Student Loan Changes

The first of July is an important date for federal student loans, when interest rates and other terms change. This year, besides the drop in costs for many loans, borrowers in public service professions can take a major step toward student loan forgiveness. Among the July 1 changes:
The fixed interest rate for new, subsidized Stafford loans will drop from 6.8% to 6.0% for undergraduates. Subsidized Stafford loans go primarily to students with family incomes under $80,000, and the government pays the interest while the student is in school (or in deferment). Also, the origination fees for all Stafford loans (subsidized and unsubsidized, undergraduate and graduate) will drop by half a percentage point, to 2% of the amount borrowed.
* More Loans Available. Undergraduates can borrow an additional $2,000 each year in unsubsidized Stafford loans at a fixed rate of 6.8%. Therefore, the total amount of Stafford loans (including subsidized and unsubsidized) that undergraduates can borrow increases to $31,000 for dependent students and $57,500 for independent students. Moreover, students who are interested in teaching and have good grades can receive another $4,000 each year for up to four years via the TEACH program. (TEACH grants become unsubsidized Stafford loans if students do not fulfill a teaching obligation.).

Public Service Loan Forgiveness (PSLF). PSLF is a new federal program that will forgive remaining federal student loan debt after 10 years of qualifying payments and eligible full-time employment. The program is designed for borrowers whose income is low relative to their debt for at least some of their time while in a public service job. (Public service includes employment by federal, state, local, or tribal governments, including the military and public schools and colleges, and by non-profit entities.).
However, PSLF only forgives debt in the Direct Loan program. Thus, to begin making qualifying payments: (1) borrowers who have already consolidated their federal loans with a private lender can reconsolidate into the Direct Loan program to become eligible; (2) once in the program, borrowers can choose one of three repayment plans to qualify: income-contingent repayment, income-based repayment (available in July 2009), or standard (10-year) repayment; and (3) borrowers who have not consolidated their federal loans can apply for a Direct consolidation loan at any time, and those who already have Direct Loans can switch repayment plans at any time.