Student loan changes for 2014 and beyond
The school year may be coming to a close, but changes in the student loan environment continue. Whether you’re a recent college grad or still in school, if you have student loans, here’s what you need to know for 2014 and beyond:
1. College debt forgiveness could become more attainable
On March 4, 2014, President Barack Obama unveiled his proposed budget for the 2015 fiscal year. Part of Obama’s proposed budget includes additional spending for education, including funds for a “Pay as You Earn” initiative to help needy borrowers repay their student loans.
The Pay as You Earn program is better known as Income-Based Repayment, or IBR. The program caps a borrower’s monthly student loan payments at 10% of his or her discretionary income. Furthermore, IBR includes debt forgiveness for any student loan balance that remains after 20 years of payments. Debt is forgiven after only 10 years for those with government and certain nonprofit jobs.
But there’s one big drawback to the current program that keeps many people from taking advantage of it: Presently, only individuals who took out loans after Oct. 1, 2007 and demonstrate a “financial hardship” are eligible.
President Obama’s new budget proposal would cast aside the October 2007 provision, permitting anyone to enroll regardless of when they took out their student loans.
2. More opportunities to refinance student loans
A slew of lenders have recently begun offering cash-strapped borrowers an opportunity to consolidate and refinance their private student loans.
Among these lenders: Discover Financial Services, RBS Citizens Financial, SunTrust Banks, and Wells Fargo.
This is potentially good news for the 40 million Americans who owe $1.2 trillion in student loans.
Unfortunately, there is some bad news on the student loan horizon as well.
3. Interest rates will likely rise
In 2013, Congress enacted a law that ties the interest rates on federal student loans to the 10-year Treasury note. So when the value of that note increases, so do the interest rates on student loans, such as Stafford loans, Parent Direct PLUS loans and graduate PLUS loans.
Predicting just how much student loan interest rates will climb is tricky — especially since the exact interest rate charged to 2014-2015 borrowers won’t be established until June 1, 2014. At that time, rates will be locked in based on the Treasury note yield.
Back on June 1, 2013, the 10-year note yielded 2.16%. It has since climbed to 2.7%, as of March 4, 2014, so it’s a pretty safe bet that rates will continue to rise.
Most experts forecast rates in the 3% to 3.75% range. Bottom line: if you’re taking out student loans in 2014 or later, expect your borrowing costs to increase.
4. Credit checks will become more common
The Higher Education Act expires at the end of 2014, and Congress is now considering whether to reauthorize it. One change proposed within the Act is to make credit checks more common.
Case in point: Parent Direct PLUS and Graduate PLUS loans would require credit checks. Those with loans that are past due by 90 days or more, or individuals who have had a bankruptcy filing, foreclosure, repossession or loan default within the last five years would be denied federal student loans.
My advice: keep your credit in tip-top shape, and stay abreast of these four issues to manage your student loans in 2014 and beyond.