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Guaranteed Student Loans

As you study the different loan options available to help you fund your college education, you find something referred to as a “guaranteed” loan, but you can't find any explanation as to what this means. What are guaranteed student loans, and how are they different from standard loans?

A guaranteed student loan is one that is provided by a lending institution but guaranteed by the federal government. What this means is that the federal government takes on the responsibility for seeing that the loan is repaid as agreed. The government is also responsible for paying the interest and paying the lenders to manage the loan. In the past, what is now known as the Subsidized Stafford Loan was simply called the Guaranteed Student Loan. However, because the same description applies to any state or federal loan that is guaranteed against default, the name was changed.

The reason for guaranteed student loans is that subsidized Stafford Loans are need-based. Therefore, a bank or educational institution who will be lending money to those receiving such loans cannot require the standard credit checks they would tack on with a typical loan. In order for a lending institution or private lender to agree to such a situation, there has to be an entity assuming the risk. In guaranteed student loans, the federal and state governments take on this responsibility, paying out subsidy payments to the lender, who then assumes no risk in the event of default. If you have financial need, this is one of the best ways to fund your college tuition, since the government will pay all interest until six months after you graduate, when repayment on the loan becomes due.

Note that the Unsubsidized Stafford Loans are not guaranteed. However, very few are paid out by comparison to those that are subsidized. In order to help alleviate the expense of such government funding as provided by guaranteed loans, there are other less costly government lending plans. The Federal government also provides direct loans, which are just as effective for students and drain less budget from the federal government than guaranteed student loans.

Paying for school is not easy, but we are here to help. OEDb's student finance section will help you find the money you need to pay your tuition and other college expenses. We cover scholarships, college grants, and student loans. Scholarships and grants are both forms of "free money", meaning they don't need to be paid back. Scholarships are typically awarded by businesses or individuals, with the money being earmarked specifically for tuition. They can be awarded based on a student's location or by religious affiliation, such as Catholicism or Islam. Grants are typically awarded by governments or non-profit organizations and the money often can be applied to several different expenses a student may incur, not solely tuition. They can be awarded based on location or ethnicity, for instance African American or Hispanic. Loans are not considered "free money", because unlike scholarships and grants, they do need to be paid back after graduation. Common federal loans include Perkins and Stafford. Loans are also available by location.