Making College More Affordable: New Benefits on July 1st
New Benefits on July 1st: What Every Borrower Should Know
The cost of paying for college has become a heavy burden for many Americans. Young people and adults across country are pursuing higher education in record rates, but even as the economy recovers, American families are still struggling to pay tuition bills. The cost of college, moreover, continued to rise during the economic downturn and currently shows no sign of slowing.
Given these challenges, it’s critical for current college students, new or soon-to-be graduates, and workers to know about new benefits that go into effect July 1, 2010 to make student loan payments manageable for millions of Americans. From eliminating wasteful subsidies to private bankers and switching to a system of direct lending of federal student loans to increasing the maximum Pell Grant scholarship, to reducing the monthly payment borrowers must pay back on their loans, this Democratic Congress has made historic investments in our economic future – all at no cost to taxpayers.
Specifically, borrowers will see the following changes go into effect:
On July 1, 2010:
- The maximum annual Pell Grant scholarship will be increased to an all-time high of $5,550.
- Additionally, Pell Grants will reliably increase with the cost of inflation beginning in 2013, by linking the scholarship to the CPI. By 2017, it is expected that the maximum grant will reach $5,975.
- All new federal student loans will be originated through the Direct Loan program, instead of through lenders subsidized by taxpayers in the federally-guaranteed student loan program. Unlike the private lender-based program, the Direct Loan program is entirely insulated from market swings and can therefore guarantee students access to low-cost federal college loans, in any economy.
- 100 percent of Direct Loans will be serviced by private lenders and unlike loans made by banks, Direct Loans can only be serviced by workers in the U.S., guaranteeing borrowers high-quality customer service and keeping good jobs in America.
- Cheaper interest rates on need-based (subsidized) federal student loans. The interest rates on subsidized federal student loans decreases from 5.6 percent to 4.5 percent. This is the third of four annual cuts in this interest rate.
On-going Benefits:
- Reasonable and affordable monthly college loan payments for borrowers. On July 1, 2009, a new Income-Based Repayment program went into effect that capped borrowers’ monthly loan payments at just 15 percent of their discretionary income (15 percent of what a borrower earns above 150 percent of the poverty level for their family size). After 25 years in the program, borrowers’ debts will be completely forgiven.
- Starting in 2014, new borrowers who are eligible for Income-Based Repayment will be able to cap their monthly loan payments at just 10 percent of their discretionary income. Borrowers who responsibly make their monthly payments will see their remaining balance forgiven after 20 years of repayment.
- Public Service Loan Forgiveness. Graduates who enter into public service careers, such as teachers, public defenders and prosecutors, firefighters, nurses, non-profit workers and more, are eligible for complete loan forgiveness after 10 years of qualifying public service and loan payments. (This program began on October 1, 2007.)