Options provide student loan relief

When he graduated from South Dakota State University in spring, Geoff Nixon had more than $20,000 in student loan debt and little hope of quickly finding work in his field.

After studying communications and theater in college, he has spent the summer working at a coffee shop and a bank, saving money for next month's move to New York City, where he hopes to scrape together a living in theater. The first student loan bill comes due in November.

"It's not even in my mind yet like it should be. It's kind of a daunting idea," Nixon said.



Two federal programs that began last month aim to ease the burden for college graduates with high debt loads and little income.

For many students, the Income-Based Repayment program reduces monthly payments and lets them spread out the payback of government loans over as many as 25 years. Those earning no more than 150 percent of the federal poverty level - or up to $16,245 this year - won't have to make any payments until they start earning more. And any remaining debt after 25 years will be canceled and counted instead as taxable income.

A second program, Public Service Student Loan Forgiveness, helps those working in government and other public service jobs. If the borrower makes 10 years of payments, the balance of the loan will be forgiven with no tax penalty.

"The breathing room that comes with this will allow college graduates to pursue a career that they're really passionate about rather than just one that pays well," said Gregory Cendana, president of the U.S. Student Association, a student advocacy group based in Washington, D.C.

Congress created both programs in 2007, but they didn't start until last month.

Cendana said the timing is good: The low payments will help students contribute to the economic recovery. Two-thirds of last year's graduates from four-year colleges and universities had student loan debt, according to a government study. And the amount of debt averaged $23,200, a 24 percent increase over 2004.

"It's really a huge step that U.S.S.A. has been working at for years," Cendana said.


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Consolidate to lock in lower student-loan rates

Should I consolidate my student loans due to the new interest rates?

There are new interest rates for variable federal Stafford and PLUS loans issued between July 1, 1998 and July 1, 2006. The new rates for Stafford Loans are 2.48 percent (down from 4.21 percent) for loans that are being repayed and 1.88 percent (down from 3.61 percent) for loans that have a grace period or are deferred or are for students still in school. PLUS loans have dropped to 3.25 percent from 5.01 percent.

Borrowers with variable-rate federal student loans can lock in the current variable rate on their loans by consolidating them. The interest rate on a consolidation loan is a fixed rate that is equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a point.


If you consolidate now and rates drop even lower, can you consolidate again down the road?

Borrowers can only consolidate once. If they’ve done so previously, they will not be able to take advantage of the new low rates. Also, private student loans cannot be included in a federal consolidation loan.


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