New Student Loan Information
June 25, 2009
The following information is from the House Committee on Education and Labor. Please visit their website for more information on this important issue.
Recentsurveys also show students’ interest in public service jobs is surging.Graduates who enter into public service careers, such as teachers,public defenders and prosecutors, firefighters, nurses, non-profitworkers and more, will be eligible for complete loan forgiveness after10 years of qualifying public service and loan payments. (This programbegan on October 1, 2007.)
WHO BENEFITS? A SNAPSHOT…
The interest rate cut…
The cost of paying for college is becoming even more burdensome forAmericans in this economy. While families are losing income, benefitsand jobs, college tuition prices continue to rise. The average studentnow graduates with over $22,000 in total student debt, includingfederal and private student loans.
Thisyear’s class of graduating college seniors also enters one of thetoughest jobs markets in decades for recent graduates. Of the 1.2million jobs lost last year, 60 percent were held by workers aged 25 oryounger. Their wages may also suffer: Economists have found thatworkers who graduated during recessions typically earn less over alifetime than workers who graduate in better economic times. Manyborrowers already spend high percentages of their paychecks makingstudent loan payments – and it’s only likely to get worse.
Giventhese challenges, it’s critical for current college students, new orsoon-to-be graduates, and workers to know about new benefits going intoeffect July 1 that will make student loan payments manageable formillions of Americans. (These benefits were signed into law in 2007 as part of the College Cost Reduction and Access Act.) They include:
Thisyear’s class of graduating college seniors also enters one of thetoughest jobs markets in decades for recent graduates. Of the 1.2million jobs lost last year, 60 percent were held by workers aged 25 oryounger. Their wages may also suffer: Economists have found thatworkers who graduated during recessions typically earn less over alifetime than workers who graduate in better economic times. Manyborrowers already spend high percentages of their paychecks makingstudent loan payments – and it’s only likely to get worse.
Giventhese challenges, it’s critical for current college students, new orsoon-to-be graduates, and workers to know about new benefits going intoeffect July 1 that will make student loan payments manageable formillions of Americans. (These benefits were signed into law in 2007 as part of the College Cost Reduction and Access Act.) They include:
- Cheaper interest rates on need-based (subsidized) federal student loans. On July 1, the interest rates on subsidized federal student loans will decrease from 6 percent to 5.6 percent. This is the second of four annual cuts in this interest rate; it will continue to drop until it reaches 3.4 percent in 2011.
- Reasonable and affordable monthly college loan payments for borrowers. On July 1, a new Income-Based Repayment program will go into effect that caps borrowers’ monthly loan payments at just 15 percent of their discretionary income (15 percent of what a borrower earns above 150 percent of the poverty level for their family size). Any current or future borrower whose loan payment exceeds 15 percent of their discretionary income is eligible. After 25 years in the program, borrowers’ debts will be completely forgiven.
- Higher Pell Grant scholarships that cover the average tuition at public universities. Due to funding provided by both the College Cost Reduction and Access Act and the American Recovery and Reinvestment Act, the maximum Pell Grant scholarship for the 2009-2010 school year will be $5,350 – more than $600 above last year’s award.
Recentsurveys also show students’ interest in public service jobs is surging.Graduates who enter into public service careers, such as teachers,public defenders and prosecutors, firefighters, nurses, non-profitworkers and more, will be eligible for complete loan forgiveness after10 years of qualifying public service and loan payments. (This programbegan on October 1, 2007.)
WHO BENEFITS? A SNAPSHOT…
The interest rate cut…
- Nationwide, about 5.5 million students borrow need-based federal student loans each year. According to the Congressional Research Service, half of these borrowers come from families with incomes between $26,000-68,000.
- About 38 percent of African-American students take out need-based student loans each year.
- About 25 percent of Hispanic students take out need-based student loans each year.
- While it’s difficult to estimate an approximate number of borrowers who could participate, at the end of 2008, there were almost $556 billion in outstanding federal loans, representing almost 95 million student loans to more than 30 million borrowers. In 2008, about 8.9 million students borrowed federal loans.
- About 6 million students received the Pell Grant scholarship for the 2007-2008 school year. Of these students, 75 percent had family incomes below $30,000.
- About 47 percent of all African-American students receive Pell Grant scholarships each year.
- About 37 percent of Hispanic students receive the Pell Grant scholarship each year.
- Borrowers who currently are paying back federal student loans and new borrowers, whose debt exceeds 15 percent of their discretionary income. Borrowers with hefty debt loads or low-paying jobs are most likely to qualify.
- The program covers all federal loans – both Direct and Federal Family Education loans – made to students, including Stafford, Grad PLUS and federal consolidation loans, but not those made to parents (PLUS loans). Perkins loans are also eligible if a borrower consolidates them into a FFEL or Direct Loan.
- A borrower must also have enough debt relative to their income to qualify for a reduced payment. If a borrower earns below 150 percent of their poverty level for their family size, their payment will be $0. If they earn above it, their payment will be capped at 15 percent of whatever their income is over that amount.