Another difference to note between private and federal loans is that the latter come with greater safety nets.
The issue came to light last week when Sallie Mae, a private student lender, said it was changing how it handles a fee it charges unemployed borrowers who seek to suspend payments.
Sallie Mae isn't cancelling the $50 fee, but said it will now apply the money toward the borrower's loan balance if on-time payments are resumed for six months in a row. The change came after an online petition asking the company to drop the fee collected more than 77,000 signatures on Change.org.
By contrast, borrowers who are unemployed or suffering economic hardship aren't charged to defer payments on federal student loans. In addition, they can apply for a program called Income-Based Repayment, which caps monthly payments at 15 percent of annual income above $16,300. Those who earn less don't have to make any payments; any remaining debt after 25 years is forgiven, or 10 years for those entering public service jobs.
For borrowers who take out at least one federal loan this year, the cap on monthly payments will be lowered to 10 percent of income above $16,300. Borrowers will also be relieved of payments sooner, with any remaining debt forgiven after 20 years.
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