Student Loan Terms Eased Via Consolidation, Lower Rates

President Obama used executive order today to push forward student loan reform that would reduce monthly payments for 1.6 million borrowers next year, accelerating the previous 2014 startup timetable.
The new “Pay As You Earn” proposal for college students lowers their monthly loan payments to 10 percent of their discretionary income.  The plan also forgives the balance of their debt after 20 years of payments.
Additionally, starting this January an estimated 6 million students and recent college graduates will be able to consolidate their loans and reduce interest rates.
Currently, borrowers are allowed to limit their loan payments to 15 percent of their discretionary income and remaining debt is forgiven after 25 years.
Student borrowers will also have the chance to better manage their debt by consolidating federal student loans. About 5.8 million borrowers have both a Direct Loan (DL) and a Federal Family Education Loan (FFEL) that require separate payments.
Borrowers will be able to convert to a single payment to a single lender for both loans. Those who take advantage of this consolidation option, which also begins in January, would also receive up to a 0.5 percent reduction in their interest rate on some of their loans — that would save hundreds of dollars in interest per borrower.
Eligible borrowers will be contacted by their federal loan servicer early next year with information on how to consolidate, administration officials said.
In the aftermath of Republican opposition to his jobs-creation bill, Obama has used executive order to propose easing credit burdens for U.S consumers.  The Obama administration yesterday announced an expansion of a home refinancing program to help “underwater” homeowners who owe more on their homes than their value.
Today’s student loan order expedites reform enacted early last year, the Health Care and Education Reconciliation Act of 2010.
Republican lawmakers blocked a $447 billion jobs plan put forward by Obama last month.
“Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference,” Obama said.
U.S. Secretary of Education Arne Duncan said college graduates are entering one of the worse job markets in years.
“We have a way to help them save money by consolidating their debt and capping their loan payments,” Duncan said. “And we can do it at no cost to the taxpayer.”
See the administration’s work sheet on the student loan modifications.

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