The College Cost Reduction and Access Act was passed in 2007 — the bill, signed into law by then President George W. Bush, was a sweeping reform of laws related to finances for college students. Though most of the bill’s legislation has already been phased in, a crucial portion of the bill for those of us who are dealing with college loans goes into effect on July 1, 2009.
A quick summary of what parts of the College Cost Reduction and Access Act have already taken effect:
1. Doing away with “tuition sensitivity”
Students at some “lower cost” institutions, such as state schools or junior colleges, were once limited in the amount of Pell Grant money they could receive. These “tuition sensitivity” clauses were wiped out, allowing students at colleges across the nation to receive the maximum Pell Grant available. The bill also allowed for extra money to pay out these larger grants, and gave many students the ability to afford college.
2. Pell Grant increases
The size of Pell Grants went up as well — by 2012, students receiving Pell Grant awards would earn as much as $1,100 more per award year.
3. Increased funding for “Upward Bound” programs
4. TEACH Grants
Students in teacher certification programs could receive an additional grant from the Federal government to earn their teaching certificate. In order to receive this award, students earning a TEACH grant are required to serve a minimum of four years as a certified teacher in specific schools teaching specific subjects, mostly math and the hard sciences.
5. Interest Rate Reductions
Over the next four years, interest rates on subsidized Stafford loans for students will continue to drop — as low as 3.4% by award year 2012.
6. Student Loan Deferment for members of the armed forces
These changes in college finances have already helped countless students on their way to a college education, but a major part of the bill’s platform will take effect next week — income based repayment of student loans.
Loan re payments will be limited to just fifteen percent of a borrower’s discretionary income. If a borrower is married, that number means 15 percent of the amount of the borrower’s family’s adjusted gross income. Unpaid interest and principal is forgiven after 25 years of repayment — meaning if your loan amount is so huge compared to your relative income, and you are in good standing for twenty-five years, the balance of your loan will be forgiven.
Many online calculators exist that could help potential borrowers to determine if they will qualify for the income based repayment option.
Most students who do qualify will have their student loan payments set at less than 10% of their annual income. However, it is important to remember that this option wouldn’t make sense for a graduate who plans to take a job paying upwards of $100,000 — like landing on the Income Tax space in Monopoly, you have to calculate your income and determine if that 10% option makes sense for you.
Realistically, most college graduates won’t immediately land a high paying job and earn the kind of salary that would keep them from enjoying the income based repayment option. Debt loads are climbing for recent graduates, and according to most sources, a high percentage of college graduates are exiting school with debt near $100,000 or more, especially if they earned any kidn of post graduate degree. If you were planning on stretchong out your debt payment, this new income based repayment plan is a good option.
Although the new law will make student loan repayment more affordable for most graduates, the legislation comes with complicated qualifications and rules that may baffle many potential aid recipients. In other words, borrowers may not get the information they need to make the right decision about the income based repayment plan.
Besides the income based repayment plan, there is a new “public service loan forgiveness” prgram that aims to entice students into certain public service fields. Borrowers can take advantage of the federal government’s public service loan forgiveness if they land right type of job (among many catgeories), take out the right type of loans (usually subsidized Stafford or TEACH loans) and continue to make prompt and full payments.
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