Trick or Treat: President Obama's Plan for Cutting Federal Student Loan Payments
October 26, 2011
Who: 1.6 million borrowers since 2008 with at least one loan in 2012 or later, generally borrowers whose total federal student loans exceeds their annual income
What: Reduces cap on monthly loan payments by a third, from 15% of discretionary income to 10%, and forgives the remaining debt in 20 years instead of 25
When: Starts in 2012 instead of waiting until 2014
Who Doesn’t Benefit: 36 million borrowers already in repayment, such as recent and older college graduates
Consolidation of Split Borrowers
Who: 5.8 million “split” borrowers who have loans in both the federally-guaranteed and direct student loan programs
What: Provides an interest rate reduction for split borrowers who transfer their federally-guaranteed student loans into the Direct Loan program by consolidating them
How: 0.25% interest rate reduction on the transferred federally-guaranteed student loans, plus a 0.25% interest rate reduction on all federal loans in the direct loan program for repaying the loans through auto-debit
When: Borrowers will be contacted by their services in early 2012 and must consolidate by June 30, 2012
Who Doesn’t Benefit: Borrowers who are already in the Direct Loan program, non-split borrowers who have only federally-guaranteed loans and borrowers who are in default on their federal student loans
Caveat: Borrowers who intend to accelerate repayment of their highest interest rate federal student loans might be better off keeping the loans separate instead of consolidating
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