The health-care legislation approved in March 2010 will have a major impact on student loans, but what does that mean for you? A recent article by Smart Money Magazine highlights the three major changes that will directly affect students:
1. Federal loans will be distributed by direct lending only – Effective July 1, 2010, all federal education loans will be directly distributed. The noticeable impact on students will be slight, such as more favorable terms for PLUS loans (available to graduate students and parents of undergraduates), as well as a higher approval rate for parents of students applying for PLUS loans. The later is due to higher approval standards maintained by private lenders, who are now eliminated from the process.
2. Subtle Pell Grant increases – Approximately $36 billion of savings from eliminating the private lenders from the Federal student loan equation will go toward Pell grant funding over 10 years. The current maximum for Pell grants is $5,550 for 2010-11, which will increase in tandem with the inflation rate for five years from 2013 to 2018. Ultimately, the maximum grant amount would reach $5,975 by 2020, not far from current levels.
3. Delayed changes to income-based repayment plans – Beginning in July 2014, students can take advantage of changes to income-based repayment (IBR) plans, aligning a borrower’s monthly payment to their income rather than debt. IBR currently caps monthly payments at 15% of discretionary income, which will drop to 10% in 2014. It also forgives the outstanding amount owed on the loan after 20 years rather than at the current 25 year mark. The IBR provisions only apply to new borrowers of new student loans beginning on July 1, 2014.
For additional details on the impact of the health-care reform legislation on your student loans, visit http://www.smartmoney.com/personal-finance/college-planning/the-health-care-bill-and-your-student-loans/.
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