“If you have to borrow for college, the best college loans are the ones available through the federal government, which provide the same student loan rates and terms for everyone,” CBS MoneyWatch reports. ‘If you are interested in pursuing private college loans, you need to proceed carefully. Here are seven things you need to know when shopping for private loans. Credit unions, which are newer players in the private student loan world, almost always provide better interest rates. Ironically most people stick with the well-known lenders even though their rates are typically higher. You can look for college loans at credit unions through cuStudentLoans.”
“College students are graduating into mountains of debt - and without the income to start dealing with the debt,” the Chicago Sun-Times reports. “But here’s a graduation present for every college student: a new website created by the college debt experts at Simple Tuition. It’s called PayBackSmarter.com, and it is the one site where you can gather all your student loans, figure out the required repayments and, most importantly, where you can compare the monthly payment changes and total cost changes of all the repayment plans available to you, including Income Based Repayment. Most people don’t know that they have options to lower the payment burden simply by selecting a different plan.”
“You’ve heard all about it: Student loans now outstrip credit card borrowing and total nearly $1 trillion,” Time Magazine reports. “The typical grad leaves campus owing $25,000. But some owe five to 10 times that figure. Indeed, SBI reports that 2.3 million have outstanding student debts of $50,000 or more - and that includes some 21,000 who have carried this debt into retirement. A good rule of thumb is to leave campus with no more total debt than your first year’s pay, or to keep your monthly student-debt costs to less than 10% of income.”
“The Income-Based Repayment (IBR) plan was designed to cap a borrower’s monthly student loan payments at a percentage of the discretionary borrower’s income, based on the borrower’s income and family size rather than the total amount of their loan,” Fox Business reports. “The monthly payment is adjusted each year as the borrower’s income and family size changes. ‘Basically, the new IBR plan is more generous for those who qualify,’ says Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators.” However, many federal student loan borrowers will not qualify.
“Recent college grads are increasingly struggling to make their student loan payments because they either can’t find work, or, if they are able to gain employment, they aren’t making enough to pay down the debt in addition to their other expenses,” Fox Business reports. “So it comes as no surprise that student loan default rates are soaring. ...To avoid a bad lending situation, it’s important that students make a post-grad repayment plan that works with their financial circumstances. Being a good borrower can pay off for students - if they make their payments every month for a year, some lenders will reduce the interest rate up to 0.50%, according to the experts. There are four main types of federal student loan repayment plans: standard repayment (10-year term), extended repayment (up to 30 years), income-based repayment plan (depending on your discretionary income), and graduated repayment (payments start out low and are increased every two years).”
Per NASFAA (National Association of Student Financial Aid Administrators)
Obama administration officials provided additional details about their plans to provide relief for some student loan borrowers, but say that the U.S. Department of Education will use negotiated rulemaking to develop implementation details for the plan to offer more generous Income Based Repayment (IBR) terms in 2012.
The administration indicated that the .5 percent interest rate reduction incentive for borrowers who consolidate their Federal Family Education Loans (FFEL) and Direct Loans will only be offered to a limited pool of borrowers. The incentive will only be available to borrowers who received a federal loan since 2008 and also receive a federal loan in fiscal year (FY) 2012. Eligible borrowers will be notified by the Department and must consolidate between Jan. 1, 2012 and June 30, 2012 because the recent Budget Control Act eliminates the Department’s authority to provide borrower incentives After June 30, 2012. The administration encourages borrowers with FFEL and Direct Loans to wait until Jan. 1, 2012 to consolidate so can benefit from the incentive.
Regarding the more generous IBR terms, the administration says that the plan would not override the current IBR program, but would operate separately. The plan will be a topic at the upcoming loan-related negotiated rulemaking and will likely fall under the “early implementation” provision—meaning that the Department can enact it early. Many specific details are not yet available and will likely not be addressed until negotiated rulemaking and implementation.
However, the administration may release additional details in response to a request by House Education and the Workforce Committee Chairman John Kline (R-MN). Kline sent a letter to Education Secretary Arne Duncan requesting an explanation of how the proposal would impact taxpayers, the timeline for implementation and how the Department will explain these programs to borrowers.
The Obama administration announced on Oct. 25 two initiatives aimed at lowering monthly student loan payments for borrowers struggling to repay their loans. The announcement was part of a series of executive actions the White House seeks to implement without Congressional approval.
Under the administration’s plan:
Students with both Federal Family Education Loans (FFEL) and Direct Loans will be offered an incentive to participate in a special consolidation into the Direct Loan program
More generous income-based repayment (IBR) terms will be fast-tracked to become effective in 2012 instead of 2014
Currently, nearly 6 million students have loans from both FFEL and DL servicers. The administration plans to offer repayment incentives for students with split servicers if they move all of their loans over to DL. Students would be able to receive up to a 0.5 percent reduction to the interest rate on some of their loans— .25 percent reduction on consolidated FFEL loans and an another .25 percent reduction on the entire consolidated FFEL and DL balance. The administration has referred to this initiative as a “special” consolidation where students will be able to keep the terms and conditions of their initial loans.
In 2010, Congress passed changes to the IBR program to limit monthly payments to 10 percent of discretionary income (down from the current 15 percent) and forgiving remaining debt after 20 years (down from the current 25 years). The Obama administration hopes to implement these changes, deemed the Pay As You Earn (PAYE) plan, two years ahead of schedule, beginning in 2012.
The IBR program bases monthly payments on any income above 150% of the poverty line. So a borrower living alone would pay 10% of anything earned above $16,335 (according to the 2011 poverty level). Unemployed borrowers with no income could owe no monthly payments and still be considered eligible for loan forgiveness after 20 years. However, interest continues to accrue on these loans and borrowers who don’t qualify for loan forgiveness could end up paying more.
The administration wants to implement these initiatives quickly, but House Republicans have expressed opposition to these initiatives and claim that the administration doesn’t have the authority implement these programs.