Tuesday, December 1, 2009

Positive changes coming for college loans

Posted By: Scott Graulich

If you've been to college, it's likely that you have them. Nobody likes them. They're confusing. They're annoying. They're a little scary. And they'll follow you until death (yes, even when you file for bankruptcy). If you haven't already guessed, they're student loans and they're on the docket for reform.

Two types of federal government guaranteed loans are available to help finance educational expenses: Federal Stafford Loans are provided directly to students and PLUS loans do the same for parents of current students. Currently, two federal programs offer these loans. In the Federal Family Education Loan (FFEL) program, banks provide the loans to students with the loans guaranteed by the federal government, which allows the loans to be offered at low interest rates. In contrast, funds for the Ford Federal Direct Loan (Direct Loan) program come directly from the federal government. Since the passage of the Omnibus Budget Reconciliation Act of 1993, which created the Direct Loan program, higher education institutions have been able to decide whether to provide student loans through private lenders (FFEL), directly from the federal government (Direct Loan) or from both sources.

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