The USA Today highlighted some of the July 1st changes to the federal student loan program that lowered rates and made repayment easier.
But current students aren't the only ones who benefit. There is help for graduates, too.
But before you even think about a private loan, make sure you have maxed out on your federal student loans. Federal student loans have fixed interest rates and more flexible repayment terms than private loans. If you have trouble making payments after you graduate, the federal government offers several programs that provide relief (more on this later). Private lenders aren't required to do anything to help troubled borrowers.Additionally, the maximum Pell Grant increased to $5,500.
All PLUS loans (Parent Loan for Undergraduate Students) are now issued through the Direct Loan program. Like Stafford loans, these loans were previously offered by private lenders, as well as through the Direct Loan program. The rate for Direct PLUS Loans is 7.9% vs. 8.5% for FFEL PLUS Loans. Parents can use PLUS loans to pay for any college costs that aren't covered through Stafford loans and financial aid. Graduate students are also eligible to borrow through the PLUS program.
Rates for subsidized Stafford loans, which are available to borrowers who demonstrate economic need, fell to 4.5% from 5.6%. This new rate will apply only to subsidized Stafford loans issued between July 1, 2010, and June 30, 2011, says Robert Murray, spokesman for USA Funds, a non-profit company that services loans. Rates on subsidized loans issued before July 1 won't change, he says. The rate for unsubsidized Stafford loans, which are available to all students, remains at 6.8%.
Origination fees for Direct Stafford loans dropped to 1% from 1.5% on July 1. Because the cost of the fee is deducted from the proceeds of the loan, the reduction will increase the amount of money available to pay your college costs, Murray says.
But current students aren't the only ones who benefit. There is help for graduates, too.
Learn more about the July 1, 2010 federal student loan benefits.
Other changes that took effect July 1 could provide relief for graduates who aren't making enough money to afford their loan payments.
The income-based repayment program allows federal student loan borrowers to have their loan payments reduced, based on income and family size. For most eligible borrowers, loan payments will be less than 10% of their income. Two updates to the program could lower payments even more for some borrowers:
Married couples will no longer be penalized. Previously, when couples filed a joint tax return, the program assumed that both spouses could use 100% of their combined income to make loan payments. In cases in which both spouses had student loans, the minimum payments were much higher than the minimum for unmarried borrowers with the same debt and income, says Lauren Asher, president of the Institute for College Access and Success. The new formula will take into account married couples' combined income and their combined debt to calculate minimum payments, Asher says.
Eligibility for income-based repayment will be based on the balance when the loan went into repayment or the current loan amount, whichever is greater. This will primarily benefit borrowers who have gone into forbearance or deferment, Asher says. These programs allow borrowers to temporarily suspend payments, but if interest accrues during the period, they end up with a larger loan balance.
