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Federal legislation reduces loan repayment, increases Pell Grants

Published: April 9, 2010
Section: News


President Obama’s new changes to federal student aid will not change the way students receive their federal Stafford loans but it will affect how much they pay and how long they will repay these loans.

Changes will also allow more students to be eligible to receive federal Pell grants, educational funds given to students that fall below a certain income.

Students will find out if they now qualify for the Pell grant in the student aid report that is received once the student has filled out the Free Application for Federal Student Aid (FAFSA).

Effective July 1 students will only have to repay 10 percent of their discretionary income to their loans, down from the pervious 15 percent.

Discretionary income is the amount of the borrower’s annual gross income that exceeds 150 percent of the poverty line for the borrower’s family size.

Another change is loan forgiveness which will also occur after 20 years instead of 25.

Forgiveness will still continue to occur after ten years if students pursue several careers in public service.

Also effective July 1all schools will have to use the federal direct loan program.

Previously about one-third of colleges and universities participated in the direct loan program, which reduces the costs of processing the loan and interest rates.

Schools that did not participate required their students to access federal loans through an intermediary, like a bank.

In 1996 Brandeis decided that using the direct loan system, which this new legislation forces all schools to implement, was more convenient for both the university and students.