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Financial Aid Program Changes Take Effect

Low-income students and recent college graduates may reap dramatic gains beginning July 1 as a result of far-reaching changes in financial aid grant and loan programs.

While some of the gains – such as a significant hike in Pell Grants – have received attention, others that affect interest rates and student loan repayment schedules are just getting on the radar screens of policymakers and students. One of the most significant changes is the introduction of income-based repayment, through which students can reduce their monthly payments based on their earnings – a move of particular help to graduates in low-paying public service jobs.

“We estimate hundreds of thousands will take advantage of this,” said Edie Irons, spokeswoman for the Project on Student Debt in Berkeley, Calif. “But it’s not automatic. You have to apply for this.”

Students seeking income-based repayment must contact their lenders. But the switch should be easy to make, said Mark Kantrowitz, publisher of, a web site focused on the federal financial aid system. “If you’re in a public service job, it’s best to start sooner rather than later,” he told Diverse.

The U.S. Education Department has published a detailed chart of how income-based repayment, or IBR for short, may affect certain borrowers. For example, a single person earning $20,000 a year would face a monthly repayment of only $47. Adjustments may occur each year based on earnings and debt. (The chart is at

“The main goal of IBR is to make sure that your student loan repayment doesn’t ruin you financially,” Irons told Diverse.

Another major change involves consolidation loans. Borrowers with variable-rate loans before July 2006 could convert to consolidation loans with interest rates as low as 2 percent, Kantrowitz said. Such changes apply to those with variable Stafford or PLUS loans.

“It’s extremely unlikely that interest rates will ever get lower,” he said. With interest rates starting to rise again, the next adjustment in 2010 is likely to carry a higher rate.

Here is a look at other financial aid changes taking place next month:

  • Pell Grants: The maximum grant for needy students will increase from $4,731 to $5,350 – a jump of more than $500. Legislation approved by Congress also will allow for year-round grants to students seeking to accelerate their education. The minimum Pell Grant will increase from $400 to an annual rate equal to 10 percent of the maximum grant.
  • New student loans: New fixed-rate Stafford Loans will see their interest rate drop from 6 percent to 5.6 percent. Origination fees on Stafford Loans also will drop by half-a-percentage point.
  • Part-time students: Students enrolled at least half time will get access to the Academic Competitiveness and SMART Grant programs, which provide additional aid to Pell-eligible students who have completed a rigorous high school program.

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