Private borrowing for student loans grew after Congress overhauled bankruptcy laws and made such debts non-dischargable in personal bankruptcy.
That change meant that “there were very few reasons for banks not to make educational loans to anybody who wants them,” Hartle said. “Most students who get in trouble by borrowing huge amounts of money get there because they have borrowed from private lenders” without the knowledge of their college or institution, he said.
It’s common for students to have more than one kind of loan, taking out the maximum government loan and then supplementing with private loans.
Loan Types
The most popular government loan is the Stafford. Subsidized Stafford loans are limited to students with lower incomes, and the interest rate is 3.4 percent, set by Congress. The government pays the interest during school.
The interest rate will increase to 6.8 percent on new originations if Congress doesn’t act by July 1.
Any undergraduate, regardless of income, can get a Stafford unsubsidized loan at 6.8 percent.
The federal loan limits for undergraduates are $5,500 the first year, $6,500 the second year and $7,500 in the last years. Graduate students no longer dependent on their parents also can take out Stafford loans.
Another type of direct federal loan, called PLUS, carries a rate of 7.9 percent for parents and graduate students.
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