Student Loan Rates Dropping

Every July 1st student loan rates interest rates and other terms change. This year the change is loaded with three points of good news
1) Income-Based Repayment becomes available for the first time;
2) Pell grants get bigger;
3) and the interest rates decrease on new Subsidized Stafford loans and existing variable-rate loans.

To read the official document explaining changes look over this one-page summary of Federal Student Loan Terms for 2009-10. Or read below for my brief explanation.

Income-Based Repayment is new this year. You can apply for this if you cannot afford to make your monthly payments. The new payment amount will be based on your income and family size. The program covers all federal loans made to undergraduate and graduate students, past, present, or future, including both Direct Loans and federal loans from a private lender like Sallie Mae or Citibank.

Another part of the Income-Based Repayment is Debt Forgiveness. Basically any debt and interest remaining after 25 years of payments will be forgiven. If you work for a non-profit or in public service your debt could be forgiven in as little as 10 years.

Pell Grants have been raised from $4,731 to $5,350. These are need based grants that mostly go to students with family incomes below $50,000 and do not require repayment.
Subsidized Stafford loans rates are dropping from 6.0% to 5.6% for undergraduates. These are awarded to students with family incomes under $80,000, and the government pays the interest while you're in school or in deferment.

Regular Stafford loans have dropped to 1.5% of the amount borrowed. This fee decrease applies to new Subsidized and Unsubsidized Stafford loans for both undergraduate and graduate students. This is the lowest in the history of the loan.

Anyone who has loans that originated before July 1, 2006, they are probably variable rate loans. The rates for these loans will drop to 2.48%. For 2009 graduates, you should consider consolidating your loans to lock in at the new low rates after July 1st. Be sure to consolidate through the government’s Direct Loan program, that’s the only way you’ll receive Debt Forgiveness, if you qualify.

Remember, to apply for any government student loans visit http://www.fafsa.ed.gov/.

If you don’t remember what kind of loan you have, or whether you have already consolidated go to the National Student Loan Data System. If you can't remember your pin number, you can get a new one.

To learn more about student borrowing check out The Project on Student Debt.