<p>So I was just reading about how Obama had signed the last part of the health care law package, but I didn't know that it included changes to the way college loans work. Here's some text from the story at ABC:</p>
<p>--</p>
<p>The student lending overhaul ends the current program that subsidizes banks and other financial institutions for issuing loans, instead allowing students to borrow directly from the federal government. Interest rates for some borrowers will also be lowered.</p>
<p>Now, instead of having banks use government money to loan tuition, the government will lend the funds directly. Starting July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the Department of Education, according to officials.</p>
<p>--</p>
<p>Now, I'm not exactly sure as to what all of the above means (maybe someone can elaborate). The part that very much piqued my interest, though, is this part:</p>
<p>"The law will also put a cap on annual loan payments for college graduates -- never exceeding 10 percent of their income. It will also increase the number of Pell Grants offered to low-income students. The changes are meant to revitalize community colleges and increase support for institutions that serve minorities and historically black colleges."</p>
<p>My question is, will capping loan payments at 10% of income be as big of a deal as it seems to be? This is a very relevant issue for me right now because I will be starting graduate school this fall, and one of my major dilemmas is choosing between a better program or a less expensive school. While I don't think the changes in this bill would affect the amount of debt I'd have, it does seem like having a lot of debt from graduate school might not be so crippling as it was in the past, if payments are really going to be capped at 10% of your income. This would seem to me to be especially important for recent graduates, because that's when salaries are lowest and load repayments the most damaging.</p>
<p>So, what do you guys think? Will this make taking on college debt easier to deal with?</p>
<p>From what I understand the biggest gain that bill has put in place is ending the bank subsidies. For those of us who dont qualify for the lower interest private loans, this is a huge improvement. In the past the government expected you to pay your own “parental contribution” either from your income or from other lenders. This required all the college students in my family to work at least 20 hours a week to meet tuition. Either that or we would have been forced to take out unsecured loans with huge interest rates; not worth it at all. </p>
<p>For some the bill will definatly make the financial aspect of college alot easier. I am personally relieved that I can get my loans directly from the government, without worrying that a company will be screwing me to get a profit. Not to mention the regulations that you mentioned, which caps the amount to pay back yearly. </p>
<p>Its all a personal choice, but I think there’s now much less to fear of the student loan industry.</p>
<p>I do think it’s great to put a cap on student loans. But my worry is figuring out the math and if it would take longer than 10 years to actually pay it all back. But I suppose it means there’ll be a great variety in how much time it’ll take to pay off all the loans. </p>
<p>The lower your starting salary is, the longer it’ll take to pay off with a higher loan debt.
The higher your starting salary is, the shorter it’ll take to pay off a lower loan debt.</p>
<p>In other words, this bill makes us aware of just how much loan we really want to take out given our dream career average salary.</p>
<p>You forgot an important addition to the student loan cap… If you make your payments on time, after 20 years you can be eligible for forgiveness of the remainder of the loan. Now, I’m not sure if this applies to students who have/will take out student loans prior to 2014 but it’s definitely an improvement! </p>
<p>Here’s an example…
Your annual salary = $26,400
Monthly payment (with the 10% cap) = $220
Your loan debt = $19,000 (@6.8% APR)</p>
<p>It would take you 10 years to pay this debt off if you only make the minimum payments. Definitely not 20 years of repayment, but if you have a high student loan debt, then you may be able to take advantage of the forgiveness program (though I’m sure there are certain eligibility requirements on your career path and/or work history).</p>
<p>It’s 25 years, and it’s only if you’re eligible for income-based repayment. The cap is not a flat 10%; it’s a formula that is used to figure out and varies anywhere from 0% to 12.6% depending on your income and the size of your family. (If you make $20K or less per year in a family of 2 or more, or $21-$40K per year with a family of 6 or more, your loan payment is 0.) In most cases of IBR you’ll have paid off the entire debt before you’re eligible for debt forgiveness. Only in some cases where your income is very low relative to your loan debt will you have any debt left to forgive after those 25 years.</p>
<p>For example, with those specifications - $26,400 with no dependents or spouse, and a loan debt of $19,000 with a 6.8% interest rate - they estimate that your actual payment will be around $130 per month. Assuming that your income never goes up, $130 x 12 x 25 is actually $39,000, which is more than double the amount of the original loan. Even with 25 years of interest you’d probably have nothing to forgive after those 25 years. It’s just a longer repayment period that’s adjusted to your personal income level so you don’t go broke.</p>
<p>There are no special specifications for the forgiveness other than that you have to have made 300 (12 x 25) payments on time before you’re eligible. If you are a public service worker you’re eligible for a shorter period - 10 years.</p>
<p>that this is only for subsidized and unsubsidized Stafford loans which are limited in their amounts. Banks and others can still make student loans. The forgiveness and payment cap only apply to the govt loans.</p>