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FDIC Consumer News
Student Loans: What's New, What's Important
With college costs soaring, student loan debt is at a record high. That's why it's important for students and parents to carefully consider how to pay for college. If savings, grants and scholarships aren't enough, student loans can help finance an education, but you must fully understand the different types of loans available. FDIC Consumer News offers this update on key things to know about student loans.
The most common federal loan, the Direct Stafford loan, provides many benefits to borrowers that private loans generally do not. "Stafford loans offer low interest rates that are fixed, a variety of repayment plans — including plans that base your monthly payment on your income — and a program where borrowers who have a public service job can have a portion of their balance forgiven under certain circumstances," added Susan Boenau, Chief of the FDIC's Consumer Affairs Section.
In the past, borrowers received federal student loans from banks and other financial institutions. Under a new law that went into effect July 1, 2010, all federal student loans will be provided directly from the government through the financial aid office at the postsecondary institution the student is attending.
To apply for federal student aid as well as most state and college aid, you must first complete and submit a Free Application for Federal Student Aid (FAFSA). The easiest way to apply is with FAFSA on the Web.
In addition to the federal aid provided to the student, parents may apply for a Direct Plus Loan to help pay their child’s education expenses.
To find out about all the federal student aid programs and their benefits, go to www.studentaid.ed.gov.
Private student loans may help pay for expenses not covered by Stafford loans or other federal loans and financial aid, but do your homework before borrowing.
"Many private student loans have interest rates that may change periodically, which could increase your monthly payments," said Heather St. Germain, an FDIC Consumer Affairs Specialist. "It also is difficult to find a private lender that provides repayment options as attractive as those offered by the federal government."
Parents and students also should remember that some private loans can carry high interest rates.
Finally, we want to remind students that loans must be repaid — and that isn't always easy on a starting salary — so don't borrow more than you need for school-related expenses.
For more information for students and parents from the FDIC, the U.S. Department of Education and other government agencies — on topics ranging from money tips for young adults to saving for college — start at www.mymoney.gov/category/topic1/going-college.html.
Last Updated 11/19/2010