Interviewer: Today we’ll talk about student loans. I don’t think anybody ever thinks about them very much until they have to pay them back. Just to start off with, what are the major types of student loans that are either out there or that people have trouble with?
There Are Government Student Loans and Private Student Loans
A. Campbell: When you you’re talking about student loans, they come under typically two categories. The first are governmental loans and the second are private student loans. There’s a big, big difference between those two.
The Number of Private Student Loans That Are Issued Has Increased in the Last 10 to 15 Years
The number of private student loans has been dramatically increasing in the last probably 10 or 15 years. Those types of loans are more difficult for people to deal with because there’s less programs out there to help people if they have financial problems. When you are applying for those loans, you’re dealing with private lenders and you’re dealing with a lot less sympathetic group of people.
Private Student Loan Lenders Are More Likely to Sue When the Loans Are Defaulted on
With a private student loan, you’re more likely to get sued by them if you don’t pay and there are less choices and options for students to choose from. With governmental loans, there are many different types that students can apply for.
What Are the Different Types of Government Student Loans?
Interviewer: What are some of the common names? For me, even though it was many years ago, I remember there was FASTA and I don’t even remember any of the other names anymore.
The Available Government Loans Include the Stafford, the Perkins and the Federal Family Education Loan Program
A. Campbell: There are direct student loans. There are Perkins loans. There’s FEFL , which is the Federal Family Education Loan Program. There is Parent Plus loans. There’s Stafford loans. You’ve probably heard a lot of those loans before.
The real problematic loans to deal with under the governmental category are the Parent Plus loans. Those tend to cause significant problems because for some reason, it’s exempted out of a lot of programs that enable people to repay under better terms. Shortly, I can explain that in more detail.
Are Student Loans That Are Subsidized Subject to Different Repayment Terms?
Interviewer: I know that some loans are get federally subsidized and then they have different restrictions on what you can do versus the ones that are not.
Approximately Half of a Stafford Loan Is Subsidized; Interest Is Capitalized on the Remaining Half While the Student Attends College
A. Campbell: Stafford loans are provided in two different formats, subsidized and unsubsidized. Generally speaking, when somebody gets a Stafford loan, about half of it’s going to be subsidized and about half of it is going to be unsubsidized.
This means the government will cover the interest for subsidized loans while you’re in school, but for the unsubsidized portion, the government does not cover the interest. So the interest is capitalizing while you’re in school.
That’s the difference, but the Stafford loans are still probably the best deals out there because they’re the easiest type of loan to deal with when you graduate compared to all the other loans.