New student loan changes spell relief for many

Starting today, your monthly federal student loan payments can be linked to how much you can afford based on your salary and family size.

The major downside of this of course is that you’re pushing your payments further into the future, so you will ultimately pay more in interest over the long run. But for people facing an immediate financial hardship, it can be a real help. You can use this calculator to see how much your monthly payments might be lowered under the income-based repayment plan. The plan is most advantageous for people with high levels of student debt. If you have lower student debt, you may want to take a look at an extended repayment plan. 

Another feature of the plan is that after 25 years, whatever part of the loan that is unpaid is forgiven. Public servants can have their loans forgiven after 10 years of work in the field. Public service - as the U.S. Department of Education defines it - includes work in schools, government and many nonprofits. Mark Kantrowitz, publisher of FinAid.org, says that if you don’t plan on spending the full 10 years in public service required for loan forgiveness, you may want to look at some of the upfront loan forgiveness programs that are offered for civil servants.

Additionally, the interest rate on new undergrad subsidized Stafford student loans dropped today to 5.6 percent from 6 percent. It will continue to decline annually, reaching 3.4 percent by 2012–which may seem a little unfair to students taking out loans today.

With interest rates at rock bottom, now is also a great time to refinance existing Federal student loans if you have variable-rate loans originated before July 1, 2006 (student loans since have been fixed-rate loans). Former students in the 6-month grace period following graduation can now refinance to 2 percent, graduates already repaying loans can consolidate to 2.5 percent, and PLUS loans can be consolidated at 3.38 percent.–Chris Fichera

Comments

[John]

At the end of the article is states
"Former students in the 6-month grace period following graduation can now refinance to 2 percent, graduates already repaying loans can consolidate to 2.5 percent, and PLUS loans can be consolidated at 3.38 percent.–Chris Fichera"

who can I talk to about this?

[Cathy Elem]

My husband has over 44k in student loans, I watch him struggle by working 50+ weekly to keep us afloat, For the last 6 years my husband has worked for a few companies, all upgrading security systems for the USA. First company was through the State Dept, sending him all over the world securing the US Embassies and Consulates. Now he is working for a company upgrading security systems for the US water supplies and Dams through the BOR.

My question is this, for a while we have read that public service gives a huge break in student loans, yet, my husbands field is not involved. How can securing the safety of our soldiers over seas, and our countries water sources not be considered public service??

I would truly appreciate any help on this. My husband worked full time, raising his family, while going full time to acquire his two degrees, earning a huge mass of loans. He is the hardest working man I know, and no one deserves a reprieve more than he.

Thank you
C.Elem

[Chris Fichera]

John,

If you're looking to consolidate pre-July 1, 2006 student loans you can visit http://www.loanconsolidation.ed.gov/

Good luck,

Chris

[Rebecca]

There is a major loophole in this plan, which also places a major loophole in the public service forgiveness plan (because debtors need to repay according to this or the income contingent plan to qualify).

It penalizes married debtors, specifically those who are married to someone else with debt. Although the qualification calculation imputes a spouse's INCOME to the debtor, it does not impute that spouse's educational debt. So, each member of a couple making $120k/year that have a combined student loan debt of $250k is calculated -- according to this plan -- as having $120k income and $125k in debt: a ratio that does not qualify that person for this repayment under this plan. That ratio is a fiction, because the total household income goes to paying the other spouse's student loan debt, too.

This loophole prevents the long-term, 10 year plan from being really effective, because many people will go through the major life change of getting married, and suddenly find themselves ineligible for the public service repayment even though their spouse has just as much debt.

Sounds like a ploy to get debtors to consolidate with the Direct Loan servicer, not one to get more people to stay in public service!

[Margaret Crandall]

The Project on Student Debt is working on that penalty on married borrowers. During the "negotiated rulemaking" process for the Higher Education Opportunity Act of 2008, the Department of Education agreed to revisit the treatment of married borrowers.

* Current rule: When two married individuals both have student loan debt and file taxes jointly, they could face up to double the monthly loan payment of two unmarried borrowers in otherwise identical situations. This is because their combined income is used to calculate each spouse's own IBR payment, ignoring the fact that their joint income must be used to pay down both borrowers' debts.

* Negotiated change: When a married borrower whose spouse also has federal student loans applies for IBR, they will still look at the joint income, but they will also factor in the spouse's debt before calculating IBR payments.

The Department of Education still has to issue proposed regulations reflecting this agreement, and the final rule will be issued by November 1, 2009. Therefore, these rule changes may not go into effect until as late as July 2010, even though IBR is available now.

For more information, go to www.IBRinfo.org, and sign up for the email updates. There is also a short animated video explaining IBR here:

http://www.youtube.com/watch?v=SpJhC-2i6gI

Margaret Crandall
Project on Student Debt
www.IBRinfo.org

[Brad]

It would be helpful if someone could clarify if previously consolidated student loans can be reconsolidated through this program to take advantage of the low interest rates. From reading thought the program's website, it doesn't look like that is possible. It appears that only those who qualify for the Income Reduction Program, or are applying for the Public Service forgiveness program, or are currently in default can reconsolidate. I would love to reconsolidate my 6.75% student loans into something like the 2.5% mentioned above.

[loispoor]

I own a condo and have an outstanding balance of $140k, consisting of $104k primary and $36k secondary. I took the home equity to consolidate debts. At the time the property was valued at $163k but now it is valued at $134k. I'm looking to sell because i am engaged and will be moving into my fiancee's home. Check http://obamamortgage2009.blogspot.com/2009/03/obamas-mortgage-modification-do-you.html If I have a buyer who offers me within say $5-7k of the outstanding, can i agree to assume a loan on the residual and pay the bank the difference over time with interest? The same bank holds both mortgages.

[tawley]

I am one happy student loan debtor who has not been able to get employed beyond a part time retail job for 1.5 years and am really happy to have a new payment of zero.

http://www.associatedcontent.com/article/2288803/great_news_for_student_loan_debt_stressed.html?cat=3