It's extremely important to stay up-to-date on your loan terms. The following student loan changes became effective on July 1, 2009.
Lower Interest Rates and Origination Fees for Stafford Loans
For new subsidized Stafford Loans only, the fixed interest rate is 5.6 percent, down from 6.0 percent. Subsidized Stafford Loans are based on financial need and the interest is paid by the government while you are in school or your loan is in deferment.
For all new undergraduate and graduate Stafford Loans (both subsidized and unsubsidized), the origination fees have been reduced from 2.0 percent to 1.5 percent.
Low Variable-Interest Rates
Variable interest rates for all Stafford Loans originated before July 1, 2006 (unconsolidated loans only) are reset each year. On July 1, 2009, the variable interest rate reset to 2.48 percent (down from 4.21 percent). Students who consolidate during their six-month grace period are now eligible for a low interest rate of 1.88 percent.
New Income-Based Repayment Plan
Similar to the existing Income-Contingent Repayment plan (Direct Loan borrowers) and the Income-Sensitive Repayment plan (Federal Family Education Loan [FFEL] borrowers), the new Income-Based Repayment (IBR) plan is available to both Direct Loan and FFEL borrowers. The IBR plan provides a narrower definition of discretionary income and caps monthly payments at a lower percentage of discretionary income (less than 15 percent for most borrowers). The determination of what you should be able to pay is based on income and family size. Under this plan, debt and interest that remain unpaid after 25 years are forgiven.
There's one small snag with IBR; under current tax law, any loan amount that is forgiven will be taxed. A bill in the U.S. Congress, H.R. 2492 (Levin & Tiberi), seeks to bring this forgiveness program in line with other programs that exclude the amount forgiven from being taxed. Proponents of H.R. 2492 fear that taxation of the amount forgiven will either discourage borrowers from using this beneficial repayment plan or prove to be an unexpected payment hardship in the future if borrowers using IBR are not aware of this tax law provision.
Federal Pell Grant Increase for 2009-10
In addition to changes in the loan programs, Federal Pell Grants maximum awards will increase for the 2009-10 award year. The $4,731 maximum award for 2008-09 increases by approximately 13 percent to $5,350 in 2009-10.
About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.
DIY debt consolidation: 3 secrets for success
You're sinking fast in credit card debt, and there's not a life preserver in sight. Loans and balance transfer offers involve applying for more credit. Follow these tips for rescuing yourself from the dangers of excess debt.
Reducing debt or building savings?Even if you are following a debt reduction plan, it is important to try and build emergency savings.
When debt help is not enough: 3 reasons for filing bankruptcySituations can arise that make paying your bills impossible, or that render you ineligible for participating in debt relief efforts such as credit counseling. When you're enduring any of these circumstances, consulting a bankruptcy attorney can provide information about your rights and the consequences of filing bankruptcy.
Personal spending rises as income slipsPersonal income declined in August, but personal consumption expenditures rose, according to the Bureau of Economic Analysis.
3 reasons for consolidating credit card debtAre you paying more than one credit card bill each month? Have you overlooked a bill and incurred penalty interest rates or late charges? Consider credit card debt consolidation for simplifying debt management chores.
Guide to No Cosigner Student Loans
Are you a would-be student who would like to attend college, graduate school, or professional school, but are hesitant because you…
The advantages of using your local credit union to refinance your mortgageLocal credit unions increasingly are popular alternatives to traditional banks. While banks are privately owned,…
Debt Consolidation for Senior CitizensFew people have more financial choices, yet more opportunities to be overwhelmed by those choices, than senior citizens. Seniors…
What is the Best Loan and Debt Repayment Program?Incurring debt sometimes is necessary in order to meet one’s financial and personal goals, or to make payments for necessary…
Bad Credit Student Loans for High Risk StudentsCollege costs nowadays are through the roof and are only expected to rise in the future. Most students and/or their parents…