What are Guaranteed Student Loans?

Guaranteed student loans are education loans that are guaranteed in the event of a default. Lenders lose money when student loan borrowers fail to repay the money they received. This risk may make lenders less likely to grant student loans. To encourage their willingness to provide student loans to needy students, a national or regional government often implements a loan guarantee program. Through such a program, a government agrees to ensure that lenders won't lose money on defaulted student loans.

Guaranteed student loan programs help students who might not otherwise be able to attend college. The families of such students may not be able to afford to pay college tuition or may be unwilling to contribute to their college education. Ordinarily these students would have to qualify for student loans based on their credit scores and their income. Guaranteed student loans, however, are often offered without credit checks. Additionally, they usually do not require students to have jobs or significant income.

A person who receives a guaranteed student loan is typically able to complete his college education without having to make loan repayments while he is in school. As long as he is attending school on at least a part-time basis, his loan repayments are usually deferred. He will typically have to begin repaying after he graduates or stops attending school at least part-time, however. Loan programs do vary, but many provide a six-month grace period after the student has left school. Students do not have to begin repaying their loans until after the grace period has passed.

Some guaranteed student loans are also subsidized. This essentially means lenders are paid incentives to participate in the lending programs. The amount of the subsidy a lending institution receives depends on the loan program. Interest is usually not charged on a subsidized loan during the grace period, but it may be required for unsubsidized loans. Once loan repayment begins on either type of loan, interest is charged.

The fact that a person receives a guaranteed student loan does not mean he won’t have to repay it. If a person defaults on a guaranteed student loan, he can be sued and suffer damage to his credit report. He may also have his paychecks garnished and have lump-sum repayments taken out of his tax returns. He may also be denied participation in other government-run,-sponsored, or-subsidized programs, including those intended for purchasing real estate. Loan repayments may even be taken from certain government benefits.