding to cover the balance of their assessed need. Part-time loans of up to $4,000 can be made, but a student cannot be more than $4,000 in debt on part-time loans at any one time. All Canadian students may also be eligible for the Canada Millennium Scholarship Foundation Bursary (CMS Grant), and other grants provided by their province of residence.

For example, students in British Columbia may be eligible for a maximum of $14,300 combined loan and grant funding per year.

History

Some text from the Department of Human Resources and Social Development Canada:

The CSLP was created in 1964. Since its inception, the Program has supplemented the financial resources available to eligible students from other sources to assist in their pursuit of post-secondary education. Between 1964 and 1995 , loans were provided by financial institutions to post-secondary students who were approved to receive financial assistance. The financial institutions also administered the loan repayment process. In return, the Government of Canada guaranteed each Canada Student Loan that was issued, by reimbursing the financial institution the full amount of loans that went into default.

In 1995, several important changes were made to Canada Student Loans. First, the Canada Student Financial Assistance Act was proclaimed, replacing the existing Canada Student Loans Act (which still remains in force to this day) reflecting the changing needs of the parties involved in the loan process, including the conferred responsibility of the collection of defaulted loans to the banks themselves. The Government of Canada developed a formalized "risk-shared" agreement with several financial institutions, whereby the institution would assume responsibility for the possible risk of defaulted loans in return for a fixed payment from the Government which correlated with the amount of loans that were expected to be, or were, in default in each calendar year. During this period, the weekly federal loan amount was increased to a maximum of $165.

On July 31, 2000, the risk-shared arrangement between the Government of Canada and participating financial institutions came to an end. The Government of Canada now directly finances all new loans issued on or after August 1, 2000. The administration of Canada Student Loans has become the responsibility of the National Student Loans Service Centre (NSLSC). There are two divisions of the NSLSC, one to manage loans for students attending public institutions and the other to administer loans for students attending private institutions. Defaulted Canada Student Loans disbursed under this new regime are now collected by the Canada Revenue Agency which, by Order in Council dated August 1, 2005, became responsible for the collection of all debts due under programs administered by Human Resources and Social Development Canada.

Due to the close nature of the Canada Student Loan Program (CSLP) and the provincial student loan programs, the changes in 1995 and 2000 were largely mirrored by the provincial programs. As a result of these changes, students who attended school before and after these transition years may find that they have up to 6 different loans to manage (pre-1995 federal & provincial; 1995-2000 federal & provincial; and post-2000 federal & provincial). The extent to which this is possible depends largely on a student's province of residence.

Students in professional programs

Most charter banks in Canada have specific programs for students in professional programs (e.g., medicine) that can provide more funds than usual in the form of a line of credit, sometimes with lower interest rates as well. Students may also be eligible for government loans that are interest free while in school on top of this line of credit, as private loans do not count against government loans/grants.

Loan Administration and Repayment

The Canada Student Loan (sometimes referred to as the National Student Loan) is administered by National Student Loan Service Centre under contract to Human Resources and Social Development Canada (HRSDC). Students have the choice of opting for a fixed interest rate of prime interest rate + 5%, or a floating interest rate of prime interest rate + 2.5%.

Based on the HRSDC student loan calculator , and assuming a prime interest rate of 4.5%, a standard 10-year (114 month) repayment period, and a loan of $30,000:

- if the Floating Interest option is selected, monthly payments will be $361.02 (principle and interest), resulting in total payments of $41,156.77 ($30,000 principle + $11,156.77 interest) over the life of the repayment.

- if the Fixed Interest option is selected, monthly payments will be $400.50 (principle and interest), resulting in payments of $45,657.54 ($30,000 principle + $16,657.54 interest).

Repayment Assistance

CSLP offers a number of programs to assist students who find themselves facing financial difficulty during repayment. Among these programs are: - Interest Relief , which is designed to help students meet repayment obligations if they are temporarily unable to make payments on their government student loans because of unemployment or low income. Interest Relief is granted for periods of six months, up to a maximum of 30 months. Some exceptions may apply. Students may also be eligible for a further 24 months of Extended Interest Relief. Once approved for Interest Relief, students are not required to make payments on either the monthly interest or the outstanding principal of their loan(s) (the federal and/or provincial government will pay the interest on a student's behalf).

- Debt Reduction in Repayment is designed to help students facing long-term financial difficulties manage the repayment of their Student Loan(s). DRR lowers the principal amount of a loan, thereby reducing the monthly loan payment to an affordable level based on family income. A student can receive up to three reductions (totalling up to $26,000) on their Canada Student Loan principal during their lifetime, depending on financial circumstances.

- Revision of Terms is a feature that provides students with the flexibility to manaqe loan repayment in a way that is responsive to individual situations. It can be used to decrease the monthly payments by increasing the repayment period (from the standard 10 years up to 15 years) should a student find the standard terms difficult to maintain. It can be used to increase loan payments by reducing the repayment period, allowing more rapid repayment of a loan.

- Permanent Disability Benefit allows for the reduction of loans for students who are experiencing exceptional financial hardship due to a permanent disability.

Student loans in Denmark

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Student grants and student loans in Denmark are administered by the Danish State Educational Grant and Loan Scheme Agency, a Danish government agency. All students above age 18 are entitled to a free grant regulated partly by the income of their parents if they are below age 20. The basic rate for students living on their own and older than 20 is 4,724 DKK (about $810) a month. If needed, the student may supplement this with a student loan of 2,418 DKK (about $415) that has to be repaid when the student has completed his or her education. Thus a student will normally receive about 56,688 DKK (about $9,735) a year in grants with an optional 29,016 DKK (about $4,985) in loans, making a total of 85,704 DKK (about $14,720). High schools and universities are free for students, requiring no tuition or similar fees.

Student loans in Australia

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Tertiary education fees in Australia

Higher education fees in Australia are charged to all students, but Australian citizens and (with some limitations) permanent residents are able to obtain interest free loans from the government under the Higher Education Loan Programme (HELP) which replaced the Higher Education Contribution Scheme (HECS). Most students are Commonwealth supported, which means the Commonwealth Government pays a contribution to the fees and students are able to defer payment of the remainder of the fees, which for Commonwealth supported students are called the "student contribution". Some domestic students are full fee-paying (non-Commonwealth supported) and while they are able to obtain subsidised loans from the Government up to a lifetime limit of $100,000 for medicine, dentistry and veterinary science programs and $80,000 for all other programs, they receive no other direct government contribution to the cost of their education. Overseas students are charged fees for the entire cost of their education and are ineligible for any loans from the Commonwealth.

HELP is jointly administered by the Department of Education, Science and Training (DEST) and the Australian Taxation Office (ATO).

History

research. In order to do this, it dramatically increased the number of scholarships it offered to enter university and it allowed women to win these scholarships (they were previously exclusive to men). The Government decided to increase the size of the universities to conduct more civil and militaryMenzies Liberal Government also supported and extended the ability of ordinary Australians to attend university.

In the 1960s, the Federal Government encouraged and funded the states to establish new universities to cater for increasing demand. These universities were to be built in outlying suburbs and offer special research scholarships to encourage students to undertake postgraduate research studies. Many of the universities that were established under this scheme are members of Innovative Research Universities Australia.

In 1967, the Menzies government established the College of Advanced Education sector, by defining a category of non-University tertiary institutions that were to receive some federal funding. They were easier to access and cheaper to attend than Universities, while delivering many University-equivalent Batchelor awards.

During the early 1970s, there was a significant push to reform tertiary education in Australia to make it more accessible to working and middle class Australians and the Whitlam Labor Government abolished university fees in 1973. This decision did not greatly change the socio-economic backgrounds of students attending universities because only 20 to 25 percent of students paid fees as most had Commonwealth scholarships. Another reason for the lack of change was because low high school retention rates had resulted in many young people from disadvantaged backgrounds not completing secondary education and therefore never having the opportunity to choose to attend university.

In 1989, the Hawke Labor Government instituted a programme in the Higher Education Funding Act 1988 called "Higher Education Contributions Scheme" or HECS. It was developed by economist and lecturer at the Australian National University, Bruce Chapman and championed by Education Minister John Dawkins (see Dawkins Revolution). When introduced it was a fee charged to all university students of $1,800, but this fee could be deferred and repaid through the tax system when the student's income reached a certain level.

At the same time, the Colleges of Advanced Education entered the University sector by various means.

The new Howard Coalition Government in 1996 made significant changes to the HECS. It created a three-tier fee system with the courses that the government considered to have most likelihood of generating higher income for students in the future (eg. Law and Medicine) being the most expensive and those least likely to generate higher income (eg. Nursing and Arts) being the least expensive. The government also increased HECS charges by an average of 40 percent and permitted universities to charge full up-front fees to students who missed out on a HECS place at university in return for entry into a course.

Domestic Students

Commonwealth Supported Students

The Government allocates a number of undergraduate places to each public higher education provider in Australia that are designated as Commonwealth supported places at university. These places are allocated to students via the tertiary admissions centre in each state or territory but are usually based on secondary school results (through the TER), TAFE qualifications and previous university results. Commonwealth supported places are available to citizens of Australia and New Zealand, as well as some Australian permanent residents. If a student is in a Commonwealth supported place, they only make a contribution towards the cost of their education (known as the student contribution) while the Australian Government contributes the majority of the cost.

Student Contribution
Band	Curriculum Areas	Contribution For 1 EFTSL
National Priority	Education, Nursing	$0 – $3,998
Band 1	Humanities, Arts, Behavioural science, Social studies, Foreign languages, Visual and Performing arts	$0 – $4,996
Band 2	Accounting, Commerce, Administration, Economics, Mathematics, Statistics, Computing, Architecture, Health Sciences, Engineering, Science, Surveying, Agriculture	$0 – $7,118
Band 3	Law, Dentistry, Medicine, Veterinary science	$0 – $8,333

The student contribution varies for each course. It is based upon the expected earnings following a students' graduation, not the cost of providing the course. The Government allows higher education providers to set their own contribution up to a maximum level (although since the government underfunds universities per place themselves, the universities almost always charge the highest level allowable. A student can pay the entire contribution and receive a 20% discount or defer payment on the contribution through a HECS-HELP loan from the Commonwealth Government. It is possible to defer payment on some of the contribution and pay part upfront. In cases of part payment, a 20% discount is received on the amount paid. Students who are New Zealand citizens or new Australian permanent residents are ineligible for HECS-HELP loans and must pay the entire contribution upfront and receive no discount.

Full Fee-Paying Students

Students who do not receive a Commonwealth supported place are able to obtain a full fee-paying place as long as their tertiary entrance rank or other qualifications exceed a certain minimum. Most postgraduate courses do not have Commonwealth supported places available and therefore all students are full fee-paying. Full fee-paying students are charged the full cost of their course, with no direct Commonwealth subsidy.

Full fee-paying students are able to obtain loans under the Higher Education Loan Programme called FEE-HELP loans to cover all or part of their fees. Students who obtain these loans are charged a 20% loan fee on top of the amount borrowed. Students are able to borrow a lifetime maximum FEE-HELP loan of $100,000 for medicine, dentistry and veterinary science programs and $80,000 for all other programs (adjusted for inflation). FEE-HELP loans replaced the Open Learning Deferred Payment Scheme (OLDPS), the Postgraduate Education Loan Scheme (PELS) and the Bridging for Overseas-Trained Professionals Loan Scheme (BOTPLS).

OS-HELP

OS-HELP is a loan scheme to assist some undergraduate domestic students to undertake some, but not all, of their course of study overseas. Students are able to obtain a loan of $5,000 for every six months, but can only receive a total of two loans throughout their lifetime. Unlike other loans in the HELP, the loan amount is paid directly to the student and the terms for the loans are set out by the tertiary providers.

As in the FEE-HELP loan scheme, a 20% fee applies on the amount borrowed.

Loan repayment under the HELP

HELP debts are repaid through the taxation system and repayment is administered by the Australian Taxation Office. People with a HELP debt are obligated to make compulsory payments each year if their HELP Repayment Income (HRI) exceeds a certain threshold, which for the 2005-06 financial year was $36,185. HRI differs from the usual calculation of taxable income in that it includes any amount that taxable income has been reduced by a net rental loss and includes fringe benefits from employment. Unlike marginal tax rates, the repayment rate applies to all income earned. For example, a person that earns $36,000 in a financial year does not have to make any compulsory HELP repayment, but a person who earns $36,500 is compelled to make a payment of $1,460.

The indexation rate is applicable to the part of the debt that has been unpaid for 11 months or more. Thus, indexation is calculated on the opening balance plus any debts incurred in the first half of the current year deducting any compulsory or voluntary repayments.

After the indexation rate is applied to one's account, the new balance must be a whole dollar amount. Any cents in the total are discarded.

The rates for compulsory repayment for the 2007-08 financial year, also compared with previous years, are:

HELP Repayment Income (HRI) compulsory repayment 2006-2008
HRI 2005-06	HRI 2006-07	HRI 2007-08	Repayment Rate
Below $36,185	Below $38,149	Below $39,825	Nil
$36,185–$40,306	$38,149-$42,494	$39,225-$44,360	4% of HRI
$40,307–$44,427	$42,495-$46,938	$44,360-$48,896	4.5% of HRI
$44,428–$46,762	$46,839-$49,300	$48,897-$51,466	5% of HRI
$46,763–$50,266	$49,301-$52,994	$51,466-$55,322	5.5% of HRI
$50,267–$54,439	$52,995-$57,394	$55,323-$59,915	6% of HRI
$54,440–$57,304	$57,395-$60,414	$59,916-$63,068	6.5% of HRI
$57,305–$63,062	$60,415-$66,485	$63,069-$69,405	7% of HRI
$63,063–$67,199	$66,486-$70,846	$69,406-$73,959	7.5% of HRI
$67,200 and above	$70,847 and above	$73,960 and above	8% of HRI

Students are also able to make voluntary payments to the ATO. These payments attract a 10% discount for repayments over $500. This means that if a person voluntarily repays $1000, the debt is reduced by $1100. HELP debts do not attract interest but are instead indexed to the Consumer Price Index (CPI). the 2006 indexation rate is 2.8%. If a person with a HELP debt dies, the debt is cancelled (ie. the debtor's estate is not required to pay the debt).

HECS becomes HECS-HELP: changes to the system in 2005

As of 2005, the Howard government have deregulated university fees. HECS-HELP (formerly HECS) maintains the same principles of HECS, however have since undergone major changes. The deregulation of university fees permits universities to increase tuition costs for university places (by a maximum of 25%). If a student receives a HECS-HELP loan, the Australian Federal Government pays the loan amount directly to the higher education provider on behalf of the student. "HECS" now refers to pre-2005 debt, and HECS-HELP refers to debt from 2005 onwards.

This deregulation of HECS-HELP has also resulted in a limit in the number of years a student may study in a Commonwealth Supported Place (CSP). As of 2007, all students may only study for a maximum of 7 years full-time in commonwealth supported university places (16 years part-time). This does not include any existing HECS debt (prior to 2005).

Known as Student Learning Entitlement (SLE), Students may only study in a Commonwealth Supported Place for a maximum of 7 years full time.. Once these SLE points are used, students are no longer entitled to CSPs, and must take either a post-graduate FEE-HELP load (if available) or undertake a FULL-FEE place.

An alternative option is FEE-HELP (formerly PELS). FEE-HELP provides eligible fee-paying students with a loan to cover their postgraduate tuition fees. This option is only available for post-graduate students attempting an eligible post-graduate course. In 2007, the FEE-HELP lifelong limit is $80,000, and $100,000 for students studying dentistry, medicine or veterinary science. Students cannot borrow any more than $50,000, even if once debt is repaid. See the official website for details.

Once a student has used up all of their SLE points, they may only study under a FEE-HELP course (capped at $50,000) or as part of a FULL-FEE course. Full-Fee courses are relatively expensive courses where students must pay their all of their tuition costs upfront, which is a significantly larger debt than a standard HECS-HELP loan, usually taken for its lower academic entrance requirements.

FEE-HELP courses are available at a post-graduate level (and occasionally for some undergraduate FULL-FEE places) however they are not available at every institution or in every course. The only remaining option is a FULL-FEE place paid upfront.

Once students have used all of their SLE points, students however cannot enroll in an undergraduate degree again unless it is a FULL-FEE place.

Indexation Rate Formula

The indexation rate equal to CPI (currently 2.8%) is applicable to the part of the debt that has been unpaid for 11 months or more. Thus, indexation is calculated on the opening balance plus any debts incurred in the first half of the current year deducting any compulsory or voluntary repayments.

After the indexation rate is applied to one's account, the new balance must be a whole dollar amount. Any cents in the total are discarded.

Student loan

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Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually carry a lower interest rate than other loans and are usually issued by the government. Often they are supplemented by student grants which do not have to be repaid.

Interest-only loan

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An interest-only loan is a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the borrower may enter an interest-only mortgage, pay the principal, or (with some lenders) convert the loan to a principal and interest payment (or amortized) loan at his/her option.

US interest only mortgages

In the United States, a five or ten year interest-only period is typical. After this time, the principal balance is amortized for the remaining term. In other words, if a borrower had a thirty-year mortgage loan and the first ten years were interest only, at the end of the first ten years, the principal balance would be amortized for the remaining period of twenty years. The practical result is that the early payments (in the interest-only period) are substantially lower than the later payments. This gives the borrower more flexibility because he is not forced to make payments towards principal. Indeed, it also enables a borrower who expects to increase his salary substantially over the course of the loan to borrow more than he would have otherwise been able to afford, or investors to generate cashflow when they might not otherwise be able to. During the interest-only years of the mortgage, the loan balance will not decrease unless the borrower makes additional payments towards principal. Under a conventional amortizing mortgage, the portion of a payment that represents principal is very small in the early years (the same period of time that would be interest-only).

Interest-only loans represent a somewhat higher risk for lenders, and therefore are subject to a slightly higher interest rate. Combined with little or no down payment, the adjustable rate (ARM) variety of interest only mortgages are sometimes indicative of a buyer taking on too much risk- especially when that buyer is unlikely to qualify under more conservative loan structures.

Because a homeowner does not build any equity in an interest-only loan he may be adversely affected by prevailing market conditions at the time he is either ready to sell the house or refinance. He may find himself unable to afford the higher regularly amortized payments at the end of the interest only period, unable to refinance due to lack of equity, and unable to sell if demand for housing has weakened.

Due to the speculative aspects of relying on home appreciation which may or may not happen, many financial experts such as Suze Orman advise against interest-only loans for which a borrower would not otherwise qualify.

Interest-only loans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. For example, second homes, or properties bought for letting to others. In the United Kingdom in the 1980s and 1990s a popular way to buy a house was to combine an interest-only loan with an endowment policy, the combination being known as an endowment mortgage. Homeowners were told that the endowment policy would cover the mortgage and provide a lump sum in addition. Many of these endowment policies were poorly managed and failed to deliver the promised amounts, some of which did not even cover the cost of the mortgage. This mis-selling, combined with the poor stock market performance of the late 1990s, has resulted in endowment mortgages becoming unpopular.

Canadian interest only mortgages

Some interest-only mortgages in Canada allow the borrower to pay interest-only, principal and interest, or even principal and interest plus 20% extra. An interest-only mortgage in Canada can be combined with corporate bonds in a Registered Retirement Savings Plan (RRSP) where the plan holder receives a tax deduction, tax deferral, and compound interest.

From an investor's perspective

Interest-only loans are sometimes generated artificially from structured securities, particularly CMOs. A pool of securities (typically mortgages) is created, and divided into tranches. The cashflows that are received from the underlying debts are spread through the tranches according to predefined rules, an Interest-only (IO) loan is one type of tranche that can be created, it is generally created in tandem with a principal only (PO) tranche. These tranches will cater to two particular types of investors, depending on whether the investors are trying to increase their current yield (which they can get from an IO), or trying to reduce their exposure to prepayments of the loans (which they can get from a PO).

Many homeowners saw the values of their homes increase by as much as 4 times its price in some markets in a 5 year span in the early 2000s. Interest-only loans helped homeowners afford more home and earn more appreciation during this time period. However, interest-only loans have contributed greatly to creating the current housing bubble situation, because many borrowers could not afford the fully indexed rate. Interest-only loans may turn out to be bad financial decisions if housing prices drop, causing those borrowers to carry a mortgage larger than the value of the house, which in turn will make it impossible to refinance the house into a fixed-rate mortgage.

Calculating an interest only payment

Calculating an interest only payment is very simple when compared to calculating an amortizing payment. When calculating for a monthly interest only payment, one simply multiplies the monthly interst rate times the principal.

For example, the principal on a particular interest only loan is $10,000. The yearly interest rate is 6%. Therefore, the monthly interest rate is is .5%. (6/12 =.5) To calculate the payment, multiply the .5% or .005 X 10,000 which results in a payment of $50.00. This payment is due each month. This seems like a steal, but when applied to the more typical numbers of a mortgage, such as a $200,000 mortgage at 8% yearly, the interest only payment would be $1,333.33 each month. Then, when you consider the payment on a mortgage with the same numbers amortizing over 30 years is $1,467.53, it doesn't look like the interest only loan is such a great deal because it will never be paid. Interest Only Calculator

Types

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Secured

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security - a lien on the title to the house - until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

Unsecured

These may be available from financial institutions under many different guises or marketing packages:

credit card debt,
personal loans,
bank overdrafts
credit facilities or lines of credit
corporate bonds

The interest rates applicable to these different forms may vary depending on the lender, the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

Loan

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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.