On October 25, 2011, the White House, Office of the Press Secretary, made an announcement regarding changes to help Americans to better manage their student loan debt. There are two main parts of the change; both deal with loans in repayment.
One of the five repayment options Federal student loan borrowers have is called Income Based Repayment (IBR). This repayment looks at the borrower’s income, household size and amount of debt to establish a monthly payment of no more than 15% of the borrower’s discretionary income (based on the poverty level). If the borrower is on IBR for twenty five years making on-time payments, they can have whatever is not paid off forgiven.
Obama changed two main provisions of the IBR plan: (1) the cap will be at 10% of the discretionary income, which will monthly lower payments and (2) the loan can be forgiven after twenty years of on-time payments. The change would take effect July 1, 2012. In order to find out more about IBR, visit www.ibrinfo.org.
The second provision relates to consolidating federal loans. Beginning January 1, 2012, through June 30, 2012, borrowers will be able to apply for a “Special Direct Consolidation Loan”. Borrowers who qualify can see their interest rate reduced up to 0.5 percent, potentially saving hundreds in interest. This option will only be available for six months and not all borrowers will be eligible.
To qualify for the “Special Direct Consolidation Loan”, the borrower must have:
- At least one student loan held by the Dept. of Ed. This could be a Direct Loan or a PUT Loan (a loan that was original held by a bank but sold to the Dept. of Ed through ECASLA of 2008).
- At least one federal student loan (FFEL) currently held by a bank (example: Bank of America, Discover, AccessGroup, SallieMae, Citibank, All Student Loan, Wells Fargo, etc.). This could also include a FFEL Consolidated Loan.
Borrowers can look into who holds their loans by going to www.nslds.ed.gov. By logging in to this site, you can see a listing of your federal loans, find out who the current servicer is, and find out if the loan held by the Dept. of Ed or a bank.
What does this mean for me?
- If you are a current MIIS student taking federal loans, started attending after June 2010, and did not have any undergraduate debt, you do not qualify for this consolidation program.
- If you are a current MIIS student taking federal loans, have federal debt incurred before 2008 from a bank/lender and will enter your grace period or repayment period by May 2012, check out www.nslds.ed.gov to verify your loan status as you may qualify.
- If you have already consolidated with DirectLoans, you do not qualify for this consolidation program.
Are the Income Based Repayment changes available to all borrowers?
- No. The new IBR plan is not available to borrowers who graduated or are planning to graduate before July 2012, and do not plan on taking any additional loans. Borrowers would need to have taken a loan after July 2012 to qualify. Borrowers cannot be in default to qualify for this repayment plan.
What happens to the debt after it is forgiven after the twenty five year period or twenty year period with Income Based Repayment?
- The amount forgiven is added to the borrower’s taxable income during the year it was forgiven.
How do I apply for the Special Consolidation?
- Borrowers will be contacted directly by a Direct Loan servicer if they qualify.
Which loans can be included?
- Loans held by the Dept of Ed, FFEL Subsidized and Unsubsidized Stafford Loans, FFEL PLUS Loans, and FFEL Consolidated Loans. If you have a federal Perkins loan, you cannot include this loan in the special consolidation as you could in the regular consolidation. Private loans cannot be included. Keep in mind that the FFEL loan is a federal loan originally disbursed by a bank.
Are you still confused?