New student loan benefits, other aid changes take effect
Changes in federal student loan benefits designed to make higher education more affordable and to ease the repayment of debt that many students must incur to attend college took effect Wednesday.
The new financial aid provisions were among the topics that U.S. Rep. John Dingell, D-Dearborn, discussed in a meeting Wednesday with about a dozen student leaders at the Michigan Union.
“Student debt is a significant problem,” Dingell said, adding that these days “if you want to make a successful living you cannot afford not to go to college.”
Among the changes are:
• Interest rates on need-based, federally subsidized student loans will decrease from 6 percent to 5.6 percent. These rates will continue to drop each year until they reach 3.4 percent in 2011.
• Some students and recent graduates — generally those with high student loan debt or low-paying jobs — may qualify for the new Income-Based Repayment program that will cap monthly payments on federal loans at 15 percent of a student’s discretionary income. After 25 years in the program, a student’s loan would be forgiven.
• The maximum Pell Grant Scholarship for the 2009-10 school year will increase by $600. The new maximum will be $5,350.
• The American Opportunity Tax Credit allows a $2,500-per-student tax credit in 2009 and 2010 for families with incomes of $80,000, or $160,000 for joint filers.
Approximately 11,000 U-M graduate and undergraduate students borrow money through the subsidized, need-based loans each year, says Pamela Fowler, executive director of the Office of Financial Aid.
The number of students receiving Pell Grants is expected to increase by about 16 percent, as economic problems make more students eligible for the low-income aid. Fowler says she expects that number to climb from about 3,300 to about 3,800.
“For many students, loans are the means of access to a college education. For years we have seen average indebtedness climb with no viable solution for students in lower-paying jobs to repay these loans,” Fowler says. “Now Congress has acknowledged this problem and its long-term affect on the economic health of our country and provided a workable alternative for students.”