On October 26, 2011, President Obama announced new changes to federal student loans. These changes are additions to The Health Care & Education Reconciliation Act of 2010. Unfortunately, however, the changes announced in October 2011 won't go into place until 2012 and aren't available to students who graduated in or before 2011.
So just what are the changes? While there are more changes than are listed here, the following are a few key highlights:
1. Major change #1: You can consolidate some of your federal loans. There are some restrictions about this, but for many borrowers, this new consolidation option can decrease your interest rate, meaning your monthly payments will decrease ... meaning how much you have to pay back over the life of the loan will decrease, too. This option is available for borrowers who have guaranteed and direct loans. Consolidating them may lead to both lower payments and having to only write one check a month (instead of one for each federal loan you had). Contact the U.S. Department of Education (USDE) to see if your loans qualify since only certain kinds of loans, and certain kinds of borrowers, will qualify.
2. Major change #2: "Millions of college students never have to pay more than 10% of their income" in monthly federal student loan payments. This line, from a quick video explaining the changes, notes that the previous limit of 15% has now been lowered to 10%. Again, not everyone qualifies for this limit, so check with the USDE for more information about your account. At the very least, however, this provision provides a great sense of relief for new graduates who are struggling to find jobs (much less well-paying jobs) after they graduate and student loan payments start coming due. This change can also be especially helpful for graduates with high debt who are entering traditionally low-paying fields.
3. Major change #3: "All remaining debt is forgiven after 20 years of payments." Prior to the October 2011 changes, the time limit for payments was 25 years. As the explanatory video further describes, however, those involved in public service work are eligible for a drastically reduced payment time frame; the video states that remaining debt is forgiven "after only 10 years for teachers, nurses, members of the armed forces, and others in public service careers." Again, of course, there are limitations to this provision and only certain types of borrowers and loans qualify. If you're in one of the fields mentioned in the 10-year time frame, you may also be required to submit additional information verifying your line of work.
There are some things to keep in mind when analyzing the changes that were announced. First, remember that interest rates are expected to rise in July of 2012, so consolidating before then may be to your advantage. (In fact, The Chronicle of Higher Education reported in October 2011 that, in July 2012, "the interest rate on student loans will double, to 6.8 percent, costing the average borrower thousands of dollars over the life of his or her loan.") Second, student loan interest rates are set by Congress, not by the people you speak with if you contact the USDE. Third, these new options are available to current students only, so if you graduated in or before 2011 you aren't eligible. Your best bet, however, is to see what, if anything, you account qualifies for and go from there.
The U.S. Department of Education Federal Student Loan Servicing Department can be reached at their website or at 1-800-848-0979.
