Changes to the Federal Student Loan Program

Early 2010 saw many changes in the area of student loans. President Obama signed into act legislation that would increase the access US citizens have to higher education and make repayment of any financing received easier. Perhaps one of the biggest changes is the removal of subsidies toward private lenders taking education loans. The federal government is, instead, looking to provide student loans directly.

FEDERAL STUDENT LOAN PROGRAM

The US Federal Student Loan Program is available to any US citizen, regardless of income. The program was enacted to help the millions of Americans that would otherwise be unable to attend college, university, or trade school. In addition to the Federal Loan Program overall, there are additional federal grants, loans, and awards for which you may be eligible. Talk to the financial aid department of your university for more information.

INCOME-BASED REPAYMENT

Anyone who has a federal student loan can apply for income-based repayment, commonly referred to as IBR or Income-Contingent Repayment (ICR). IBR has been available since July 2009, so it is still relatively new. It means that your loan payments will stay affordable relative to your income. IBR payments are less than ten percent of your income (or 15 percent of discretionary income) and can be as low as $0. You are eligible for IBR for any federal student loan, be it for graduate school or undergraduate studies, new or old, and from any lender.

STUDENT LOAN FORGIVENESS

Under IBR, if you make your payments on-time for 25 years, your federal student loan debt will be forgiven. Have a job in government or a non-profit? If so, your debt may be forgiven after 10 years. The program is called Public Service Loan Forgiveness (PSLF) and includes all jobs in all forms of government, including hospitals, schools, universities, etc., and includes non-profit organizations, requires that you participate in IBR, and have a Direct federal student loan. If you do not have a Direct federal loan, you can always consolidate or reconsolidate into a Direct loan.

WHAT HAS CHANGED

Under the new legislation, IBR will be even more generous for borrowers who take out their first federal loan on or after 1 July 2014. There will be a lower payment cap and student loan forgiveness after just 20 years. In addition, the maximum Pell Grant will also increase under the new legislation, although changes will not go into effect until 2013.


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