New Financial Aid Laws

New Developments in Student Loans:
Borrowers of Federal student loans can potentially benefit from two recent bills passed by the U.S. Congress.  One of those bills is the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA).  More details can be found here:http://www.finaid.org/educators/20090715hr3221.phtml 

SAFRA increases the maximum Pell Grant amounts, particularly starting in 2011 when maximum Pell Grant will increase by 1% in addition to the inflation index (increases in 2009 and 2010 are also set in the bill).  The 2009 act also simplifies FAFSA by eliminating questions such as those inquiring into untaxed income and college savings.  Perhaps most significantly, SAFRA establishes all future Federal loans as direct loans. 

Previously, the Federal Family Education Loan Program (FFELP) subsidized private banks and lenders to provide competitively rated loans to students.  These loans were still guaranteed by the federal government.  Now all loans will be in the Federal Direct Loan Program, which means that the government will directly issue the loans, effectively removing the private lender as middle-man.  The savings make it possible to pay for the increase in Pell Grant maximums and other initiatives in the bill.

Some of those other provisions in SAFRA include increased funding to community colleges and historically black colleges, as well as support for early-learning programs (ages 0-5), modernization of public schools, and programs to help with school completion and access.  Subsidized Stafford Loans are also given a 2015 elimination date in SAFRA, and the Federal Perkins Loan Program is heavily reformed as well.  

A portion of the funds freed up by SAFRA that are going towards increased college access are steered towards a program that was part of the College Cost and Reduction Act of 2007 (CCRA). The CCRA is the other recent loan reform bill that will potentially help borrowers in receiving and paying back loans.  Along with helping with Pell Grant access for needy students, CCRA is most important for its provisions on loan repayments.  More details can be found here: http://www.nasfaa.org/publications/2007/G2669Summary091007.html and here: http://www.finaid.org/loans/ibr.phtml.

CCRA introduces an Income-Based Repayment plan (IBR), now effective, that helps student-borrowers (not available for parent loans or private and state loans) get a more feasible monthly repayment amount.  Under the IBR program, a borrower’s monthly repayment amount will not exceed more than 15% of her discretionary income.  Discretionary income is calculated by taking one’s adjusted gross income (AGI) and subtracting 150% of the poverty level for the borrower’s family size.  Before, students on a 10-year repayment plan were often strapped with having to annually pay 10% of their total loan amount, regardless of income.  Each state’s poverty level is different, but to get a rough idea, a family of two with an AGI of $30,000 will have their monthly loan repayment amount capped at around $102.  You can generate your own monthly repayment chart on the IBR plan, based on family size and AGI, here: http://www.finaid.org/calculators/ibrchart.phtml And this will help you compare a repayment plan under CCRA with a traditional repayment schedule: http://www.finaid.org/calculators/ibr.phtml  

The other noteworthy part of CCRA is a loan forgiveness program for those working in public service jobs.  If a borrower makes 120 qualifying loan payments on a Federal Direct loan (including consolidation loans) while working full-time for 10 years in public service employment, the unpaid balance on the loan is forgiven by the federal government.  A public service job is defined as a full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education, social work, public interest law services, child care, public library sciences, or any other job at an organization that is described in section 501(C)(3) of the Internal Revenue Code of 1986.  Additionally, there are provisions in CCRA for receiving TEACH Grant aid that is conditioned upon certain teaching requirements and school achievements. Those suffering short-term financial hardship may to visit here in order to see if they qualify for deferments: http://www.finaid.org/calculators/economichardship.phtml