Student Loans in The United States: The True Cost of a College Degree

Student loans play an important role in US higher education. Nearly 20 million Americans attend college each year, of which nearly 12 million — or 60% — borrow annually to help cover costs. This is a form of financial aid to help students access higher education. So how do student loans in the United States work and Tips for managing student loans will be covered in this article.

The background of student loans in the United States

The history of student loans in the United States can be traced back to the Higher Education Act of 1965, which provided federal funding for student loans. In the decades following, the federal government expanded its involvement in the student loan market, creating programs like the Federal Family Education Loan (FFEL) program and the Direct Loan program. The cost of college tuition continued to rise, leading to an increase in student loan debt.

In 2018, 70% of college graduates used loans to cover some or all of their expenses. In 2019, students who borrowed to complete their bachelor’s degrees owed about $30,000 after graduation. In recent years, there has been a growing movement to reform the student loan system and address the issue of student debt.

The background of student loans in the US

The types of student loans available in the United States

There are two main types of student loans available in the United States: federal and private loans.

The U.S. Department of Education provides federal loans, such as Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Based on financial necessity, the government covers the interest on Direct Subsidized Loans while the borrower is enrolled in school. Financial need is not a factor in Direct Unsubsidized Loans, and the borrower is in charge of paying the interest. Graduate students and parents of undergraduate students may apply for Direct PLUS Loans, which are credit-checked.

Banks, credit unions, and other lenders provide private loans. The terms and interest rates of these loans rely on the lender and the borrower’s credit history and are not guaranteed by the government. Private loans should only be taken into consideration after all government loan alternatives have been exhausted because they are often more expensive than federal loans.

The types of student loans available in the United States

How do student loans work in the United States? 

In order to pay for college tuition and other educational costs, students and their families in the United States might get loans from the federal government or private lenders. Students must submit the Free Application for Federal Student Aid (FAFSA) and be eligible for federal student loans. These conditions include being a U.S. citizen or an eligible non-citizen, making satisfactory academic progress, and not having any outstanding student loans.

The amount of federal student loans a student is eligible to receive depends on factors such as financial need, the cost of attendance, and the student’s grade level. Private student loans, on the other hand, are not based on need and are typically subject to credit checks. After receiving the loan, students are required to make payments either while they are in school or after they graduate, depending on the loan type.

How do student loans work in the United States? 

The Benefits and Drawbacks of student loans in the United States


  • Student loans make it possible for many people to attend college who might not otherwise have been able to afford it.
  • Federal student loans typically have lower interest rates than private loans, which can make them a more affordable option for borrowers.
  • Federal student loans offer a variety of repayment plans, including income-driven repayment plans that adjust payments based on the borrower’s income.


  • Unsubsidized federal loans and all private loans accrue interest while the borrower is in school, which can significantly increase the amount owed.
  • Borrowers who struggle to make their loan payments can face consequences like wage garnishment and damage to their credit score.

The future of student loans

The future of student loans

Since there are growing worries about the high levels of student debt and how they affect both borrowers and the economy as a whole, the future of student loans in the United States is questionable. Reforming the federal loan program with ideas ranging from streamlining the application process to wiping out some or all of your debt is one of the potential trends and advancements.

Emphasis on education with a skills-based focus: There may be a shift towards education with a skills-based focus, with more emphasis on programs and vocational training that prepare students for particular jobs. Technology advancements may also alter how students access educational resources and study, which may have an effect on the price and set up of higher education.


Student loans have played a significant role in making higher education accessible to many people in the United States. However, high levels of student debt have also become a concern for borrowers, policymakers, and economists. Federal and private student loans have their own benefits and drawbacks, and borrowers need to be aware of the repayment terms and consequences of default.

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