Dr. Mary Ann Campbell, CFP® = "Dr. MAC"

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“Pay as You Earn” Student Loan Improvements

Sunday, October 30th, 2011

Due to the high student loan debt coupled with a bleak job market and rising college tuition, changes are being made, by a Presidential Executive Order, to lower monthly payments and reduce interest rates on federal student loans.  Starting in 2012, low income borrowers of student loans will be able to cap their federal student loan repayments at 10% of their discretionary (after taxes) income.  Any remaining loans after 20 years will be forgiven.   The order also allows you to:

  • Consolidate old Federal Family Education Loans and Federal Direct Loans
  • Receive up to a .5% interest rate reduction for a single payment plan

For more information regarding the new federal student loan repayment program:

Beware Private Loans:

No such reductions nor forgiveness is occurring with private loans obtained for higher education.  These generous changes only cover federal student loans.  Therefore, take the time to ferret out all your options in the federal arena first.  Only take out a private loan as a last resort because you may have a more difficult time repaying such a loan.  Slow or late repayment could affect your credit score, causing all lending costs to rise (such as auto and home) as well as other life expenses after graduation (insurance premiums and cell phone bills) to be more expensive.

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