|Cliché:||Take out a loan.|
|POCS Reality:||Federal student loans are a form of financial aid to help pay for college.|
The student loan crisis goes on and President Obama announced some ways to reduce debt for 1.6 million student loan borrowers. This is an update from my prior blog.
First the existing help:
There is an Income-Based Repayment (IBR) Plan for federal Stafford student loans, student Grad PLUS, and Consolidation Loans not in default that caps monthly payment at an amount intended to be affordable based on income, family size, and state of residence.
The annual IBR repayment amount is 15 percent of the difference between your AGI and 150 percent of the Department of Health and Human Services Poverty Guideline for your family size and state. This amount is then divided by 12 to get the monthly IBR payment amount.
Use the IBR calculator to determine if your monthly payment would be lower than under the 10-year standard repayment plan. Note that borrowers may end up paying more interest because the longer the repayment period, usually the more interest is paid. However, after 25 years of repayment under IBR and meeting certain other requirements, any remaining loan balance will be canceled.
All or a portion of Perkins Loans may be forgiven under certain circumstances for the following occupations: teachers, firefighters, librarians, speech pathologists, Vista or Peace Corps volunteers, veterans, totally and permanently disabled, attorneys, nurses and medical technicians.
Stafford, Grad PLUS Forgiveness Programs
All or a portion of Stafford andGrad Plus Loans may be forgiven under certain circumstances for the following occupations:
For public service
Then what’s coming:
- Originally slated to start in 2014 but now fast-tracked to begin next year, the “Pay As You Earn” proposal will reduce monthly student loan payments for more than 1.6 borrowers from 15 percent to 10 percent of their discretionary income. The period of repayment years under IBR to achieve forgiveness of loan balances has been reduced from 25 to 20 years.
- 6 million student borrowers have federal student loans under two different programs- the old Family Education Loans (FFEL) program and the Direct Loan program. They will be able to consolidate their split loans into the Direct Loans, make one combined monthly payment instead of 2 or more, and receive up to a ½ % interest rate reduction:
Borrowers who take advantage of this special, limited-time consolidation option would also receive up to a 0.5 percent reduction to their interest rate on some of their loans, which means lower monthly payments and saving hundreds in interest. Borrowers would receive a 0.25 percent interest rate reduction on their consolidated FFEL loans and an additional 0.25 percent interest rate reduction on the entire consolidated FFEL and DL balance.
- The Department of Education in conjunction with the Consumer Financial Protection Bureau (CFPB) will launch a new “Know Before You Owe” project. The goal is to help students and their families make an informed decision about where to attend college and the debt burden they may be left with. A model financial aid disclosure form for colleges to help students better understand the types and amounts of their aid and compare financial aid packages offered by different schools will be created.
This “Financial Aid Shopping Sheet” makes the costs and risks of student loans clear upfront – before students have enrolled – outlining their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal aid.
College students and their families can provide input about the form to the CFPB on its website http://consumerfinance.gov/students/knowbeforeyouowe
www.studentaid.ed.gov or call 1-800-4-FED-AID
www.nslds.ed.gov federal loan information
POCSmom’s College Prep DIY Insight: There is info to help the college-bound prevent their own student debt crisis. Graduates with heavy debt that do not qualify for loan forgiveness/consolidation continue to struggle.