Student loans in Germany and the USA.
Fully financed education is no longer possible
The national governments can no longer finance the whole state education system. To disburden the national treasury in countries, which finance college and university students, they introduced tuition fees. To support und help them furthermore, they have grant systems to decrease their living expenses. Subsequently, students in Germany now, like their counter-parts in the USA, need to look for credit offers and take out student loans to finance their studies. The following looks at what is on offer for student loans in Germany and the USA.
BAföG supports German students
Not long ago, Germany did not have student fees, the students did not have to pay for their university education. The students only had to finance their living expenses while studying for free. As far as the German state was concerned this could be done by a students parents, either giving or lending the money to the student; or if that were not possible due to the parents financial situation the student could apply for a federal German student loan called a - Bundesausbildungsförderungsgesetz, or BAföG for short. Anyone eligible for a BAföG loan will take it; but they might still need to apply for a further student loan from a commercial finance company.
If a student is eligible for the BAföG loan, he has to pay only the half of the amount back to the government and also the percentage rate of interest is very low for the BAföG. The system is very thought-out because the students get the money as long as they study and the repayment starts when they are at a certain level of remuneration. As if that’s not good enough; in most cases the government will also ‘write-off’ the other half of the loan on graduation, in effect turning half of the loan into a grant. Eligibility for a BAföG loan is dependant on parental income and applications are ‘means tested’. That is to say the size of a BAföG loan can vary from a 100% loan - downwards; according to the parents’ capability to contribute to the student’s education. Even being awarded a 1% BAföG loan is useful to a German student, as the award of any BAföG loan also gives them access to reduced costs in some other services.
BAföG in Germany, FSA in the USA
The national system in the USA for supporting students financially is called Federal Student Aid (FSA), but this program for USA student loans runs only if the different states can have their own systems for supporting students. The FSA can award student loans and grants according to the individual circumstances of an application. However, the basic tradition in the USA is that student financing is very much seen as the responsibility of the family that the student comes from, or even entirely the students own responsibility. Many parents in the USA start a savings account at the birth of a son or daughter, solely to finance them through college or university. Whilst any student can apply to the FSA program most awards are in the form of a loan. Whilst the loans carry a low interest rate comparable to that of a German BAföG loan; the repayment period will, in anything other than highly exceptional circumstances, begin within 12 months of graduating -whether the person owing the money is in work or not.
Welcome to the reality
For students in the USA it is not new to take out commercial loans to cover their expenses, when the FSA or the parents can’t help financially, but for German students this situation is totally new. However, this ‘new reality’ is now accepted and German students are becoming quite adept at finding good deals on student credit offers. Reputable and established German finance companies offering student loans appreciate that they are lending money to the countries future ‘high earners’. Subsequently, they are keen to establish a long term relationship with their customers and will off student loans at highly favourable rates.