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Changes to Student Aid 7/1/2009

Every year on July 1, annual changes come into play in the education aid arena, and this year is no exception, with lots of changes.  As of July 1, 2009, several changes for Student Financial Aid went into effect.  Highlights are:

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  • Increase in maximum Pell Grants to $5,350.  The old maximum amount for Pell Grants was $4,700, a number increased by the College Cost Reduction and Access Act (CCRAA) and the American Recovery and Reinvestment Act (ARRA).  The minimum Pell grant has been increased – in the past the minimum was $400, and now the minimum has been pegged at 10% of the appropriated maximum… so, to really confuse matters, the “appropriated maximum” for 2009-2010 is $4,860, with a CCRAA addition of $490 to all Pell awards (hence the maximum reported above of $5,350).  What this means is that the effective minimum for school year 2009-2010 is $976, which is $486 (10% of appropriated maximum) plus the CCRAA addition of $490.
  • New Subsidized Stafford Loans have a rate of 5.6%, on up to $5,500 (up from $3,500). This is the second of four annual cuts to the rate on these loans, which will continue until the rate reaches 3.4% in 2011.
  • Old loans are pegged to the 91-day T-Bill auction rate.  For now, that rate is an amazingly low 2.48%.  This applies to loans made before June 30, 2006 and after July 1, 1998.
  • Stafford Loan upfront fees have dropped to 1.5% from 2%.  If insurance is not added to the loan, the upfront fee is now as low as 0.5%.
  • New Income-Based Repayment program (IBR) is available to folks who are already paying back their loans.  This program caps borrowers’ monthly loan payments at 15% of their discretionary income (that is, 15% of what a borrower earns above 150% of the poverty level for their family size).  Any current or future borrower whose loan payment exceeds 15% of his or her discretionary income is eligible.  After 25 years in the program, the borrowers’ debts will be completely forgiven.  Borrowers with high debt or low-paying jobs are most likely to benefit from the program.  IBR applies to all federal loans made to students, including Stafford, Grad PLUS or consolidation loans, but not loans made to parents.  Perkins loans are also eligible if a borrower consolidates them into a FFEL or Direct loan.
  • Competitive Loan Auction Pilot Program, which was scheduled to begin on July 1, has been canceled due to lack of interest from FFELP lenders.
  • Sex offenders are no longer eligible to receive Pell Grants.
  • Due to the implementation of IBR, the old 20/220 ratio will no longer be in effect.  Under this old plan, a student could qualify for economic hardship deferment on their loans if they 1) are employed full time; 2) have an education loan debt burden equal to or greater than 20% of their monthly income; and 3) have an income minus debt burden that is less than 220% of the greater of the minimum wage rate or the federal poverty line for a family of two. This could be extended if HR 1615, Medical Economic Deferment for Students Act is passed.
  • The Higher Education Opportunity Act (HEOA) provides for maximum Pell Grant eligibility to a student whose parent or guardian was a member of the Armed Forces and died as a result of performing military service in Iraq or Afghanistan after 9/11/2001, provided that the child was under 24 years of age or was enrolled in college at the time of the parent or guardian’s death.
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