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New Federal Student Loan Consolidation, Loan Forgiveness Programs Offer Student Loan Relief
Pres. Obama proposes speedier government-backed loan consolidation, expands loan forgiveness program to help borrowers
Obama student loan forgiveness plans could very well mean that your college student loan may get easier to handle. Details of the President's new "Pay As You Earn" program sets new rules for repayment of federal student loans.

Obama wants those people holding both private and government student loans to have an option to consolidate their student college loan debts into one new government loan. Such a move could slash their interest rates, and save them money in the process. But those seeking information on how to have student loans forgiven will not be disappointed, either.

President Obama also seeks to speed up rollout of an income-based repayment (IBR) program that was originally slated to begin in 2014. Student loan borrowers would still be responsible to make payments on their student loans, but their payments would be capped to just 10% of their income. And, best of all, their student loans would then be forgiven after 20 years. The new proposal that President Obama is said to be pushing would take affect sometime over the next year. A specific date is not currently available.

It is still not entirely clear how many students the new law is aimed at helping; The Wall Street Journal estimates:

"The change could affect an estimated 5.8 million people who hold two types of student loans—those issued by private banks and "direct loans" issued by the government...Consolidating the two loans into a government loan would result in a lower interest rate—and therefore lower monthly payments—as well as additional loan-forgiveness and repayment options."

When Congress passed the Income-Based Repayment Plan -- a new law which drops the monthly payment to 10% of discretionary income and would forgive all debt after 20 years -- there was a long waiting period before it became a reality; it was originally not set to go into effect until 2014. Now, President Obama wants the new terms to take effect in 2012.

Low-income borrowers would benefit the most. If a student loan borrower qualifies, then monthly student loan payments are based only on any income above 150% of the poverty line ($16,335, the current 2011 U.S. poverty threshold.)

For a graduate living on their own, IBRP payments would be based on what he or she earned over this $16,335. Moreover, if the graduate is unemployed and has no income at all, then no monthly payment would be due on those student loans.

Although it is unclear how this reporting would be done, it still represents a positive step forward toward resolving the student loan debt debacle affecting untold numbers of college graduates who are struggling to make their college loan repayments.

On Oct. 25, 2011, the White House released this fact sheet to give some background to the President's new student loan proposals:

FACT SHEET: "Help Americans Manage Student Loan Debt"

The Administration has made historic investments in Pell Grants and the American Opportunity Tax Credit to help make college more affordable for millions of current and future students. While college remains an excellent investment for most students, debt may discourage some potential students from enrolling, keeping them from getting the skills they need to compete in the global economy. Some borrowers may struggle to manage their bills and support their families. The need for enough income to make large monthly payments may discourage some graduates from starting a new job-creating business or entering teaching or another lower-paying public service career.

Today, the President announced a series of additional steps that the Administration will take to make college more affordable and to make it even easier for students to repay their federal student loans:

Help Americans Manage Student Loan Debt by Capping Monthly Payments to What They Can Afford

Allow borrowers to cap their student loan payments at 10% of discretionary income. In the 2010 State of the Union, the President proposed – and Congress quickly enacted – an improved income-based repayment (IBR) plan, which allows student loan borrowers to cap their monthly payments at 15% of their discretionary income. Beginning July 1, 2014, the IBR plan is scheduled to reduce that limit from 15% to 10% of discretionary income.

Today, the President announced that his Administration is putting forth a new “Pay As You Earn” proposal to make sure these same important benefits are made available to some borrowers as soon as 2012. The Administration estimates that this cap will reduce monthly payments for more than 1.6 million student borrowers.

For example:

A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 -- a total reduction of $451 a month.

A teacher who is earning $30,000 a year and has $25,000 in Federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $287 . The currently available IBR plan would reduce this borrower’s payment by $116, to $171. Under the improved ‘P ay As You Earn’ plan, his monthly payment amount would be even more manageable at only $114. And, if this borrower remained a teacher or was employed in another public service occupation, he would be eligible for forgiveness under the Public Service Loan Forgiveness Program after 10 years of payments .

Continues to provide help for those already in the workforce. Recent graduates and others in the workforce who are still struggling to pay off their student loans can immediately take advantage of the current income-based repayment plan that caps payments at 15% of the borrower’s discretionary income to help them manage their debt. Currently, more than 36 million Americans have federal student loan debt, but fewer than 450,000 Americans participate in income-based repayment. Millions more may be eligible to reduce their monthly payments to an amount affordable based on income and family size. The Administration is taking steps to make it easier to participate in IBR and continues to reach out to borrowers to let them know about the program . Borrowers looking to determine whether or not income-based repayment is the right option for them should visit www.studentaid.gov/ibr .

The CFPB also released the Student Debt Repayment Assistant, an online tool that provides borrowers, many of whom may be struggling with repayment, with information on income-based repayment, deferments, alternative payment programs, and much more. The Student Debt Repayment Assistant is available at ConsumerFinance.gov/students/repay

Improve Ease of Making Payments and Reduce Default Risk by Consolidating Loans

Provide a discount on consolidation loans. While all new federal student loans are now Direct Loans thanks to the historic reforms in the Health Care and Education Reconciliation Act, there are still $400 billion outstanding in old Federal Family Education Loans. These loans offer fewer repayment options and are unnecessarily expensive for taxpayers. In addition, about 6 million borrowers have at least one Direct Loan and at least one FFEL loan, which requires them to submit two separate monthly payments, a complexity that puts them at greater risk of default. To ensure borrowers are not adversely impacted by this transition and to facilitate loan repayment while reducing taxpayer costs, the Department of Education is encouraging borrowers with split loans to consolidate their guaranteed FFEL loans into the Direct Loan program. Borrowers do not need to take any action at this time. Beginning in January 2012, the Department will reach out to qualified borrowers early next year to alert them of the opportunity.

This special consolidation initiative would keep the terms and conditions of the loans the same, and most importantly, beginning in January 2012, allow borrowers to make only one monthly payment, as opposed to two or more payments, greatly simplifying the repayment process. Borrowers who take advantage of this special, limited-time consolidation option would also receive up to a 0.5 percent reduction to their interest rate on some of their loans, which means lower monthly payments and saving hundreds in interest. Borrowers would receive a 0.25 percent interest rate reduction on their consolidated FFEL loans and an additional 0.25 percent interest rate reduction on the entire consolidated FFEL and DL balance.

For example:

A borrower about to enter repayment with two $4,500 FFEL Stafford loans (at 6.0%) and a $5,500 Direct Stafford loan (at 4.5%). Under Standard Repayment, the borrower can expect to pay a total of $4,330 in interest until the loans are paid in full. If this borrower consolidates their FFEL loans under this initiative they would save $376 in interest payments, and make only one payment per month, instead of two.

A borrower in repayment with a $32,000 FFEL Consolidation loan (at 6.25%) and a $5,500 Direct Unsubsidized Stafford loan (at 6.8%). Under Standard Repayment, the borrower can expect to pay a total of $13,211 in interest until the loans are paid in full. If this borrower consolidates the FFEL loan under this initiative they would save $964 in interest payments, and make only one payment per month instead of two.

Provide Consumers with Better Information to Make College Selection Decisions

“Know Before You Owe” Financial Aid Shopping Sheet.

The Consumer Financial Protection Bureau and the Department of Education have teamed up to launch a new “Know Before You Owe” project aimed at creating a model financial aid disclosure form, which colleges and universities could use to help students better understand the type and amount of aid they qualify for and easily compare aid packages offered by different institutions. This “Financial Aid Shopping Sheet” makes the costs and risks of student loans clear upfront – before students have enrolled – outlining their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal aid. Ultimately, this provides students and their families with useful information that can help them make a more informed decision about where to attend college and help them better understand the debt burden they may be left with.

The CFPB is soliciting feedback on how to further improve the form, especially looking for input from college students and their families. They can go to the CFPB's website ( http://consumerfinance.gov/students/knowbeforeyouowe ) where an online ranking tool will provide the public with an opportunity to weigh in on the financial aid shopping sheet.

New York Times reports: President to Ease Student Loan Burden for Low-Income Graduates (link opens in new window)

Special Direct Consolidation Loans -- The U.S. Department of Education says it will offer Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012. Get the factsheet here...

Access the free Student Loan Repayment Assistant here to determine your best course of action for federal student loan consolidation (link opens in new window).

Reportedly, the following loans will not be eligible for debt consolidation under this program: FFEL loans in default or subject to a bankruptcy proceeding; Perkins Loans; Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS); and private student loans.

Recent updates:

Special Direct Consolidation Loans



The U.S. Department of Education (the Department) will offer Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012, for borrowers with

 

·         at least one student loan held by the Department (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers); and

 

·         at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).

 



Special Direct Consolidation Loans are intended to help borrowers manage their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment (borrowers repay loans to a loan servicer). Borrowers will also receive an interest rate reduction on Special Direct Consolidation Loans as a repayment incentive.



The information below describes the eligibility requirements and benefits of taking out a Special Direct Consolidation Loan.



Who is eligible for a Special Direct Consolidation Loan?

You must have at least one loan owned by the Department of Education and at least one commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.



What federal student loans are eligible for the Special Direct Consolidation Loan program?

While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:

 

·         FFEL Subsidized and Unsubsidized Stafford Loans;

 

·         FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and

 

·         FFEL Consolidation Loans

 



In order to be eligible for consolidation under this initiative, these loansmust be in grace, repayment, deferment, or forbearance.



The following loans are ineligible for this program:

 

·         FFEL loans in default or subject to a bankruptcy proceeding;

 

·         Perkins Loans;

 

·         Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS); and

 

·         Private student loans

 



What are the benefits of Special Direct Consolidation Loans?

 

·         Interest rate reduction: If you consolidate into a Special Direct Consolidation Loan, you will receive a 0.25% interest rate reduction from the current interest rate on your commercially-held FFEL loan(s) as of the date of consolidation. The interest rate will be fixed for the life of the loan and cannot exceed 8.25%.

 

·         Repayment term will not be changed: The repayment term on your Special Direct Consolidation Loan (the length of time you have to repay the loan) will remain the same as your current repayment terms and will not be reset. As a result, you will pay less interest over the life of the loan than you would with a traditional Direct Consolidation Loan.

 

·         Credit for Previous Income-Based Repayment (IBR) Payments: If you made any IBR loan payments on your commercially-held FFEL loans prior to consolidation, those payments will count toward the required repayment time for cancellation if you remain in IBR. Under IBR, any remaining loan balance is forgiven after 25 years of repayment.

 

·         Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program: By consolidating your commercially-held FFEL loans into a Special Direct Consolidation Loan, those loans become Direct Loans, and as result, are eligible for the PSLF Program if you meet the additional program requirements. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers.

 



How are Special Direct Consolidation Loans different than traditional Direct Consolidation Loans?



 

Traditional Direct Consolidation Loan

Special Direct Consolidation Loan

Repayment Term

The repayment term for the loan starts over, giving students longer to repay their loan. A longer repayment term may result in lower monthly payments but will ultimately increase the amount the borrower will pay over the life of the loan since more interest will accrue during a longer repayment period.

Each loan that is consolidated retains its original repayment term. As a result, borrowers will pay less interest over the life of the loan than they would under the traditional consolidation program.

Interest Rate

A fixed rate based on the weighted average of the interest rates of those loans being consolidated rounded up to the nearest one-eighth of 1%, not to exceed 8.25%.

A fixed rate (not to exceed 8.25%) after applying the 0.25% interest rate reduction to the FFEL loans being consolidated.

Electronic Debit Benefit

Eligible for a 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.

Eligible for an additional 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.




How will I know if I am eligible for the Special Direct Consolidation Loan Program?

Once Special Direct Consolidation Loans are available in January 2012, a Department of Education servicer will notify you if you are eligible.



What action should I take to initiate a Special Direct Consolidation Loan?

You do not need to take any action until you are contacted by a Department of Education servicer. If you’re interested in taking out a Special Consolidation Loan, it is critical that you do not start the traditional Direct Consolidation Loan process. If you consolidate your loans into a traditional Direct Consolidation Loan before Special Consolidation Loans are available, you will not be eligible for a Special Direct Consolidation Loan.



Where can I get more information about Special Direct Consolidation Loans?

If you have further questions about Special Consolidation Loans, you can call 1-800-4-FED-AID (1-800-433-3243) for more information.

 

The AP posted "A guide to Obama's student loan plan" here... (link opens in new window)

Some bloggers attacked President Obama's new student loan relief initiative (link opens in new window). But as we await to hear more responses to the Obama student loan proposal, we've republished information on existing student loan forgiveness programs below; these programs are still available on the market right now:

Forbes.com notes borrowers of private student loans out of luck with the new Obama student loan consolidation plan.

Finding loan forgiveness requires four things of you: Do your homework on lenders. Focus your time and energy. Keep applying for student loan repayment help. Never give up.

There are detailed specifics of how a student loan can be canceled or -- as it's more commonly referred to, "forgiven" -- when your college degree leads to or complements a job in the teaching profession.

You must be thorough in your search. Going all the way through college, believing that your education loans will be excused, only to find out that you didn't qualify for one reason or another, could cause you substantial financial stress when it's time to start student loan repayments.

There are a number of specific guidelines to be aware of as you search for the right college debt forgiveness program that will suit your individual needs. One of your best ways to find student loan forgiveness programs is by your own diligent research on the Internet.

To find the right college loan programs suited to you, narrow your Internet searching to the specific careers or jobs that you have studied for or that you intend to study for while earning your college degree.

Military Student Loan Forgiveness Programs -- Special loan forgiveness options are available for Active Duty, Reserve and National Guard military personnel designed to reduce or even eliminate college loans!
As you will find from your in-depth research on the subject, loan forgiveness is available ... but the rules sometimes limit student eligibility.

Save time and energy. It is very important for you to remember only to focus on finding student loan forgiveness programs that are available for college graduates from your state. It makes no sense wasting time learning all the varied details and eligibility requirements of a loan forgiveness program, only to find that you don't qualify due to residency, age restrictions, or some other rule.

By following this route, you can ultimately use your degree to help pay down your student loan debts! Your student loan balances will dwindle and you will gain valuable experience in your field of study. And, you will be helping people who need it most.

College loan forgiveness qualifications will indeed vary from state to state, and from major to major. You'd be wise to seek out help from your school's employment assistance office for helping tracking down student loan repayment programs.

Remember: the best time to seek out student loan forgiveness is BEFORE you've gone to college! Trying to take advantage of programs aimed at getting people to study certain subjects to fill needs in particular fields of employment are often the reason for such programs.

However, teacher loan forgiveness programs is well-known across the country among teachers attempting to eliminate some or all of their college debts.

And, students who have graduated from college and are having problems finding a job will many times return to school to get an advanced degree or a degree in an entirely different field of study -- such as engineers getting a teaching degree to become a teacher. Then, this list of helpful college loan forgiveness programs will lead you in the right direction.

Once you find that you qualify for the right programs, you can be rewarded with student loan debt relief by going to work after college offering your skills by:

  • performing volunteer work
  • teaching in certain school districts or within certain areas,
  • providing legal and medical services
  • serving in the military armed forces
  • working in a critical federal government job

The downside? Student loans that have been forgiven are generally considered taxable income by the IRS. Consult with your personal tax advisor to determine how getting forgiveness on your student loan might affect you come tax time.

For more detailed information on this topic: Visit our student loan programs report for a free listing of student loan forgiveness programs that could help you learn how to pay off your student loans.

Is the Obama student loan forgiveness plan better than student loan deferment?
(Check here for free loan deferment tips ...)


Qualifying for forbearance or deferment means a borrower receives temporary relief from student loan payments. Student loan forgiveness means that the total principal and interest are wiped away and "forgiven." Usually, forgiveness of a student loan mean that the borrower willingly works in a career field that treats student loan payoff almost as a fringe benefit to attract high-quality candidates in return for lower wages or less desirable working conditions. Student loan deferments basically postpone repayment of your student loans. Now you can find out how to go about qualifying for a student loan deferment and buying yourself some extra time to pay off college loan debts.


Is this the time to consolidate student loans?
(Click here to learn about your options ...)

Have your student loans gotten out of control? Getting nasty collection calls? Maybe it's time to consolidate your loans. Find out if consolidating overdue student loans is the answer to your prayers... or maybe an expensive option you should avoid.


NEW!
•  The Advantages Of Federal Student Loan Consolidation


• 
"Free Loan Calculator To Pay Off Personal Loans, Credit Cards"


Click here to find grants for college

FederalGrantSource.org



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STUDENT LOAN FORGIVENESS MAY CREATE TAX BITE:
Many people who are searching for 'student loan forgiveness' wonder if the money they save from not having to repay their student loans winds up being taxable income or not. The Internal Revenue Service (IRS) has provided guidance on Student Loan Cancellations and Repayment Assistance to help you understand if a successful request for college debt forgiveness will result in a higher tax bill.

Read how college tax credits can help you save money: "How College Education Credits Can Help To Lower Your Tax Bill"



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