The Student Aid and Fiscal Responsibility Act of 2009 have brought with it some major changes to federal college student loan programs. Although the intention of this law is to cut $87 billion from the federal deficit over the next 10 years, it does have repercussions for the borrowers as well.

The increasing cost of higher education is making it mandatory for many students to borrow at least some of their tuition. Many students and parents are not taking advantage of the federal student loan programs and instead opt to go for private loans. In this article we review the pros and cons of each of these types of loans so that you can make an informed decision when it comes time to pay for school.

Student Aid and Fiscal Responsibility Act Changes

Perhaps the single largest change to the federal student loan system is that the middle man has been cut out of the loop. In the past, these types of loans were handled by private banks, with the federal government subsidizing those loans. For some of those loans the government also subsidized the interest on the loan while the student was in school, and for others that interest was allowed to accumulate.

Although these two types of loans remain, there have been a number of positive changes to the system.

• For students who chose an income-based repayment plan, the minimum monthly payment is now capped at 10% of income instead of 15%.

• The time period to apply for loan forgiveness has been decreased from 25 years to 20 (10 for those in public service). What this means is that if you haven’t paid off all of your student debt after 20 years, you can then apply to discharge that debt. You do have to pay on it during that time however, so if you have defaulted then this option isn’t open to you.

• $4.55 billion has been set aside for aid to community and historically black colleges. If you fall into one of these categories then you will have a greater likelihood of receiving federal student aid than you did in the past.

• A tax credit of $2,500 has been created called the American Opportunity Tax Credit. Although not directly related to student loans, it is important enough information to include here.

• Simplifies the FAFSA. If you are planning to attend college it is imperative that you fill out the FAFSA (Free Application for Federal Student Aid). This form determines what your family’s expected contribution is, and thus how much federal student aid you are eligible for. Even if your parents make too much income to qualify for federal student aid, many scholarship programs or even your school’s financial aid office will require you to in order to qualify for these other forms of aid.

A very important consideration to make is that federal student loans have a fixed interest rate, while private loans are typically a variable rate. The bottom line is that if you qualify for federal student loans it will be a cheaper option for you over the long run than taking out a private loan. Still, some people decide to get a private loan instead.

Reasons to Get a Private Loan

Federal student loan programs require that you maintain a GPA of 2.0 or greater. Some federal student aid has even tighter restrictions than this. Private loans don’t have these restrictions, but you might want to ask yourself if you’re really in the right major if you’re getting these low of grades.

• Some for-profit schools don’t qualify for federal student loans, making private loans necessary.

• If your parents are unwilling to take out a PLUS loan, then you may have no other recourse than to apply for a private loan.

• There are limits on the amount of available federal student aid. If you’re attending a private school, it may not be enough to cover all of your costs, which will require you to take out a private loan.

• Although you will pay more in interest, it is possible that you will have lower monthly payments with a private loan. The only way to know for sure is to research the loan in question, but if minimizing monthly payments is a priority for you, then a private loan may be the better option.


Federal student loans are cheaper than private loans, so they should be considered first. If you fall into one of the discussed categories, then a private loan might be a good option. What you don’t want to do is dismiss federal funding in the belief that you won’t qualify, or by falling prey to the superior marketing of private loans.


Alexis Bonari is currently a resident blogger at College Scholarships, where recently she’s been researching and writing on field hockey scholarships. Whenever she gets some free time, she enjoys watching a funny movie or curling up with a good book.

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