New rules for student loan payments coming in 2012


President Obama has announced new initiatives to help graduates who are in way over their heads with student loan debt.

Prior to the president’s announcement today, the recent news reports about student loan debt topping $1 trillion was sobering and upsetting to me. Student loan debt is now the largest kind of debt for individuals and families, aside from mortgages. More than car notes and credit card bills.

Obviously, the student loan thing is a train-wreck. Because of the economic decline, people have not able to save for their kids’ college. But instead of students rethinking where they should go to school — as in a cheaper state school or a community college — they just borrow whatever they need to go where they want.

“Oh, I’m investing in my future,” they say. That’s true. College education does pay, and the income earning power over a lifetime, on average, is so much higher with a college degree. (There are always exceptions to the rule.) But that does not mean green-light to borrow as much as you possibly can.

Now we have Pres. Obama’s announcement of ways he wants to help those crushed by the burden of student loan debt. Here are the two main provisions of his plan:

  • Borrowers who have both a Direct Loan (DL) and a Federal Family Education Loan (FFEL) can consolidate them into one payment with a slightly lower interest rate beginning in January. If you are eligible to do so, you will be contacted by your federal loan servicer in early 2012 with more information. Call 1-800-4-FED-AID (1-800-433-3243) or visit with any additional questions. (Editor’s note: This provision does not impact private student loans. See the section subtitled ‘Working toward private loan forgiveness’ in this article from for more details.)
  • Meanwhile, the income-based repayment (IBR) plan is being beefed up. Beginning in 2012, monthly student loan payments through the IBR plan can be capped at 10% of discretionary income, which is down from the old cap of 15%. Visit or to see if you qualify for an IBR. In addition, student loan debt under the IBR plan will now be extinguished after 20 years instead of 25 years for most borrowers. (Teachers and other public servants can have student loan debt forgiven after 10 years.)

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