Student Loan Programs Summary of Changes
Interest Rate Reductions—Subsidized Stafford Loans for Undergraduates
For undergraduate student loans that are disbursed on or after the dates below, the interest rates will be fixed as follows:
| On or After | Before | Interest Rate |
|---|---|---|
| July 1, 2008 | July 1, 2009 | 6.0% |
| July 1, 2009 | July 1, 2010 | 5.6% |
| July 1, 2010 | July 1, 2011 | 4.5% |
| July 1, 2011 | July 1, 2012 | 3.4% |
For Subsidized Stafford loans for undergraduate students disbursed on or after July 1, 2012, the interest rates on all new loans will return to a fixed rate of 6.8%. Unsubsidized loans will remain fixed at 6.8%.
Deferments
Military Service Deferment
All active duty borrowers in the military who are in repayment or who have gone into repayment on or after October 1, 2007 are eligible for a Military Service Deferment, as long as they meet the qualifications listed below. This deferment eliminates the maximum military deferment length of 3 years, and removes any limitations based on when borrowers took out their loans, or how long they were on active duty. Borrowers who are on active duty as described in one of the categories below will qualify for this deferment:
- – During a war or other military operation
- – During a national emergency as declared by the President of the United States
- – While performing qualifying National Guard duty during war, other military action, or national emergency for at least 30 days, including state duty
The time period covered by military service deferments is also extended for an additional 180 days after the borrower is demobilized from active duty service. This additional time is available each time the borrower is demobilized at the end of eligible active duty. If the borrower is currently serving in the Armed Forces and unable to request a military deferment personally, a representative can complete this process on behalf of the borrower.
Active Military Deferment
Effective October 1, 2007, Active Military Deferment will be available on Title IV loans to current and retired members of the National Guard or other Armed Forces reserves who are called to active duty for at least 30 consecutive days while enrolled at least half-time in an eligible institution, or were enrolled within 6 months of the call to active duty. These borrowers will receive 13 months of deferment following active duty or until they re-enroll, whichever occurs earlier. Those in Active Military Deferments, unlike in Military Service Deferment, are not required to have been called to action in a war or military operation, national emergency, or qualifying National Guard duty.
If a borrower has already received a Military Service Deferment, the lender or school can grant the Active Military Deferment without an additional request from the borrower, providing that the school obtains the appropriate documentation. However, the school must notify the borrower so that the borrower has the opportunity to decline the deferment. Any borrower who qualifies for both the additional 180 day deferment after demobilization and the Active Military Deferment will have the deferments run concurrently.
Economic Hardship Deferment
Effective on all economic hardship deferment requests made on or after October 1, 2007: The required borrower financial status for economic hardship deferment eligibility will change from 100% of the poverty line for a family of 2 to 150% of the poverty line, based on the borrower’s family size. The U.S. Department of Education (ED) has kept the debt to income ratio that qualifies for economic hardship deferment until at least July 1, 2009. The maximum length of an economic hardship deferment is 3 years, with re-evaluation (using the new standards) required every 12 months.
Income-Based Repayment (IBR)
A new repayment option, Income-Based Repayment (IBR), will be available in both the FFEL and Direct Loan programs for borrowers repaying loans on or after July 1, 2009. More information and implementation guidance will be available after the negotiated rulemaking process. Below is a brief summary of the expected qualifications:
- – Borrower must show partial economic hardship to qualify
- – Educational debt exceeds 15% of the difference between the borrower’s family income and 150% of the poverty line for the borrower’s family size
- – Payment is limited to 15% of the difference between adjusted income and 150% of the poverty line. Any payments remaining after 25 years will be forgiven
- – Used in conjunction with the Economic Hardship deferment
- – If payment is less than the accruing interest, ED will pay the interest that accrues on the subsidized loans, while the interest accruing on the unsubsidized loans will capitalize after the borrower leaves IBR
Loan Forgiveness for Public Service Employees
Below is a brief summary of the qualifications for the Loan Forgiveness for Public Service Employees program:
- – Borrowers must be directly employed in a full-time capacity at a Government Agency, Public Service Corporation, 501(c) Corporation, or Public Interest Law Firm
- – Borrowers must make 120 on-time, full monthly payments on the loan after October 1, 2007
- – Payment must be made in the Direct Loan Program based on:
- – An income-based repayment plan
- – An income-contingent repayment plan
- – A Direct Loan standard repayment plan based on a 10-year repayment period or any Direct Loan repayment plan or as a Direct Consolidation Loan if the monthly payment amounts paid are not less than those that would have been paid under a Direct Loan standard repayment plan based on a 10-year repayment plan
- – Stafford, PLUS, or FFELP Consolidation loan borrowers are eligible to consolidate into Direct Lending to participate in the public service loan forgiveness program.
- – Parent PLUS borrowers are not eligible for Loan Forgiveness for Public Service Employees, just as they are not eligible for income-based and income-contingent repayment plans.
