5 New Rules Concerning Federal Student Loans

Student loans on a sign with an arrow. Photo courtesy of Shutterstock.

Whether you’re taking out a federal student loan or entering repayment, get up to speed on the new changes to the federal loan program. Kiplinger’s outlines the five new rules you need to know about federal student loans.

The new rules include:

·         Loans get pricier—the rate on federally sponsored loans jumps from 3.4% to 6.8% on July 1, barring a last-minute (and unlikely) save from Congress. Despite the headlines, there’s no need to panic—the rate applies only to new loans, not those that are outstanding.

·         Interest starts sooner—the feds have always picked up interest on subsidized loans while students are in school, but until recently, interest was also deferred during the six-month grace period before new grads have to start repaying the student loans. Now the interest starts the moment grads hit the real world—but this change only applies to loans issued between July 1, 2012 and July 1, 2014, after which the grade period is scheduled to go back into effect.

·         Grad students lose a break—as of July 1, 2012, grad students no longer have access to subsidized loans, which means they lose the in-school deferral on interest for those loans. They can still get unsubsidized loans, which carry a 6.8% fixed rate and are available to all who apply.

·         PLUS borrowers face a higher hurdle—grad students, as well as parents, can also get PLUS loans, which carry a 7.9% fixed rate. You can borrow the full cost of attendance, minus financial aid. PLUS loans require underwriting and those standards have tightened up; to qualify, recipients cannot have an “adverse” credit history, which includes bankruptcy and has lately expanded to include unpaid collection amounts and charge-offs.

·         Repayment plans get more generous—Pay As You Earn (PAYE) payment options became available in December 2012 and improves the income-based repayment program. PAYE pegs the amount you pay to your discretionary income, but it lowers the percentage of income you pay from 15% to 10% and the number of years over which you pay from 25 to 20 years. At the end of that period, any remaining amount is forgiven. To see if your monthly repayments are lower under PAYE than under a standard ten-year plan, use the “Pay As You Earn” calculator.

To view the full article, visit: http://www.kiplinger.com/article/college/T053-C006-S003-new-rules-on-federal-student-loans.html.

By Susannah Snider