Drop in income making it difficult to pay off student loans ?
Overview:
New Rules for Loans
By JONNELLE MARTE, WSJ
Description:
College students and recent graduates taking out or paying down federal loans are facing a flurry of changes.
The Health Care and Education Reconciliation Act of 2010 impacts various aspects of the federal student-loan program, from the way federal loans are originated to the options for paying them back.
Here's a rundown of the new rules, which took effect July 1:
Getting Financial Aid
The biggest change is that private lenders will no longer be able to offer federal loans. All federal student loans must now be funded directly by the Department of Education through the Direct Loan Program. Previously, private lenders could offer federal loans through the Federal Family Education Loan Program, which paid private lenders subsidies for offering federal loans.
"Now there is going to be a firm separation between private and federal loans," says Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, websites that offer information on financial-aid rules and scholarships.
And that change could mean more families will qualify for federal loans, says Mr. Kantrowitz, who recently analyzed loan-approval rates and found the denial rate for federal loans was twice as high among private lenders as it was in the Direct Loan Program.
Some parents and students may also see lower interest rates on new loans. Now that all Parent PLUS loans are under the Direct Loan Program, the fixed rate for new Parent PLUS loans is 7.9%. Some lenders had charged 8.5%.
And the fixed rate has dropped, to 4.5% from 5.6%, for new subsidized Stafford loans for undergraduates. With subsidized loans, the federal government pays the interest on a loan while the student is in school, during the grace period after graduation or if the loan is in deferment, which is when borrowers are temporarily allowed to stop making payments.
The Department of Education also has increased the maximum Federal Pell Grant award to $5,550 for the 2010-2011 academic year, from $5,350 for the 2009-2010 school year.
Paying It Back
When it comes to paying back federal-loan debt, graduates could see some relief because the law sweetens the terms of the Income-Based Repayment Program, which caps a borrower's monthly payment based on his or her income.
Borrowers now have the option of setting their monthly payments according to their current loan balances, instead of just their initial debt. This helps individuals whose debt has increased due to interest accrued during deferment or forbearance, when payments are postponed or reduced because of financial hardship.
Another change: the elimination of the marriage penalty for couples who file joint tax returns. Lenders will now factor in the couple's total student-loan debt and their total income when determining payment amounts.
Previously, joint income was factored in for each spouse, but not the joint debt, leaving some married people with payments twice as large as what a single person would have to pay, says Lauren Asher, president of the nonprofit Institute for College Access & Success. "It's a double-counting problem that will be eliminated," says Ms. Asher.
Write to Jonnelle Marte at jonnelle.marte@wsj.com
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Date added:
Monday, 23 May 2011
