A Borrower's Guide to July 1, 2010
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
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 www.fafsa.ed.gov.
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
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 www.IBRinfo.org.
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
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 www.fafsa.ed.gov.
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