A good news for past, current or future loan takers with a new amendment to renegotiate your monthly student loan repayment bill to a maximum 15% of your discretionary income.

These new benefits will be affected from 1st of July. This will regulate the student loan payments for millions of Americans. These benefits were signed into law in 2007 as part of College Cost Reduction and Access Act. They include:studentloans

  • Low interest rates on need-based (subsidized) federal student loans. From 1st of July the interest rates on subsidized federal student loans will decrease from 6% to 5.6%. That’s 2nd from four annual cuts in this interest rate and it will continuously decrease down to 3.4% till 2011.
  • Affordable monthly college loan payments plan for borrowers. The implementation of this new Income-Based repayment program will be effected from 1st July, which allows borrowers to pay just 15% of their discretionary income (15% of what a borrower earns above 150% of the poverty level for their family size). The current or future borrower whose loan payment will be greater than 15% of their discretionary income is eligible. After 25 years in the program borrowers debts will be completely forgiven.
  • Pell Grant scholarships covering the average tuition at public universities. The maximum Pell Grant scholarship for the 2009/2010 school year will be $5,350 which is $600 more than last year’s award and funding will be provided by both the College Cost Reduction and Access Act and the American Recovery and Reinvestment Act.

This incentive will help the students and the borrowers to take advantage of other recent programs enacted under the law, which will make it easier for graduates to go into public service fields while grasping student debt. For encouragement of students the law provides up-front TEACH Grants for tuition assistance from $4,000 a year up to $16,000 maximum that’s for students who will be teaching high need subject areas in high need schools after their graduation for four years. These beneficial grants were started 1st in 2008/2009 school year.

Various recent surveys have shown interest of students in public service jobs. There is a programs for graduates who enters in public service careers like teachers, public defenders firefighters etc. will be eligible for complete loan forgiveness after 10 years if qualifying public service and loan payments.

Who benefits?

The interest rate cut…

  • Almost 5.5 million students borrow federal student loans every year. Half of these borrowers belong to the families whom income is between $26,000-68,000 as described by Congressional Research Service.
  • 38% African-American students take federal student loans every year.
  • 25% Hispanic students take out need-based student loans every year.

The Income-Based Repayment program…

  • Its hard to give any perfect estimation, approximately in end of 2008 there were almost $556 billion in outstanding federal loans which were having almost 95 million student loans and more than 30 million borrowers. Almost 8.9 million students borrowed federal loans in 2008.

The Pell Grant Scholarship…

  • Almost 6 million students got the Pell Grant scholarship in 2007/2008 school year and in them 75% students were those who had their family income below $30,000.
  • 47% African-American students receive the Pell Grant scholarships every year.
  • 37% Hispanic students receive the Pell Grant scholarship every year.

Who is eligible For Income-Based repayment?

  • Current borrowers who are paying back federal student loans and new borrowers whose debt increase 15% of their discretionary income. Mostly the borrowers who haves heavy debt loads or not having well paying jobs will 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.
  • Last thing is that the borrower must be having more debt comparing to his income to qualify for a reduced payment. For example if a borrower earns 150% below of their poverty level for their family size, then he have to $0. If they earn more then their payment will be capped at 15% of whatever their income is over that amount.
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Rana Mansoor Akbar Khan

Rana Mansoor Akbar Khan

Financial Blogger. Tech Journalist. Freelance web developer.


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  4. July 10, 2009 at 10:01 pm

    I thought I saw on the news that any unpaid student loans 20 years or older would be forgiven, meaning that they would no longer require you to reapay the loan… is this true….
    please let me know.

  5. November 13, 2009 at 1:19 pm

    Very informative article. Good blog.

  6. id
    November 15, 2009 at 12:28 am

    some helpful weblinks would take this post from good (as the previous poster posits) to great

  7. June 5, 2010 at 10:08 pm

    I see that my question has already been asked, however, I don’t see an answer…so…Is it trure that student loans older than 20 years will have the balance dismissed? Please reply. And please let me know what forms I need to process this matter and where I acquire them. Thank you.

  8. nomad
    August 10, 2010 at 2:25 pm

    student loans older than 20 years dismissed ? I too would like to know if its true.

  9. denise king
    February 13, 2011 at 9:33 pm

    can student loans older than 20 years be forgiven?

  10. […] New Student Loan Laws – Fair Loan Rate – You May be able to renegotiate your student loan payments. […]

  11. Christy
    September 28, 2011 at 4:10 pm

    Too bad this money doesn’t come until half way through the quarter and people are forced to drop out!

  12. joseph
    January 25, 2012 at 1:00 pm

    what they don’t tell you is that on the IBR plan, the interest will still go up and raise your loan even more. Sounds good to play 0 but not when you can’t afford the interest.. paying interest is like throwing your money away. my loan is estimated about 40,000 and the interest is 30,000, that is totally unjustified. i wrote a letter to my student loan company and told them to lower the interest or i will be able to pay them.. And I’m really poor.