President Obama is set to announce some changes in the Federal Direct Loans program that may help alleviate some of the financial distress that some student borrowers are facing.
In order to assist former students in the repayment of their federal loans, the following announcements are anticipated:
- A reduction in the maximum required payment on federal student loans from 15% of discretionary income annually to 10%. This is to be made available in 2012 instead of 2014.
- Under this plan, any remaining federal loan debt would be forgiven after 20 years of repayment, instead of the current 25 years.
- Borrowers with outstanding Stafford loans in the (now defunct) Federal Family Education Loan Program and the Federal Direct Loans program will be able to consolidate them together using the federal Direct Loans consolidation program. The consolidated loan would carry an interest rate of up to a half percentage point less than before.
Clarification of facts: This announcement will only affect federal loans, the majority of which are Stafford loans. If you are trying to get federal loans consolidated, go to the Direct Loans web portal.
Private student loans are not part of the offered federal loan consolidation program, and would still require a separate private student loan consolidation.