By Sarah Wright
An Overview of the Changes
According to a White House Press Release dated October 25, the Obama Administration is taking steps to help those struggling with student loan debt. The release notes the President's commitment to making college more affordable, and acknowledges that the prospect of debt burden can prevent some students from pursuing a college education. There also seems to be a slight job creation angle, since the press release points out that a debt burden can prevent some college graduates from starting businesses that may end up creating jobs.
There are three primary components of these changes. One is a move to cap monthly payments so they're in line with the borrower's ability to pay. Currently, the rules are that you can be required to pay up to 15% of your discretionary income each month; the new rules drop this to 10%. Another component of the rule changes is the ability to consolidate multiple monthly loans into one payment. The third component is the move to arm students and their families with more knowledge before they officially take on a huge loan burden. This 'Know Before You Owe' move is designed to prevent future borrowers from having too large a burden after leaving school.
Student loan debt holders need to be aware of the limitations of the changes. Here are some answers to basic questions you might have.
Will I Qualify?
This is a sticking point that should put a damper on some excitement over these changes. It seems that the goal is to make life easier for students going forward, rather than give a break to any but the most recent of graduates. According to The New York Times, the income-based portion of the changes will only be available to those who graduate after 2011. The only potential loophole here is for those who took out at least one federal loan in 2008 or later, and plan to take out at least one more federal loan after 2012.
What Type of Loans are Covered?
That depends on whether you have federal or private loans. Only federal loans will be covered by the new rule changes. Unfortunately, education loans from banks, including high-interest bank loans, will not be impacted by these changes. Perkins loans are also not eligible for alteration under the rule changes, even though they are government-issued.
Are My Loans Federal or Private?
If you don't quite remember whether your loans came directly from the government, or were administered through a third party bank, you can contact the U.S. Department of Education's student loan information line at 1-800-4FEDAID. However, according to The New York Times, the Department of Education will notify all eligible loan holders of the changes by the end of January, 2012. It might not be worth waiting for that notification to happen, depending on how dire your situation is.
I Need More Help!
We don't blame you! These new rules aren't exactly straightforward. Financial aid expert Mark Kantrowitz wrote this article to try to help clear up confusion. Additionally, the Education Department (refer to the phone number above) is a good primary source for information about these changes.
Those considering private student loans may want to find out about new changes on that front as well.