Key Regulatory Changes that Support Student Loan Borrowers

A number of regulatory changes in the area of student loan interest rates have been implemented over the last few months to help student loan borrowers. Students seeking higher education through affordable loans should note these changes in order to make better informed decisions.

Federal Student Loan Interest Rates

In 2013, a new law had been passed that based the rate of interest on federal student loans off the latest 10-year Treasury note rate with the addition of a built in margin. Any new loan granted on or after July 1st, 2014 would have this rate as a “fixed rate” for the entire term of the loan. According to this new rule, the interest rate for loans made between July 1st, 2014 and June 30th, 2015 would be as follows:

  • Direct subsidized and unsubsidized Stafford loans for undergrads @ 4.66%
  • Direct unsubsidized Stafford loans for grads @ 6.21%
  • Direct grad PLUS loans @ 7.21%
  • Direct parent PLUS loans @ 7.21%

student-loansAdvantages for New Borrowers

President Obama signed an executive order last year that led to the creation of new income-based options for borrowers. This regulation has expanded the scope of ‘Pay as You Earn’ for the borrowers with old loans, but it has also enabled new borrowers to avail the benefit of these payment terms.

Students who take out their first loan on or after the effective date of July 1st, 2014 will have the eligibility for the new version of the “Income Based Repayment Plan.” This plan puts a cap on payments at a maximum of 10 percent, as against the 15 percent cap of the ‘classic’ income based plan, of their disposable income. Under the new regulation, any remaining balance will be forgiven after 20 years instead of 25 years.

Relief for Defaulters

Under the new regulations, there is a provision for greater relief for defaulted federal loan borrowers. Such borrowers now have two additional options other than paying the loans in full in order to remove their loans from default. These two new options include rehabilitation and consolidation.

If the individual who defaulted wishes to rehabilitate the loan, they will be required to make nine consecutive on-time payments of an amount that is reasonable and affordable for them according to a mutual agreement between them and the loan holder.

By:  Benjamin Roussey, Writer