Why People Get Government Guaranteed Student Loans

Many students look for student loans with a convenient government student loan repayment option. When looking for the loan, students will more often than not look for a government guaranteed student loan. This type of a loan is normally given out by any of several leading financial organizations or institutions but is guaranteed by the government. This basically means that the government ensures the lending institution that the student will repay the loan as required and as agreed. In addition, the federal government is also responsible for all interest that is incurred as well as all payments made to the lending company to facilitate the loan. A government guaranteed student loan is today referred to as the subsidized Stafford loan because the loan requirements are the same in almost all states.

Reasons For Getting A Government Guaranteed Student Loan

One of the reasons why many students find it necessary to take on these loans is because they actually need the money for the purpose of education and not for other expenses. In this case, the financial institution lending the money will not require conducting any background checks or confirming any credit worthiness. However, there has to be a party that is responsible for ensuring that the loan will be paid and this is where the government comes in. In case of a government guaranteed student loan, the lending company will not suffer any loss even if the student defaults for any given reason. The federal government will be responsible for any payments not made to the lender and all interest accrued until six months after graduation. In addition, some states also guarantee federal loans and ensure students in that particular state can get student loans from the same state.

To avoid the cost of a government guaranteed student loan, the federal government has options that are available to students to offer them student loans as opposed to guaranteeing their loans from lending institutions. This is because the government gets the fall if students default at some point. In addition, it will ensure that the government does not have to fund lending institutions to enable them offer loans to students. Instead, the government can do away with the government guaranteed student loan option and offer the loan directly to students. In addition, the government controls much of what happens when a government guaranteed student loan is taken and this reduces the amount of profit that the lending company actually makes. The government has to come up with a way to ensure that the lending companies do not suffer losses in case of defaults but they also have to ensure that they do not make too much money at the expense of the government.

No related posts.

Article source: http://mycreditmadeeasy.com/student-loans/why-people-get-government-guaranteed-student-loans/