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A Borrower's Guide to July 1, 2009
The first of July is an important date for people
with federal student loans: it's when interest rates and other terms change
each year. On July 1, 2009, Income-Based Repayment becomes available for the
first time; Pell grants get bigger; and the interest rates on new Subsidized
Stafford loans and existing variable-rate loans go down.
This is a guide to what college students, their parents, and people already
repaying their student loans need to know about the changes taking place on
July 1, 2009. There is also a one-page summary of Federal Student Loan Terms
for 2009-10.
Income-Based Repayment Becomes Available on
July 1
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Income-Based Repayment (IBR) can make your loan payments more
affordable by capping your monthly payments based on your income and family
size. The program covers almost all federal loans made to undergraduate and
graduate students, past, present, or future, including both Direct Loans and
federal loans from a private lender like Sallie Mae or Citibank. And any debt and
interest remaining after 25 years of payments will be forgiven.
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If you work in a government, nonprofit, or other
public service job, your federal student loans could be forgiven in as few as
10 years of IBR or other qualifying payments.
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More information is available at www.IBRinfo.org.
Pell Grant Maximum Award Raised to $5,350
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For the 2009-10 award year, the maximum Pell
Grant award has been raised to $5,350. (For the 2008-09 award year, the maximum
award was $4,731.)
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Pell Grants are need-based grants from the
federal government, and go mostly to students with family incomes below
$50,000. To apply for a Pell Grant, start by filling out the Free Application
for Federal Student Aid (FAFSA) at www.fafsa.ed.gov.
Rates Go Down on New Subsidized Stafford Loans
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The fixed interest rate for new Subsidized
Stafford loans drops from 6.0% to 5.6% for undergraduates. Subsidized Stafford loans go mostly to students with family incomes
under $80,000, and the government pays the interest while you're in school or
in deferment. Apply for Stafford loans at www.fafsa.ed.gov.
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Fees for all new Stafford
loans drop by half a percentage point, to 1.5% of the amount borrowed. This fee
decrease applies to new Subsidized and Unsubsidized Stafford loans for both
undergraduate and graduate students.
Borrowers with Variable-Rate Loans Can Lock
in New Low Rates
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All unconsolidated Stafford
loans that originated before July 1, 2006, have variable interest rates that
reset each year. This year, the variable rate is going down to 2.48% on July 1.
That's two percentage points less than the current low rate of 4.21%! For 2009
graduates, the news is even better. If you consolidate during your six-month
grace period, you can lock in an even lower rate, 1.88% on variable-rate federal loans.
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You can lock in these low rates by consolidating
variable-rate loans after July 1. When you consolidate multiple loans, the new
fixed rate will be a weighted average of the rates of the consolidated loans,
rounded to the nearest eighth of a percentage point. To qualify for Public
Service Loan Forgiveness, be sure to consolidate into the Direct
Loan program.
Links to More Information
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