The Lowdown on the New Student Loan Assistance

Most graduates with a bachelor’s degree have student loans and the average debt on those loans is about $24,000.   For those who find solid employment after graduation paying back on such loans is typically not a problem, but for those recent graduates without a job or underemployed, falling behind on payments or defaulting on their student loans is often the reality.

The good news is that the current administration is offering help for student loan borrowers.  The question is what kind of help and who qualifies?

There are two main benefits graduates can tap into:

1. Loan consolidation- Borrowers with Federal Family Education Loans (loans which are federally guaranteed loans issued by private lenders) and Direct Loans (issued directly by the government) can apply to get a reduction in their interest rate by consolidating their loans.  Consolidation will be available January through June 2012.
2. Expanded income-based repayment-  In 2009 the federal government launched an income based repayment program (IBR) which was designed to help borrowers who don’t earn enough to make their loan payments. Under current terms borrowers who qualify for the program can have loan payments capped at 15% of their discretionary income, with the balance of the loan forgiven after 25 years of qualifying payments.  Under the new plan, payments will be capped at 10% of discretionary income with the balance forgiven after 20 years.  The catch is the new plan is limited to borrowers who have federal loans issued after 2012.  Thus, most graduates are not eligible for the new 10/20 plan.   Still for many graduates applying for IBR is still of benefit under the current formula and could help them avoid default.

For more information on IBR check out:  http://studentaid.ed.gov/ibr

For more information on all your options to avoid defaulting on your student loans go to www.consumerfinance.gov/students/repay/.

So who is not helped by the new changes?

• Borrowers with private student loans
• Borrowers in default- For tips on how to recover from default visit www.asa.org.