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July Means Changes to Federal Student Loans

Summer has arrived, which has brought about new changes to Federal Student loans that took affect July 1st. Here are some important changes that borrowers should be aware of regarding student loans:

1. Interest Rates are changing. Interest on all loans taken out on or after the first of this month will have a fixed interest rate throughout the life of the loan. The maximum rate for future student loans will not exceed 11 percent. This applies to Direct Subsidized and Unsubsidized Stafford loans for undergraduates, Direct Unsubsidized Stafford loans for graduate students, and Direct Graduate and Parent PLUS loans.

2. Closed School Discharges. Schools shutting down can be consequential for its students. There are previous protections for these students who are in a situation where their school closes while they are attending. However, with the new rules implemented at the start of the month, time has been extended from a student having to be enrolled within 90 days of the date of the school's closing, and they are unable to complete their requirement for their degree to have their Federal Student loans discharged, to 120 days.

3. New Income-Based Payment Options. New borrowers who take out their first loan on or after the 1st of July 2014 will qualify for Income-Based Repayment (IBR) that has a maximum payment of 10 percent of a borrower's disposable income, compared to the 15 percent in the old Income-Based Repayment plan. Also forgiveness of any remaining balance will be effective after 20 years, not 25.

4. Relief on Defaulted Loans. The options for borrowers who default on their student loans are: rehabilitation and consolidation. The process of rehabilitation is ambiguous in deciding and settling on a calculated repayment amount. However, now as of July 2014 the process will become more standardized for all borrowers. A borrower who starts the process of rehabilitation on or after July 1st will have their payment calculated based of 15 percent of their disposable income. If that amount is too high for their financial situation, they can submit a financial hardship form to apply to have their payment re-calculated with their whole financial situation taken into account, not just their income.

Knowing what new changes have been made to Federal Student Loans can be helpful to those who have taken student loans out or are planning on doing so in the future. Student loans can be an overwhelming responsibility, and if one should find themselves in debt due to student loans, they should contact an attorney who is knowledgeable about such debt, to help guide and assist a debtor to a financially stable life.

Work Cited:

http://www.dailyfinance.com/2014/07/07/federal-student-loans-big-changes/?ncid=engmodusport00000001

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