Making Sense of It All: July’s Student Loan Facts

The introduction of the health care reform bill that passed through Washington this year also introduced several changes in the way students borrow money for college. The primary changes include no more federal subsidies to private lenders, more flexible repayment plans and lower federal loan rates. To navigate the sometimes challenging world of student loans, below is an outline of the recent developments.

First and most notably, the federal government will no longer be providing private lenders and financial institutions with subsidies for federally guaranteed student loans. This decision will save millions of dollars in taxpayer money, the government claims. Now, students will be receiving their federal loans directly from the government via a program called Direct Loan. The old private lender program, Federal Family Education Loan Program, is defunct. The federal loans issued through Direct Loan still retain their fixed rates and flexible repayment options for borrowers. If students find that these federal loans are not enough to cover their expenses, private lenders are still able to issue private student loans and many have significantly dropped their interest rates in order to attract more student borrowers. Just remember that these rates are generally not fixed and they do not usually offer any flexibility in regards to repayment.

The second significant change concerns the PLUS loans, otherwise known as the Parent Loans for Undergraduate Students. These loans are also issued via Direct Loan and can be used to pay for all the college expenses financial aid and Stafford loans donët cover. Also, despite the name, graduate students are eligible to apply for PLUS loans as well.

Other changes have effected loan rates and fees. The rates on several federal loans have dropped as of the first of July. For example, subsidized Stafford loans, issued to borrowers that display financial need, now boast a 4.5% rate which is down from the previous 5.6% rate. This rate is only in effect from July 1, 2010 to June 30, 2011. Also, origination fees for Direct Loans have dropped from 1.5% to 1%, which will increase the available amount of money for borrowers as the fee is deducted from the proceeds of the loan.

Concerning repayment plans, the government is now offering some borrowers the ability to calculate their payments based on their income and family size. With these changes, payments will be based on less than 10% of oneís income instead of the current 15% and married couples will no longer be penalized. Prior to this, married borrowers were paying much more than individual borrowers with the same amount of debt because the system would calculate both incomes for payment amounts, even if both people possessed student loans.

The changes made to the federal student loan program appear to offer students more choices and more flexibility when it comes to paying for their higher education.

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