Federal government changes rules for repayment of student loans

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Federal government changes rules for repayment of student loans
by Claire Cummings | Jackson Citizen Patriot
Thursday July 02, 2009, 11:49 PM

The federal government this week began offering some students financial relief by allowing them to pay back loans based on their income.

The new Income-Based Repayment Plan started Wednesday and caps monthly payments depending on income and family size.

The government also will cancel the remaining balance on the loan after 25 years and forgive loans for people who work in public service after 10 years.

Tips for student loans
• Be conscious of how much you borrow.

• Understand how much each additional loan will add to your monthly payment.

• Remember this line: "The longer you pay, the more you pay."

• Discuss all repayment options with your lender.

Source: Albion College financial aid office

Learn more: For more information and an Income-Based Repayment Plan calculator, visit www.studentaid.ed.gov.
Eligible loans include Stafford, Grad PLUS or Consolidation loans made under Direct Loan or Federal Family Education Loan programs.

"It's exciting that there's going to be some balance between what they're able to make right now in the economy and what their repayment obligations are," said Charlotte Finnegan, Jackson Community College's dean of student services.

About 78 percent of new full-time students in 2007-08 at JCC used financial aid; 43 percent of those had loans.

About 69 percent of the total student population that year with financial aid used loans.

"There are pros and there are cons," John Nickless, assistant director of financial aid at Albion College, said of the new program.

The government has offered income-sensitive repayment plans in the past that considered how long it would take to pay off the loan.

But the new program disregards the amount of the loan and interest accrued, he said.

The upside, Nickless said, is students can maintain a good repayment history even if they take a low-income job.

The downside, however, is that they could be in the program a long time, instead of the typical 10 years it takes to pay off a student loan.

That means the interest continues to grow. Although the government will forgive the loan after 25 years, the Internal Revenue Service might not, Nickless said.

Forgiven debts are generally considered taxable income, according to the IRS.

At Albion, about 61 percent of students receive financial aid, 52 percent of whom use student loans.

Nickless, who previously worked on the lender side, found it interesting when he started at Albion that many students didn't know which lender they had or how much they borrowed.

"It's my responsibility to make sure that they don't just keep blinders on and take all the loans they're eligible for and worry about paying it back later," he said.