New Student Loan Repayment Program Will Lower Your Payments
Great news, everybody. New federal student loan guidelines that go into effect July 1st will help you lower your monthly payments. According to the Chronicle of Higher Education:
The federal government’s new income-based repayment program, which takes effect Wednesday, allows borrowers to repay their loans as a percentage of their income, lowering payments for those with high debt-to-income ratios. Under the plan, which was created as part of the 2007 College Cost Reduction and Access Act, a borrower’s monthly payment will be set at 15 percent of the person’s monthly disposable income. Borrowers who earn less than 150 percent of the federal poverty level will not have to pay anything on their loan debt until their income rises.
The interest rates on student loans are also going to decrease.
Student-loan borrowers will also benefit from another change that is to take effect Wednesday, when interest rates in several federal student-loan programs will drop to all-time lows. That will make it more attractive for borrowers to consolidate their debt and lock themselves in at the new variable rates—2.48 percent for Stafford Loans and 3.28 percent for PLUS loans.
To find out if you qualify for the new repayment program and to see what your new payments would look like, log onto the Dept. of Ed’s website to view their repayment calculator.
July 1st, 2009 at 2:25 am
Great post, what i like the most is that repay of loans is as per percentage of their income and interest rate are also going to decrease.
July 1st, 2009 at 6:19 am
I hope they make the loan consolidation process straightforward so that many people take advantage of this great opportunity. But what does it mean to be “locked in” to a variable rate. Is it as ominous as it sounds?
July 1st, 2009 at 6:38 am
What happens to the debt during the time when you’re not paying (or paying very little)? Does interest continue to accrue and/or compound? I’ll be doing a medical residency and not getting paid much, so I’ll qualify for reduced payments on my huge med school debt – but is it worth it to do that if you can scrimp and pay the normal amount?
This is great for people who absolutely can’t make the normal payments, because it lets them go to school, but my understanding is that in the end, they end up paying quite a bit more.
July 1st, 2009 at 7:13 am
Serena: IBRinfo.org just launched a site to coincide with this announcement. There is a handy calculator there that can help determine if you qualify for Income-Based Repayment.
July 1st, 2009 at 7:18 am
Laura – that’s a really good question. My advice is to contact Sallie Mae and ask them directly. That or talk to your financial aid adviser at school. Mine was really helpful explaining the different types of deferment.
Thanks for posting that link, Nina. Perhaps that has the answer to Laura’s question about deferments.
July 2nd, 2009 at 10:36 am
Thanks for the link, and for the info – I’ll definitely go in and talk to the financial adviser, and see what she says.