Compared to most nations, student loans play a significant role in U.S. higher education. Nearly 20 million Americans attend college each year, of whom close to 12 million – or 60% – borrow annually to help cover costs. As of 2021, approximately 45 million Americans held student debt, with an average student loan balance of approximately $30,000.
In Europe, higher education receives more government funding, so student loans are less common.In parts of Asia and Latin America government funding for post-secondary education is lower – usually limited to a few flagship universities, like the Mexican UNAM – and there are no special programs under which students can easily and inexpensively borrow money.
In the United States, much of college is funded by students and their families through loans, although public institutions are funded in part through state and local taxes, and both private and public institutions through Pell grants and, especially with older schools, gifts from donors and alumni, and investment earnings.Some believe this substantially increases intergenerational correlations in income (having two generations of a family have similar earning ability), although other factors have been estimated to play a larger combined role.
Historically, higher education in the US was perceived as a good investment for many individuals and for the public, even though differences in the returns of educational investment across schools were often overstated.
Student loans come in several varieties in the United States but are basically split into federal loans and private student loans. The federal loans, for which the FAFSA is the application, are subdivided into subsidized (the government pays the interest while the student is studying at least half-time) and unsubsidized. Federal student loans are subsidized at the undergraduate level only. Subsidized loans generally defer payments and interest until some period (usually six months) after the student has graduated.[26] Some states have their own loan programs, as do some colleges. In almost all cases, these student loans have better conditions – sometimes much better – than the heavily advertised and expensive private student loans.
Student loans may be used for any college-related expenses, including tuition, room and board, books, computers, and transportation expenses.