Two major changes are coming to Perkins, Stafford and Grad Plus student loans starting July 1. To get the details, I interviewed my friend, Bill Penn, who gives career advice to students at Lewis & Clark Law School in Portland, OR.
The first change, called income-based repayment, allows lenders to cap payments at 15 percent of the borrower’s income.
The old system had most students on a standard, 10-year repayment plan. If you consolidated, that would extend to 15, 20, 0r 30 years. The new repayment plan is based on income and is especially helpful for people who go into low-paying jobs, like public defenders, or take positions at non-profits or with the government.
To get into the 15 percent program ask your lender for income-based repayment. For many people, the 15 percent program will be the lowest payment option.
The second change is for people who take public service jobs for the government or a non-profit. The program is called public service loan forgiveness. If you work at a public service job while making your student loan payments, (including the 15 percent program), after 10 years whatever you have not paid off goes away. If you do not have a public service job, then you have to pay the loans for 25 years before your remaining balance is forgiven.
“It turns into real big dollar signs at that point,” Bill said.
The big caveat is that to qualify for the second program you have to be paying your loan using the 15 percent program OR an older income contingent program that is similar to the new one but more complicated. And you have to be paying the department of education. You can consolidate your loans to be paying the department of education if you are not currently paying them.
Check out FinAid.org for more details on the public service repayment program.