The shine was off private lenders.
• In 2010, Uncle Sam took over: Private lenders waged an intense lobbying campaign to hang onto the government-backed student loan market. But in the end, Congress approved President Barack Obama’s plan to give commercial banks the boot.
Now, the entire federal student loan program belongs to Washington.
Banks and other private lenders still loan money to students on their own, without a federal guarantee. Some students need the outside help to fill in the gaps as college costs keep climbing.
And many people are still paying off student loans they got through private lenders under the old Federal Family Education Loan program before it ended on July 1, 2010.
• Under today’s system, direct federal loans are considered the better deal for students: The government loans generally have lower interest rates than bank loans. And the feds offer flexible payment options for people who have trouble with their bills after graduation.
Also, students who qualify for subsidized Stafford loans, based on financial need, don’t rack up interest charges while they’re in school. Students who go into public service careers such as teaching can have their loans forgiven or discounted. And graduates who work in exceptionally low-paying professions stand to have their loans completely forgiven after 25 years.
Students with federal loans are at the mercy of Congress and its bickering, however.
A messy standoff has temporarily doubled interest rates on new subsidized Stafford student loans this summer. But a bipartisan compromise promises to head off that rate hike before students sign up for loans in the fall.