Students who take out loans for their higher education have many struggles—unemployment, expensive tuition, and the cutting of subsidized loans for graduate programs. However, a Presidential order, nicknamed the Student Loan Bailout, could help many students out of their loan rut—and Congress may not even need to approve it.
Student Loan Consolidation
It’s imperative to understand that consolidating private loans together with federal loans is next to impossible. Federal Family Education Loans issued by banks can be consolidated with direct federal loans. There is a savings of .5% interest rate in doing so, which can be further discounted by .25% by paying through direct debit, as any monthly debt can be repaid.
Consolidation can, however, prove a costly course of action if one is uninformed of current rules, or those that may be taking effect within actionable dates. By taking a direct federal loan, you may lose any existing interest rate discount you may currently have earned by paying on time. By giving up the benefits of interest rate reduction, it is still possible to consolidate new federal loans. These loans may fit the bill for income-based repayment rules and set you up for the .25% direct debit deduction. It’s wise to consult student loan calculators online to determine what might be your wisest course.
Income-based repayment is much better than it used to be. In the past, repayments of this kind capped off at 15% of discretionary income, whereas—after the new executive order—they are capped at 10%. This is a substantial difference for some. Instead of 25 years, a more modest 20 years is given to repay, after which the government forgives the balance of borrowers who have promptly, responsibly sent their loans payments on time. Annual income determines payments each year, and can also be calculated online.
The Help of Congress
Again, Congress need not approve these rule changes, but the new rules must be negotiated by those involved—banks and borrowers. They are not guaranteed changes as things currently stand. Also, the Department of Education suggests that borrowers with loans made after the 2008 fiscal year, to whom the new rules apply, wait until after July 1, 2012 to consolidate, since they may be able to receive reduced income-based repayment. The bottom line is that it pays to wait until the new rules have been approved or amended through negotiated rule making to see whether one qualifies for the benefits therein.