Experts: Choose federal over private loans

College courses are hard. But student loans can be even harder. A key tip from experts: Choose federal over private loans.



Young people are bearing the brunt of the Great Recession and the changes in the American economy.

In “Struggling for Work: Broken Dreams of a New Generation,” The Inquirer goes behind the unemployment rates and high college debt to describe the struggles young people are facing and detail what needs changing to help them.

To create this series, reporters interviewed more than 280 people — including millennials and their parents — and analyzed government data. Among those interviewed were economists, sociologists, and historians. Groups that specialize in work issues were consulted, including: the Georgetown University Center on Education and the Workforce, the John J. Heldrich Center for Workforce Development at Rutgers University, the MacArthur Foundation’s Network on Transition to Adulthood, the Community College Research Center at Columbia University, and the Center for Labor Markets and Policy at Drexel University.

Read more on how this series was reported.

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Here's why:

Federal student loans are not subject to credit checks, and there is no income limit.

If you lose your job, you can defer payments for up to three years.

You can pay back your loan as a portion of your income, typically 10 percent or less, as part of the income-based repayment program. People who faithfully make payments for 25 years will have their loans forgiven, regardless of what's remaining on the loan.

Those who work for a nonprofit organization or a government agency, and are enrolled in an income-based repayment program, can have their loans forgiven after 10 years.

Private loans often have variable rates and require credit checks. Pauline Abernathy, vice president of the Institute for College Access & Success (TICAS), said they're like using a credit card to finance an education.

Still, about 52 percent of student borrowers take out less than they could have in federal loans, according to the Project on Student Debt, a TICAS initiative.

There's widespread misinformation about federal loans, the project asserts.

Surveys show that students assume wrongly that their families earn too much for federal loans, or they believe the federal process is too complicated, or their schools don't point out the difference in types of loans.

Experts theorize that some students and their families don't like giving information to the government and would rather get loans from private institutions.

The takeaway message from the experts at the Project on Student Debt: "Use private loans only as a last resort."

   - Alfred Lubrano

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