What student loan changes will occur on July 1, 2014?

July 1st in student loans is always a magical day.  This is when interest rates are decided and it is the cutoff point for when most programs occur.  For example if your loan was disbursed before July 1, 2012 you do not have interest accrue on your subsidized loans during your grace period, if your loans were disbursed after or on this date you do.

July 1, 2014 is a little busier than most but here are the highlights:

1) Interest rates.  As I mentioned before, new interest rates are set to begin.  Courtesy of studentloans.gov, here are what the rates look like.  This table provides the interest rates for new Direct Loan made on or after July 1, 2014 and before JUly 1, 2015.  They will apply to all new Direct loans made during this time.

Loan Interest Rate
Direct Subsidized Loans (Undergraduates) 4.66%
Direct Unsubsidized Loans (Undergraduates) 4.66%
Direct Unsubsidized Loans (Graduate or Professional Students) 6.21%
Direct PLUS Loans (Parents and Graduate or Professional Students) 7.21%

2. School closure discharge.  We have not covered this one yet, but basically if your school closes while you are enrolled and you do not transfer those credits, you may be eligible for a discharge.  Currently if you withdraw more than 90 days before your school closes you are not eligible for this discharge.  For borrowers with loans out after July 1, 2014 this number goes from 90 to 120 days.

3. IBR.  This appears to be a part of the President Obama plan that will be implemented at the end of 2015.  In his remarks, the president talked about Pay As You Earn and borrowers that could opt into it.  However there will be changes to the IBR as well that will mirror the PAYE changes.  There have been more rumors out there on what will and won’t happen, but what we were given for now was the following changes that were made to the IBR.

-Bases payments on 10% of discretionary income from the previous 15%.

-Reduces payments till loan is either forgiven or discharged (did not specify) from 25 years (300 payments) to 20 years (240 payments).

The big thing though is this is only for borrowers whose either first loan was taken out on or after July 1, 2015 or had all their loans already paid off prior to receiving a loan on or after this date.  If you consolidate your loans to make your disbursement date on or after this date, you are still not eligible.

So though I have very few details at this point it appears that the first “step” to the new White House initiative is to redo the IBR with the new loan standards but only for new borrowers and implement more changes closer to the end of 2015.  But as always stay tuned, this story seems to be ever evolving!