They say that there’s nothing certain except for death and taxes, but in the student aid world, we can almost always count on changes coming to our programs every July 1 (remember last year?). This year is no exception.
So, what’s going on, and how will it affect you? Here are the four big changes that you should know about.
1. Interest Rates
Any new loans that you borrow as of July 1 have different interest rates than your loans from last year. Interest rates for undergraduate Direct subsidized and unsubsidized loans are 4.66%, graduate Direct loans are 6.21%, and Grad or Parent PLUS loans are 7.21%.
Consolidation loans are a little different, as their interest rates don’t change based on the year (unless you have an older variable rate loan). These are calculated to be the weighted average of your underlying loans when you consolidate rounded up to the nearest 1/8th% and won’t change annually.
2. Income-Based Repayment (IBR)
The specifics of IBR for new borrowers who haven’t borrowed Direct Loans before or have a zero balance as of July 1, 2014, have changed. If you qualify for IBR, your payments will be capped at 10% of your discretionary income and any remaining balance you have after 20 years may be forgiven but would be taxable (see above quote about death and taxes). You can learn about the specifics of IBR for current loans here.
These numbers may sound familiar. The Pay As You Earn Repayment plan offers the same benefits but is limited to students who borrowed in a very small window of time. This IBR plan will significantly increase the amount of people who will be able to apply for the coveted terms of Pay As You Earn.
Hopefully, you will never have to go down the road of rehabilitation because that means that your student loan is in default. In the event that you do need to know about rehabilitation, the regulations for how much your payments will be for 9 months to get your loan out of default are changing as of July 1.
Your loan holder will collect your income and family size information from you to calculate what the Department of Education believes to be a reasonable and affordable rehabilitation payment. This will be 15% of your adjusted gross income (AGI), which exceeds 150% of the poverty guideline for your state and family size divided by 12 months (now that’s a mouthful!). Why not try estimating what your payment would be here instead?
If your 15% payment seems too much to handle, you can work with your loan holder to complete a financial disclosure that will (hopefully) be a better representation of your actual financial circumstances to come up with an affordable payment for you.
4. Closed School Discharge
The last major change that borrowers may want to be aware of is an expansion to the closed school discharge eligibility criteria. Currently, to be eligible to have your loans discharged because your school closed (the entire school, not just your location), you would have needed to have been enrolled within 90 days of the school’s closure date. For applications received as of July 1, 2014, that window expands to 120 days.
This is another one of those cases where I hope that you never have to pursue the option, but this change increases the amount of people who may take advantage of a loan discharge when their school closes unexpectedly.
Until Next Year…
Well, if you aren’t behind on your monthly student loan payments or you aren’t planning on taking out any new loans, then these changes really won’t affect you. Here’s to seeing some beneficial changes for you next year!
Do these changes affect you? Let us know in the comments.