College students get a break on costs

[Blacknbengal]

College students get a break on costs
Paying for an education? Here's what new student-loan legislation means to your pocketbook.

New federal legislation will make college more affordable by directing federal money to students instead of to student lenders.

The College Cost Reduction and Access Act of 2007 increases funding for financial aid, offers tuition assistance for students who plan to teach and helps struggling graduates repay their student loans.

Lawmakers freed up money for the changes by cutting federal subsidies to student-loan companies by $20 billion. President Bush signed the bill into law Thursday.

Here's how students will benefit:

Need-based aid. For families that qualify for financial aid, the news is doubly good. Pell Grants, awarded to students with high need, will climb to a maximum of $5,400 per year over the next five years from the current $4,310. Students who qualify for the maximum will receive the first increase, of $490, in 2008-09, bringing the total that year to $4,800


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[Blacknbengal]

Loan repayment. As of July 2009, borrowers "will have the assurance that their loan payments won't cripple them," says Robert Shireman of the Project on Student Debt. Rather than pay a fixed amount over 10 years -- the standard repayment schedule -- struggling grads can opt for a program that bases payments on up to 15% of their annual discretionary income, defined as gross income above 150% of the federal poverty level. (The 2007 poverty level for an individual is $10,210, plus $3,480 for every additional family member.)

The formula replaces less-generous income-based programs and applies to Stafford loans offered through the federal government as well as private lenders.

For borrowers faced with choosing between loan repayment and, say, three square meals, the short-term savings can be significant. For instance, a single borrower earning $28,000 will pay $159 a month on a $20,000 debt compared with $230 on the fixed-payment schedule. The payment will drop to $93 if the borrower has a dependent.

Uncle Sam will help by picking up the interest on subsidized loans for three years if the reduced payments aren't enough to cover it. Borrowers can increase payments as their income rises, but they will never have to pay more than the fixed amount on the 10-year schedule. The feds will forgive the balances on both subsidized and unsubsidized loans after 25 years.

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