Good News in Student Loan Reform
I don’t want you to miss some great news about college loans that is buried inside the new health care legislation.
Included in the pending health care bill is a series of changes to college lending that should be a help to many families. While the new regulations fall far short of closing the ever-widening gap between college costs and family incomes, it does provide some relief:
Beginning in 2014 the maximum loan amount will be indexed to inflation for five years, eventually rising to an estimated $5,975 up from today’s $5,500 maximum.
All Stafford, PLUS loans will be doled out directly by Federal Government
No more going to a private lender to get a federal loan. The Obama administration has cut out the middleman in issuing these loans, a move that is estimated will save $61 billion through 2019. Once the legislation is enacted students and parents will initiate their loans through the school’s financial aid office which will work directly with the federal loan programs. Student loan expert Mark Kantrowitz points out that this could be helpful to many families, as PLUS loans originated directly by the government have half the denial rate as PLUS loans that have been applied for via a private lender. The direct PLUS loans from the federal government also carry a lower interest rate-7.9%-compared to the 8.5% that was levied by the private lenders.
Limited Repayment Relief
The legislation incorporates changes to the income-based repayment rules that the Obama administration had proposed as part of the 2011 budget. Repayments will be based on 10% of the borrower’s discretionary income, down from 15%. And loan forgiveness will kick in after 20 years, compared to the current 25 years. But unfortunately this new repayment program is not effective until July 1, 2014 and it will only apply to loans taken out after that date. If you already have student loan debt, or you take out loans between now and July 1, 2014 you will still have to meet the 15% discretionary income rule, and your loans will be forgiven only after 25 years. As positive as the news is for future borrowers, I have to say not coming up with a way to help all the existing families dealing with crushing college loans is a big disappointment. You can’t say that education is the key to our nation’s future if you don’t find meaningful ways to make it more affordable.