BPW Foundation's Women Misbehavin' Blog

Well behaved women never make history

Important Changes to Student Loans

Posted by egehl on April 6, 2010

For anyone with student loans (which let’s face it, is most of us) it’s important to know about recent policy decisions that will have a significant impact on your economic well-being. 

The recent passage of healthcare reform included far-reaching student aid reform which will benefit millions of young people.  These student loan provisions are the largest investment in aid to help students and families pay for college in history. 

The bill moves the college financial aid offices from the federal Family Education Loan program, where private banks serviced the loan at a cost, to a program where the government lends its money directly to students.  This move ends a wasteful subsidy program that for decades has put money in the pockets of banks and institutions for servicing government student loans.

From the money saved by discontinuing banks from being the “middle man”, $36 billion will be invested in the Pell Grant program over 10 years.  This will allow money for low-income students to attend college, which is especially important since the cost of higher education continues to substantially increase with no end in sight. And without this new policy there would have been shortfalls in Pell funding, and 500,000 students would have lost their Pell grants. In addition, the program also invests billions of dollars in community colleges, minority-serving institutions and college completion programs.

Another important policy decision pertaining to student loans that many people do not know about is the 2007 College Cost Reduction Act.  In fact, I just found out about this law and was happy to learn that I qualify!

The 2007 College Cost Reduction Act does two things. 

First, it establishes the income-based repayment program, which allows all students with qualifying loans to stretch their repayment period up to 25 years. If they are earning 150 percent of the poverty level or below, they do not have to make payments on their loans.  If they are making more, their loan payments are capped at 15 percent of what they earn above 150 percent of the poverty level.

Only loans made to students (not their parents) are eligible for income-based repayment. Students can pay off Stafford, Grad Plus and Perkins loans that have been consolidated into a guaranteed federal loan through the program.  However private loans, or loans that are not guaranteed by the federal government, are not eligible.

Secondly, it allows students who enter into public service jobs such as social work, government, police, nonprofit, emergency management, etc. to have their student loans totally forgiven after making 120 payments.  This can translate to giving 10 years of public service if you make monthly payments from the time you graduate.  The 120 payments must be made while in a qualifying job for the remaining debt to be erased. 

In a nod to younger workers’ career mobility, the law states that the 10 qualifying years of service don’t have to be continuous.  Therefore people can move in between the public and private sectors, and qualify for loan forgiveness at the end of 10 total years of service.

If you want more information about these programs and to see if you qualify, I suggest contacting your student loan company. 

Student aid reform included in the healthcare bill and the 2007 College Cost Reduction Act will have an immediate and tangible impact on the finances of millions of young people.  These are important measures taken by Congress to help address the sky rocketing costs of education, and young professionals struggling to pay back their loans when salaries aren’t commiserate with today’s cost of living. In addition it adds an incentive to go into public service, which typically pays less than the for-profit sector, and as a public service professional for all of my career it’s nice to finally get a boost!

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