Student Loan Relief Plan Changed

On October 26, 2011, the White House announced a student loan relief plan, which made changes to the federal student loan program passed by Congress in July 1, 2010.  The 2010 law lowered the repayment cap and eliminated banks as the middle man for government student loans.  This 2011 relief plan changes repayment plan effective dates and provides for federal loan consolidation.

Student loan debt continues to mount with $1 trillion in outstanding, which has surpassed credit card debt.  In 2010, student loans taken out totaled $100 billion. Approximately 36 million are currently paying college debt. In-state tuition and fees at four year public colleges increased 8.3 percent over one year ago; the average tuition is over $8,000 annually.  Private college tuition increased by 4.5%, with $14,000 being the average tuition.

Key changes to the plan

This plan reduced the maximum payment required on student loans from 15 percent to 10 percent of annual discretionary income, for income contingent loans only.  The original effective date was 2014 and was moved up to 2012.  Any remaining debt would be forgiven after 20 years instead of 25 years.  This affects 1.6 million borrowers, but only 450,000 are currently enrolled in it.

Borrowers with loans from the Federal Family Education Loan Program (FFELP) and directly from the federal government can consolidate these into one.  The interest rate of the consolidated loans would be half a percentage point lower than before.  This impacts 5.8 million borrowers, but does not impact private student loans, which represent 17 percent of student loans.  Private colleges, considered for-profit, have targeted lower-income individuals, who have had to rely on private loans.  Private loans are usually offered at higher interest rates and the rates are variable.  In addition, they don’t extend grace periods or give accommodations.

This plan does not apply to private loans, borrowers that are in default, and the growing cost of college. Loan forgiveness changes apply to students with federal loans based on a discretionary income formula, and students currently enrolled.  Federal student loans can be consolidated for those out of school.  This may help about 7.4 million – what about the remaining 28 million?

Credit Expert, John Ulzheimer, is the President of Consumer Education at, the credit blogger for, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.


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