Talking Loans | Background on student loans and recent legislative changes

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There are two types of loans available to college students: loans from the federal government and loans from private lenders. With private lenders, there is much variability since the interest rates and terms of repayment vary from company to company. Overall, they tend to have higher interest rates and less possibility of deferment. It is recommended that students pursue all available federal options before resorting to borrowing from a private lender.

With federal loans there are three loan programs: Stafford, Perkins and PLUS. With these loans, there is also a Federal Loan Cancellation program where loan recipients who work in the public sector, such as certain teachers, Peace Corps volunteers and public employees can have percentages of their loans forgiven.

Stafford loans have a grace period of six months, meaning repayment does not begin until after the student has been out of school for six months. For subsidized Stafford loans the government pays all the interest that accumulates during the student�s time in school, the grace period and any authorized deferment. In order to qualify, a student must demonstrate financial need. Unsubsidized loans require that the student pay the interest that accumulates during schooling and the grace period.

Perkins loans are prioritized for students with great financial need. Many of these students also receive Pell Grants, which do not require repayment. Perkins loans have a fixed 5% interest rate over ten years and a nine-month grace period. PLUS loans are given to parents of students in higher education. They have a grace period of six months or repayment can begin 60 days after the loan is fully disbursed. Previously, there was another option called Federal Family Education Loans (FFEL), but those were eradicated with the legislation President Obama signed into effect at the end of March.

For information about the current interest rates, loan limits, grace periods and loan forgiveness/cancellation programs please see Fast facts on federal student loans