I have never hid my opinion from our readers that, if given a choice, federal student loans are far superior to private student loans. Federal student loans have lower interest rates, more favorable terms (such as income-based loan repayment), don’t require a co-signer, and freeze your repayments and interest while you’re in school. All these factors, coupled with the instability of the private loan market starting last fall, make federal student loans a much better option than private student loans for students. Congress concurs, which is why a House committee recently took up a bill to more closely regulate private student loans within its overhaul of banking regulations. If approved, the Consumer Financial Protection Agency Act of 2009 would create a new centralized fed...

President Obama’s plan to federalize student loans and increase funding for the Pell Grant cleared its first legislative hurdle today when the House Education Committee approved the plan. Known as the Student Aid and Fiscal Responsibility Act of 2009, the President’s plan would expand the number of students eligible for Pell Grants. Currently 40 percent of American college students receive Pell Grant assistance. In addition, the bill would tie the dollar amount of the Pell Grant to the rate of inflation, allowing for a maximum increase from $5,550 next year to $6,900 by 2019. In order to pay for the increase in Pell Grant funding, the bill would eliminate subsidies for federal student loans by private lenders such as Sallie Mae, replacing them with direct loans from the feder...

It looks like the last two weeks have unintentionally turned in to the “Student Loan Hour” here at the Financial Aid Finder. Earlier this week, I covered the New York Times piece on student loan debt. Five experts sounded off on the question, “How much student loan debt is too much?” (Did you answer that question for our student debt poll on Tuesday? Please do that now if you haven’t already!) You might also want to check out the Times’ follow-up to their student debt piece, appropriately titled Student Debt, Fool’s Gold? There are hundreds of reader comments that painfully, at times, illustrate the naivety with which so many students take out tens of thousands of dollars in student loans. If nothing else, it’s an eye opening read. *** I ha...

Yesterday, we talked about whether or not paying for college should be the parents’ responsibility. At the end of the post, I asked what you thought about cosigning a student loan. Is cosigning a great way for parents to help out their kids with the rising cost of college? Or is co-signing a slippery slope that does nothing but hinder both parties? Lots of financial experts out there have an opinion on this matter, and most of them say: Don’t do it! For example, here’s: MSN Money on why you should never cosign a loan Finance author Francine Huff on thinking long and hard before cosigning on a personal loan Talk show host Dave Ramsey on how cosigning can hurt your family Financial expert Suze Orman on why love means never having to say you’ll cosign Why do the expe...

The credit crisis has everyone on edge. If you are planning to take out student loans to help pay for your college education, you, too, may be worrying about how this financial crisis is going to affect you. If your credit rating isn’t all that good, your worry is probably pretty intense. But before you hit the panic button, take a deep breath and read this post… it’s got everything you wanted to know about getting a student loan in spite of your credit score! Apply for federal student loans first Remember that there are two kinds of student loans: those that are guaranteed by the federal government and those that come directly from private lenders without government guarantees. Government guaranteed loans take the form of one of three types: the Stafford Loan, the Perkin...

On Wednesday, President Obama revealed his budget plan, which includes a major overhaul of the current federal student loan program. The sweeping and controversial plan would completely alter the $85 billion student loan business, which currently profits companies like Sallie Mae to the tune of $4 billion a year. Here’s how: The way federal Stafford student loans work right now is that private companies, namely Sallie Mae and Citigroup plus a handful of other smaller lenders, receive subsidies from the federal government to originate student loans. The government then sets the allowable interest rate on these loans and guarantees to pay the losses to the lender if a student should go into default on the loans. According to Obama’s budget team, this subsidy is costing the govern...

According to this recent article on MSNBC, college students are scrambling for financial aid for next year: “The financing system for college is in real crisis,” said Barmak Nassirian, associate executive director of the American Association of College Registrars and Admissions Officers. “Every one of the participants in the system is experiencing hardship – higher education institutions, states, aid donors and families all are cash-strapped.” According to the article, college grants are down as schools struggle with their depleted endowments. Private loans are also way down. Last year, there were 60 private lenders loaning $19 billion. Today there are just 21 private lenders, and they are making it increasingly difficult to qualify for a private student loa...

Credit is retracting in nearly every sector – home mortgages are dwindling, business loans are down, car loans are non-existent.  But there is one area in which credit has actually expanded: Government-backed, higher education loans. The total number of student loans made in 2008 is up 18.6% from 2007, according to an article in today’s Wall Street Journal.  Home mortgages, on the other hand, were down 38%. At the same time that federal lending has increased, private education loans have shrunk.  Thirty-nine private lenders stopped making private loans, according to the WSJ.  The private loan sector, which accounts for one-fifth of total education lending, fell by as much as 25% in 2008. The Federal Reserve Bank is trying to kick-start private lending with a $200 billio...

For those of you whom graduated this past June, the grace period on your student loans is coming to an end.  Starting in January, you will be responsible for paying back the principle and interest of your student loans every single month, faithfully and on time, until they are paid off in their entirety. It’s a weighty responsibility, but there are a few things you need to know to make them a little more manageable. 1. Save money by setting up automatic withdrawals. If you have a federal student loan (Perkins or Stafford), you are entitled to a discounted interest rate (usually .25%) when you sign up for automatic deductions from your checking account.  This is a great deal for you and one that you should definitely take advantage of — not only will you save money on inte...

As the economy tanks and employment skyrockets, the number of former students struggling to pay off their student loans is likely to grow, too.  While failure to repay any debt can have serious consequences, not making payments on your student loan is especially grave.  Here’s a quick primer on what it means to default on student loans — and how to avoid it. What does “being in default” mean? If you are more than 270 days delinquent on your loan repayments (and have not arranged for deferment or forbearance), then you are considered to be in default.  Three out of four people in default dropped out of school.  I guess they didn’t know that even if you never graduated from school, you must still pay back your loans! These babies are with you for life &#...