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A Borrower's Guide to July 1, 2010

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, 2010, the interest rates on new Subsidized Stafford loans and existing variable-rate loans go down; two important Income-Based Repayment regulations get updated; and Pell Grants get bigger. Also, as of July 1, 2010 all new federal loans will be made through the Direct Loan program;

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, 2010. There is also a one-page summary of Federal Student Loan Terms for 2010-11.

Rates Go Down on New Subsidized Stafford Loans and Parent PLUS Loans

  • The fixed interest rate for new Subsidized Stafford loans drops from 5.6% to 4.5% 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. Students can apply for Stafford loans as well as Pell Grants and other types of federal student aid at

  • As of July 1, 2010 fees for federal Stafford loans will be 1%.

  • Until July 1, federal Grad PLUS and Parent PLUS loans had rates of either 7.9% or 8.5%, depending on which federal loan program a college chose. With all new PLUS loans coming through the Direct Loan program, the rate for all new Grad and Parent PLUS loans will be 7.9%.

All New Federal Student Loans will be Direct Loans

  • Beginning July 1, 2010, all federal student loans will be originated by the Department of Education through the Direct Loan program. The process of taking out a federal student loan will be the same as or easier than before, when a parallel program gave taxpayer subsidies to private lenders for making the same federal loans. Private lenders (such as Sallie Mae, Nelnet, or a bank) will now offer only private (or "alternative") loans that are not subsidized or guaranteed by taxpayers.

Fixes to the Income-Based Repayment program

Income-Based Repayment caps federal loan payments at a reasonable percentage of the borrower's income and forgives any remaining debt - including interest - after 25 years. It is available for all federal loans made to students. For more information, visit

Married Borrowers: When married couples both have federal student loans, they will no longer face higher IBR payments than their unmarried peers. For married borrowers who file their taxes jointly, lenders will factor in the couple's total federal student loan debt, as well as their total income, to calculate payments.  Originally, IBR did not recognize that joint income has to cover both spouses' federal loan payments, resulting in payment requirements up to twice what two equivalent single people would have to pay. 

Baseline Debt: IBR eligibility will be based on either the balance when the loan first entered repayment or on the current loan amount, whichever is greater.  This will allow borrowers whose loan balances have increased (often due to accrued interest during periods of deferment or forbearance) to qualify based on what they actually owe.

Pell Grant Maximum Award Increases to $5,550

  • For the 2010-11 award year, the maximum Pell Grant award rises to $5,550. (For the 2009-10 award year, the maximum award was $5,350.) This increase can help reduce how much students and families have to borrow for college.

  • Pell Grants are need-based grants from the federal government, and go mostly to students with family incomes below $50,000. They are available to both full-time and part-time students. To apply for a Pell Grant, start by filling out the Free Application for Federal Student Aid (FAFSA) at

Borrowers with Variable-Rate Loans Can Lock in New Low Rates

  • 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 slightly to 2.47% on July 1. If 2010 graduates have these older loans, they can consolidate during their six-month grace period to lock in an even lower rate, 1.87%. The variable rate for Parent PLUS loans will change to 3.27%.

  • 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. Most new consolidation loans are made through the Direct Loan program, and you must have Direct loans to qualify for Public Service Loan Forgiveness.

Links to More Information

  • Learn more about Income-Based Repayment, Public Service Loan Forgiveness, and whether you qualify at (updated IBR calculator will reflect new IBR rules as of July 1).

  • See an overview of federal loan terms and rates in 2010-11.

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