Sallie Mae announced a new repayment plan today that aims to help eligible federal student loan customers to substantially lower their monthly payments, according to a release from the student lender.
The new repayment plan is called income-based repayment (IBR) and will begin on July 1. It will enable federal student loan customers experiencing financial difficulty to cap their monthly bill at 15% of their discretionary income.
It will also allow eligible customers making qualifying payments to extend from the standard 10-year term to up to 25 years, after which any remaining balance will be forgiven.
A new student loan repayment calculator is now available on Sallie Maes Web site.
It is geared to help customers assess whether they qualify for the new plan, compare it to alternatives, simulate IBR results under different income assumptions, assess the likely time to pay in full and evaluate the total cost of each option.
Additionally, Sallie Maes Web site also contains an eligibility worksheet, an in-depth repayment options presentation and materials aimed at students who are likely to qualify, as well as information on loan forgiveness for public service professionals.
Increasing awareness regarding IBR and assisting students on customer and non-customer campuses have been recent focuses of the student loan firm. This goes hand and hand with the workshops and visits to educate financial aid professionals and their students on its program that began in January as well as targeted counseling for students identified as likely to benefit from the new repayment plan began in March.
Federal law dictates eligibility for income-based repayment based on whether student loan customers demonstrate financial need as defined by the Department of Educations formula that considers the individuals income, federal student loan balance and household size. The monthly payment is capped at 15% of discretionary income and is reset each year.
Todays press release reported that the IBR option provides an alternative payment schedule for individuals with high federal student loan payments relative to their income, and may be particularly helpful to new college graduates unable to find employment or who have accumulated higher-than-average federal loan balances.
IBR may not be the most ideal option for some, however, as they may end up paying more in interest charges over the life of the loan, since the option extends the repayment term.
July 1 will also bring other changes, according to Sallie Maes release. The maximum Pell Grant award will rise to $5,350, an increase of $691, and more families will be eligible to claim an expanded tax credit of up to $2,500 for higher education.
Additionally, account owners of tax-advantaged 529 college savings plans will be able to count the purchase of a computer for a beneficiary college student as a qualified education expense in 2009.
Interest rates on need-based subsidized federal Stafford undergraduate loans will also decline, for the second consecutive year. The interest rate for newly disbursed loans will be 5.6 %, down from 6% last school year.
Lastly, in accordance with law, undergraduates with unsubsidized Stafford loans and graduate students will continue to pay fixed interest of 6.8 %t. Additionally, the origination fee the government charges for each new Stafford loan will change to 0.5%, down from 1%.