New Loan Repayment Option Helps Out Students
Posted 25 Jul, 2009
I was shocked and upset when I read November’s reports that student debt was outstripping potential post-graduate income–and I am even more stunned that this kind of borrowing is becoming even more commonplace.
Luckily for these students, the new loan repayment plan under 2007’s College Cost Reduction and Access Act finally went into effect July 1st–and it could change the way students pay back educational loans forever.
Help for the Helpless
For years we’ve been seeing newspaper reports detailing students’ struggles to repay their student debt; in fact, it was one of the first things I wrote about when I began this blog a few years ago. Too many college graduates were forced to delay career opportunities, home ownership, and even parenthood because of the weight of student debt.
The new repayment plan offers a great deal of help for those students whose federal education loan debt is larger than their annual income. Some of the plan’s helpful components are as follows:
- An Income Percentage. Students can pay back loans as a percentage of their income rather than a fixed dollar amount. The current repayment under this plan is set at 15% of a student’s annual income. That means that students will pay less when their income drops (especially timely during the current recession).
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- No Payments for Poverty Level. In addition to the income percentage rule, those graduates who make less than 150% of the federal poverty level income will not be required to make any payments on their loans until their income level rises above that number.
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- Loan Forgiveness. The new laws also offer some loan forgiveness opportunities. Graduates working in public-service positions (such as law-enforcement, teaching, etc.) can have the remainder of their loans forgiven after only 10 years of on-time payments. Others can have their remainder forgiven after 25 years of on-time payments.
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- Capped Maximum Payment. The repayment is capped at the dollar amount the graduate would have paid on the standard ten-year repayment plan.
The Catches
There are some “catches” to the new plan, however. Though they are minor, I feel it is always best to be aware of the pitfalls as well as the perks.
- Not for Every Loan. The new repayment plan only works for certain federal loans, including the Stafford loan, Graduate PLUS loan, and certain consolidated loans. It is not available for PLUS loans for parents, or for any non-federal student loans. It can also not be applied to old loans that are currently in default.
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- Higher Repayment for Some. While the new plan means those with lower incomes will pay less, it also means they will have to pay more when their income increases.
.
- More Complicated. Borrowers will have to submit their tax returns each year so their monthly payment can be recalculated.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
photo: svilen001
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I was shocked and upset when I read November’s reports that student debt was outstripping potential post-graduate income–and I am even more stunned that this kind of borrowing is becoming even more commonplace.
Luckily for these students, the new loan repayment plan under 2007’s College Cost Reduction and Access Act finally went into effect July 1st–and it could change the way students pay back educational loans forever.
Help for the Helpless
For years we’ve been seeing newspaper reports detailing students’ struggles to repay their student debt; in fact, it was one of the first things I wrote about when I began this blog a few years ago. Too many college graduates were forced to delay career opportunities, home ownership, and even parenthood because of the weight of student debt.
The new repayment plan offers a great deal of help for those students whose federal education loan debt is larger than their annual income. Some of the plan’s helpful components are as follows:
- An Income Percentage. Students can pay back loans as a percentage of their income rather than a fixed dollar amount. The current repayment under this plan is set at 15% of a student’s annual income. That means that students will pay less when their income drops (especially timely during the current recession).
. - No Payments for Poverty Level. In addition to the income percentage rule, those graduates who make less than 150% of the federal poverty level income will not be required to make any payments on their loans until their income level rises above that number.
. - Loan Forgiveness. The new laws also offer some loan forgiveness opportunities. Graduates working in public-service positions (such as law-enforcement, teaching, etc.) can have the remainder of their loans forgiven after only 10 years of on-time payments. Others can have their remainder forgiven after 25 years of on-time payments.
. - Capped Maximum Payment. The repayment is capped at the dollar amount the graduate would have paid on the standard ten-year repayment plan.
The Catches
There are some “catches” to the new plan, however. Though they are minor, I feel it is always best to be aware of the pitfalls as well as the perks.
- Not for Every Loan. The new repayment plan only works for certain federal loans, including the Stafford loan, Graduate PLUS loan, and certain consolidated loans. It is not available for PLUS loans for parents, or for any non-federal student loans. It can also not be applied to old loans that are currently in default.
. - Higher Repayment for Some. While the new plan means those with lower incomes will pay less, it also means they will have to pay more when their income increases.
. - More Complicated. Borrowers will have to submit their tax returns each year so their monthly payment can be recalculated.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
photo: svilen001
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Subscribe by Email
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