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More Information on the President's Student Loan Announcement

The President recently announced two future changes to federal student loan repayment options.  The first affects certain future graduates’ Income-Based Repayment rules.  The second affects certain recent graduates consolidation benefits.

 

Under current Income-Based Repayment rules, a borrower pays 15% of his or her discretionary income for no more than 25 years (at which time any remaining debt is forgiven).  Under the President’s plan, borrowers who i) have no federal student loans from years prior to 2008 and ii) who have at least one federal student loan in 2012 or later will pay 10% of their discretionary income for no more than 20 years (at which time any remaining debt is forgiven).

Can current Georgetown Law graduates benefit from the President’s plan?

Because of the 2012-or-later loan requirement, current graduates will not benefit from this change (unless they return to school and obtain a future student loan).

Can current Georgetown Law students benefit from the President’s plan?

Current students who did not borrow student loans in any year prior to 2008 and who borrow at least one loan in 2012 or later (even if just in the Spring 2012 semester) can benefit.

What is the likely impact?

Among those borrowers who are eligible to benefit from the plan (see above), the effective impact of the change will be felt most by those making Income-Based Repayments who i) don’t qualify for Public Service Loan Forgiveness (which forgives remaining debt after 10 years of IBR payments already) and/or ii) who don’t benefit from LRAP help in paying their IBR payments.  These future graduates (possibly an employee in a relatively lower-wage, for-profit industry) could benefit from a shortened repayment commitment and lower payments during that time.

 

Under current consolidation rules, a borrower choosing to consolidate his or her loans into one Federal Direct consolidation loan pays a weighted average interest rate (rounded up to the next highest 1/8 of a percent).  Under the President’s plan, borrowers may choose a “special” consolidation loan between January and June 2012 if they are consolidating at least one federal loan currently held by a “third-party” lender (loans borrowed prior to the 2009-2010 academic year at Georgetown Law) and one federal loan held directly by the U.S. Department of Education (loans borrowed beginning in the 2009-2010 academic year at Georgetown Law).  To determine the interest rate on these special consolidation loans, ¼ of a percentage point will first be deducted from all third-party loans being consolidated, before the weighted average is taken.

Can current Georgetown Law graduates benefit from the President’s plan?

Graduates who have not yet consolidated their loans and who have borrowed the two required types of federal loans can benefit.

Can current Georgetown Law students benefit from the President’s plan?

Since you can’t be in-school when you consolidate, and because the special consolidation program ends in June 2012, the only current students who could benefit are those graduating in Fall 2011 or Spring 2012 and who meet the specific loan requirements above.

What is the likely impact?

The effective impact of the special consolidation opportunity will be felt by those graduates who choose to consolidate because of the administrative ease of having one loan, (as opposed to those who choose to consolidate in order to take advantage of Public Service Loan Forgiveness) and therefore will be paying their loans’ full interest costs.  However, even with the small interest rate benefit that could be achieved through the special consolidation process, converting many loans at different interest rates into one loan severely limits financial flexibility during repayment and is generally something we would recommend avoiding.  In addition, an eligible borrower should first consider whether he or she has a more advantageous borrower benefit with his or her current lender, as such benefit would cease if the loan were consolidated.

 

Please note that this is a summary of the announced changes based on information currently available.  Specific requirements may exist or may come to exist beyond those outlined above.  If you have any questions about these announced changes, please contact the Financial Aid Office at 202-662-9210 or finaid@law.georgetown.edu.