June’s #AskFAFSA Office Hours Explores Student Loan Repayment Options

During June’s #AskFAFSA Office Hours, we featured  three recent student loan borrowers from a variety of fields who are using various resources (some more out of the box than others) to repay their student loans. Joe, Tiffany and Ian answered your questions about their experience with the student loan repayment process. Here is a summary of the Q&A:

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White House Office Hours with Secretary of Education Arne Duncan

Cross-posted from the White House Blog.

Secretary of Education Arne Duncan is joining us for special session of White House Office Hours on Wednesday, June 27th at 2:00 p.m. EDT. During a live Q&A on Twitter, Secretary Duncan will answer your questions about college affordability and the administration’s education policies and priorities.

Will you join us? Here’s how it works:

  • Ask your questions now and during the live event on Twitter with the hashtag #WHChat
  • Follow the Q&A live through the @WHLive Twitter account
  • If you miss the live Q&A, the full session will be posted on WhiteHouse.gov and Storify.com/WhiteHouse

Today, higher education isn’t a luxury – it’s a necessity that every American family should be able to afford. But it’s also getting more and more expensive.

For the first time ever, Americans owe more in student loans than in credit card debt. That’s why the President is calling on Congress to keep interest rates low so that every hardworking student gets a fair shot at the skills and training needed to get a good job in today’s economy.

If Congress doesn’t act, interest rates on federal student loans will double on July 1 and more than 7 million students around the country will rack up an average of $1,000 of extra debt each.

Kori Schulman is Deputy Director of Outreach for the White House Office of Digital Strategy

Take Politics Out of Student Loan Process

This op-ed appeared in today’s edition of Politico.

Last month, I had the honor of giving the commencement address at Howard University. I was filled with hope and inspiration looking out at the faces of all those young people, often the first in their family to attend college.

Those students and their families worked hard, sacrificed and saved to go to Howard. And for many of them, getting a degree would not have been possible without the help of Pell Grants and low-interest federal student loans.

These students and parents understand that a post-secondary education is the ticket to economic success in America. But while it’s never been more important to have a degree, a certificate or an industry-recognized credential — it’s also never been more expensive.

Since 1995, college costs across the country have increased almost five times faster than median household income. As a result, students and their families are taking on more and more debt. Borrowing to pay for college used to be the exception, now it’s the rule.

About two-thirds of college graduates borrow to go to school, and on average they’re graduating with more than $26,000 in debt. In an economy still recovering from the worst downturn since the Great Depression, getting a job is hard enough, but paying back those loans is daunting.

To make matters worse, a policy change is coming at the end of this month that will make getting out of debt more expensive for more than 7 million young Americans next year: Without congressional action, the interest rate on Stafford loans will double from 3.4 percent to 6.8 percent, starting July 1.

Based on the average loan amount, doubling the Stafford loan interest rate will add more than $1,000 in total costs for borrowers. For students who borrow heavily to go to college, it could cost even more. Only Congress can keep these interest rates from doubling. And yet Congress has so far failed to deliver.

While I appreciate that some congressional Republicans have recently indicated they’re now willing to work with the administration to find a solution, the debate so far has been largely divided along party lines and made no progress.

Americans are tired of political fights in Washington. It’s time to stop talking and start doing. People want Congress to put politics aside and come together to produce real results that make a difference. And you can count college students at the top of that list. I am optimistic that both parties can — and should — find common ground to reach a bipartisan compromise.

President Barack Obama has traveled to colleges and universities across the country, urging Congress do its part to keep college affordable by stopping student loan interest rates from doubling this July. With so many students struggling to both make ends meet and afford the skyrocketing price of a college degree, now is not the right time to heap more costs on them.

All of us share responsibility for making college affordable and keeping the middle-class dream alive. Parents need to be smart consumers, and students need to finish on time or even early.

Colleges and universities need to be efficient and productive in delivering educational value to students. Graduating students ready for success should be as important to professors as research and publishing. Institutions should ensure that keeping costs down does not take a back seat to the expensive amenities outside the classroom. Where it makes sense, they should offer lower-cost options such as online learning.

States must do their part to make higher education a higher priority in their budgets. Last year, 40 states cut higher education spending — the single most significant factor in tuition increases.

The Obama administration is working everyday to do its part. But we need Congress to step up and help. Over the past two years, we’ve worked with Congress to dramatically boost Pell grant funding by passing the Recovery Act. We’ve also eliminated billions of dollars in wasteful taxpayer subsidies to banks, plowing the savings into aid for low-income college students.

We’re helping students better manage their debt after graduation with programs like income-based repayment, loan consolidation and public service loan forgiveness. And we’re proposing to double the number of work-study jobs and make the American Opportunity Tax Credit permanent, which would provide $2,500 annually for working families to pay for college. We’re also calling for new incentives for states and institutions to keep college costs from escalating.

We took all of these steps because the president and I believe education is a public good. College should not be reserved only for those who can afford it. Investing in education is the best investment America can make to bolster its competitiveness in a knowledge-based, global economy. If we don’t invest today, we will lose tomorrow.

Now, America can take another simple step forward and keep the interest rate on Stafford loans at 3.4 percent — but only if Congress does its job and comes together around a fair and responsible way to pay for it.

In 2007, a Democratic-controlled Congress and a Republican president came together to lower interest rates on these loans because it was the right thing to do. That Congress did not put politics ahead of students and neither should today’s. Let’s do the right thing for America’s students — and for our nation’s economy.

Arne Duncan is the secretary of education.

Income Based Repayment: Everything You Need to Know

Cross-posted from the White House blog.

Over the past several years, the Obama Administration has worked to improve repayment options available to responsible student loan borrowers. Since 2009, former students have been able to enroll in an “Income Based Repayment” (IBR) plan to cap their student loan payments at 15 percent of their current discretionary income if they make their payments on time.

In 2010, President Obama signed into law an improved income-based repayment plan that would lower this cap to 10 percent of discretionary income for students who take out loans after July 1, 2014. Then, last October, the President announced an executive action to make that lower cap available to more borrowers by the end of 2012, rather than 2014. The latest change will likely reduce monthly student loan payments for more than 1.6 million responsible student borrowers.

Despite these opportunities and policy improvements to help graduates make their monthly payments, too few responsible borrowers are aware of their repayment options.  Even among borrowers who understand their options, many have difficulties navigating and completing the application process.

Today, President Obama is introducing a Presidential Memorandum that will help educate more students about their loan repayment options and streamline the IBR application process. Read through the questions below to learn more about income based repayment and how these changes might affect you.

1. What is income-based loan repayment?

Income-Based Repayment (IBR) is a repayment plan that caps your required monthly payments on the major types of federal student loans at an amount intended to be affordable based on income and family size. All Stafford, Grad PLUS, and Consolidation Loans made under either the Direct Loan or Federal Family Education Loan programs are eligible to be included in the program. Non-federal loans, loans currently in default, and Parent PLUS Loans are not eligible for the income-based repayment plan.

The program lowers monthly payments for borrowers who have high loan debt and modest incomes, but it may increase the length of the loan repayment period, accruing more interest over the life of the loan.

2. Who qualifies for IBR?

IBR helps people whose federal student loan debt is high relative to income and family size. Currently, your loan servicer (the company you make your loan payments to) determines your eligibility, but starting in September 2012, students won’t have to contact their loan servicer to apply—they will be able to apply directly through the Department of Education’s website, thanks to a new directive from President Obama.

You can use the U.S. Department of Education’s IBR calculator to estimate whether you are likely to qualify for the plan. The calculator looks at your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment you are paying on your eligible loans under a 10-year standard repayment plan, then you are eligible to repay your loans under IBR.

3. Will my eligibility change if I’m married? What if my spouse also has loans?

If you are married and file a joint federal tax return with your spouse, both your income and your spouse’s income are used to calculate your IBR monthly payment amount.

If you are married and you and your spouse file a joint federal tax return, and if your spouse also has IBR-eligible loans, your spouse’s eligible loan debt is combined with yours when determining whether you are eligible for IBR. If the combined monthly amount you and your spouse would pay under IBR is lower than the combined monthly amount you and your spouse are paying under a 10-year standard repayment plan, you and your spouse are eligible for IBR.

4. How will enrolling in IBR affect my monthly payments compared to the standard repayment plan?

It depends on your income. But, take for example a nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, her monthly repayment amount is $690. The currently available IBR plan would reduce her payment by $332, to $358.  President Obama’s improved “Pay As You Earn” plan — reducing the cap from 15 percent to 10 percent — will reduce her payment by an additional $119, to a more manageable $239 — a total reduction of $451 a month.

6. How will enrolling in IBR affect my payments over the life of the loan compared to the standard repayment plan?

In general, your payments will increase as your income does, but they will never be more than they would have been under the standard 10-year repayment plan. Although lower monthly payments may be better for some borrowers, lower payments may also mean you make payments for longer and the longer it takes to pay your loans, the more interest you pay compared to the standard repayment plan.

7. Is it possible my payments will be higher under IBR than they would under the standard repayment plan?

IBR will never cause your payments to increase more than they would have been under the standard repayment plan. It is possible, however, that your income and the size of your outstanding loan balance may mean that IBR is not beneficial to you. If your payments would be higher in IBR than they would be in the standard repayment plan, the IBR option will not be available to you.

Also, because a reduced monthly payment in IBR generally extends your repayment period, you may pay more total interest over the life of the loan than you would under other repayment plans.

8. How do I opt in to IBR?

To sign up for IBR, call your loan servicer. The loan servicer is the company that sends you your monthly student loan bills.  If you don’t know who your servicer is or would like more information about your loans, such as the balance and interest rates, you can look it up on www.nslds.ed.gov. To see a list of and contact information for common servicers of student loans held by the US Department of Education, you may visit the Loan Servicer page.

9) What does today’s Presidential Memorandum mean for IBR?

The PM will do three things:

Streamline the IBR application process: The Department of Education, in collaboration with the Treasury Department and Internal Revenue Service, will create a streamlined online application process for IBR that allows student loan borrowers with federally held loans to import their IRS tax return income data directly into the IBR application. This process will allow income information to be seamlessly transmitted so that borrowers can complete the application at one sitting.  Federal direct student loan borrowers will no longer be required to contact their loan servicer as the first step to apply.

Enhance online and mobile resources for loan repayment options and debt management: The Department of Education will create integrated online and mobile resources for students and former students to use in learning about Federal student aid, including an explanation of the various options to cap monthly payments based on income. The Department will also develop and make available to borrowers an online tool to help students make better financial decisions, including understanding their loan debt and its impact on their everyday lives. This tool would incorporate key elements of best practices in financial literacy and link to students’ actual Federal loan data to help them understand their individual circumstances and options for repayment.

Increase awareness of IBR: The Department of Education will instruct Federal direct student loan servicers to make borrowers aware of the option to participate in IBR before a student leaves school and upon entering repayment. The Department of Education will make available for institutions of higher education a model exit counseling module that will enable students to understand their repayment options before leaving school and to choose a repayment plan for their student loans that best meets their needs.

10. How can I find out more?

Visit www.studentaid.ed.gov or call 1-800-4-FED-AID. You can also learn more about other student loan repayment options and find advice on paying loans off more quickly using the Consumer Finance Protection Bureau’s Student Debt Repayment Assistant.

To find out about other changes to student loan programs, including President Obama’s plan to allow borrowers to consolidate Direct Loans and Federal Family Education Loans, click here.

Megan Slack is Associate Director of Digital Content for the White House Office of Digital Strategy

April “School Days” Highlights Potential Increase in Student Loan Rate

In the just-released April 2012 edition of “School Days,” the monthly video journal of the U.S. Department of Education, President Obama calls for quick action by the Congress to avoid a dramatic increase in the interest rate for Federal college loans; Secretary of Education Arne Duncan announces the first-ever awards in the new U.S. Department of Education Green Ribbon Schools program; and a the Blueprint for Career and Technical Education outlines the Administration’s plans for transforming the programs that prepare students of all ages for the workplace of today.  And there’s much, much more.  Watch “School Days.”


Click here for an alternate version of the video with an accessible player.

Duncan & Mills host #GradStartup Twitter Q&A

Small Business Administrator Karen Mills made her Twitter debut yesterday as she and Secretary Arne Duncan hosted an online Q & A responding to questions about how to start a new business, the loan repayment and forgiveness plans available to student loan borrowers, and how to find resources for aspiring entrepreneurs.

Check out the entire Q&A below:

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President Obama Calls on Congress to Prevent Student Loan Interest Rates from Doubling

“In America, higher education cannot be a luxury,” President Obama said in his weekly address. “It’s an economic imperative that every family must be able to afford.” At a time when higher education has never been more important, the President is calling on Congress to prevent student loan interest rates from doubling for more than 7.4 million students this summer. Without action, the average borrower will see an average of $1,000 added to their debt.

Watch the address:


Click here for an alternate version of the video with an accessible player.

ED & SBA Host Twitter Chat: Connecting Grads to Resources to Help Them Startup

Cross-posted from SBA.gov

Graduation season is right around the corner and to help grads that are looking to start a small business, SBA and the U.S. Department of Education will host a Twitter Q & A Session on April 25 at 2pm EDT connecting soon-to-be grads or recent grads to resources to help them startup, succeed and create an economy built to last.

Startup logoI, along with U.S. Department of Education Secretary Arne Duncan, will answer your questions about starting a business and  highlight the Income-Based Repayment (IBR) Plan, which supports young college grads that are looking to start a business, join a startup, or work in a public service job by making Federal student loan repayment manageable.  IBR helps to keep loan payments affordable by using a sliding scale to determine how much you can afford to pay on your Federal loans—empowering you to take risks with new opportunities like starting a small business.

Submit your questions now and follow the conversation on Twitter using the hashtag #GradStartup.

What: Twitter Q&A Session: Connecting Grads to Resources to help them Startup with SBA Administrator Karen Mills and U.S. Department of Education Secretary Arne Duncan

When: Wednesday, April 25 from 2:00pm–3:00pm EDT

Where: Follow the Q & A on Twitter and submit your questions now, hashtag #GradStartup

- Karen Mills

Karen Gordon Mills is the Administrator of the U.S. Small Business Administration.

Consumer Financial Protection Bureau’s Student Loan Complaint System is Open for Business

Cross-posted from the CFPB’s blog.

Since we opened our doors, student loan borrowers have told us about some of the frustrations they sometimes face with their lenders, servicers, and debt collectors. Borrowing for college should be the best investment you’ll make, but for many Americans, paying off those student loans is a real challenge.

For several years, federal student loan borrowers have had the Department of Education’s Federal Student Aid Ombudsman to help bring their concerns to financial institutions. But for millions of students and their families, federal student loans don’t cover the full cost of college and they need private student loans to make ends meet.

However, private student loans – which don’t always carry the same consumer protections as federal student loans – have been overseen by a patchwork of government agencies. In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress established an Ombudsman for private student loans within the Consumer Financial Protection Bureau to assist borrowers with private student loan complaints. This means a single federal agency is now responsible for watching out for all students and families who choose to borrow private student loans.

Today, we are open for business and ready to hear from you. To ask a question, file a complaint, or share your story: go to www.consumerfinance.gov/complaint or call our toll-free number at 1-855-411-CFPB.

If you file a complaint, we’ll work with your lender or servicer to get a response. While we certainly can’t make your debt disappear, we can help bring your concern to your financial institution’s attention. If you don’t have a specific complaint or question, but want to tell us what is – or is not – working in the student loan market, we invite you to tell your story.

And while the Consumer Bureau has only been open for a short time, we’ve been hard at work to gather the facts and provide tools to help you make good decisions about student loans. We launched an online tool, the Student Debt Repayment Assistant, to help you navigate the maze of student loan repayment options. We also launched Know Before You Owe: student loans and worked with the Department of Education to develop a draft “financial aid shopping sheet” for schools to improve the student loan information they give to students.

Our team at the Bureau will keep working to give you the tools and the information to make sound financial decisions on student debt – and to figure out your options in case things don’t go according to plan. These days, we all seem to know someone having a tough time with their student loans, so share this new resource by e-mail, Twitter, and Facebook (just use one of the buttons below). With your participation, we can help make the student loan market work better for all of us.

Rohit Chopra is the CFPB’s student loan ombudsman.

Don’t Forget Your 1098-E Tax Form When Filing Your Taxes

UPDATE: For the most up-to-date information on getting your 1098-E, visit www.ed.gov/1098-E.

If you made payments on your federal student loans during 2011, you may be eligible to deduct a portion of the interest you paid on your federal tax return.  Student loan interest payments are reported on Internal Revenue Service (IRS) Form 1098-E, Student Loan Interest Statement (commonly called the 1098-E).

Your student loan servicer (the entity you make payments to) will provide you a copy of your 1098-E.  Your servicer may send you your 1098-E via U.S. Postal Service or electronically.  Check with your servicer if you haven’t yet received your 1098-E for 2011.  If you had multiple loan servicers in 2011, you will receive a separate 1098-E from each servicer.

If you’re not sure who your loan servicer is, you can look it up on www.nslds.ed.gov or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913). To see a list of Federal Student Aid servicers for the Direct Loan Program and for FFEL Program Loans purchased by the U.S. Department of Education, go to our Loan Servicer page.

For more information about student loan interest deduction, visit the IRS’s Tax Benefits for Education: Information Center.

Obama in Michigan: Views from a Teacher and Parent

… The degree you earn from Michigan will be the best tool you have to achieve that basic American promise … be part of something that is adding value to this country and maybe changing the world.  …That’s what the American Dream is all about.  

My grandfather got the chance to go to college because this country decided that every returning veteran of World War II should be able to afford it.  My mother was able to raise two kids by herself because she was able to get grants and work her way through school.  I am only standing here today because scholarships and student loans gave me a shot at a decent education.”

When President Obama spoke these words to the crowd at the University of Michigan on Friday, he described the situation of many students in the audience who struggle to pay for the education they’ll need to participate in the American Dream. Like the President, I have two daughters of whom I am very proud, and both are fortunate to attend the University of Michigan.

Tracey with Secretary Duncan in Michigan

Tracey with Secretary Duncan at the University of Michigan Ann Arbor before President Obama's speech.

As a high school teacher in Ann Arbor and a single parent who is solely responsible for my daughters’ tuition bills, I welcome the President’s plans in the “Blueprint for an America Built to Last” to make college more affordable for families like ours. Everyday I worry about the debt my girls will have when they graduate. Expanding work study opportunities and keeping interest rates low on federal loans will be crucial to my daughters’ and other students’ ability to finish college. As the President said, “… In this economy, there is no greater predictor of individual success than a good education.”

Fortunately, thanks to the President’s support for manufacturing and the auto industry, the Michigan economy is starting to recover, and I agree with the President that the United States has to continue to be a country where everybody has a chance to succeed, and affordable education is the key to that goal.

As a 2010 Classroom Teaching Ambassador Fellow with the Department of Education, I have experienced Secretary Duncan and President Obama’s commitment to having teachers at the table in policy discussions.  Through the fellowship, I have had unique opportunities to engage in meaningful conversations with diverse groups of educators and policy makers. These were all great experiences.  When I met President Obama after the speech, and he thanked me for my work, I was immensely grateful both for the chance of a lifetime and for an administration that clearly values teachers and education.

Tracey Van Dusen

Tracey Van Dusen is a 2010 Classroom Teaching Ambassador Fellow who teaches AP Government and American Studies at Pioneer High School in Ann Arbor, Michigan.

New Resources Announced for Public Service Loan Forgiveness (PSLF)

Martha Kanter and John Sarbanes

Martha Kanter joined Congressman John Sarbanes (D-Md.) at the University of Maryland Baltimore. Photo by Ed Fishel courtesy of UofM Baltimore.

Earlier today Under Secretary of Education Martha Kanter joined Congressman John Sarbanes (D-Md.) at the University of Maryland Baltimore to announce new efforts from the Department of Education to help public servants—including veterans, nurses, and teachers—take advantage of Public Service Loan Forgiveness (PSLF). Public Service Loan Forgiveness cancels the balance of a borrower’s federal student loan debt after they have served full time in a public service role for at least 10 years, while making on-time qualifying loan payments each month.

The new materials from ED include an employment certification form that allows borrowers to keep track of eligible employment and payments. This form will help those borrowers who have made a service commitment to this country while honoring their responsibility to repay their federal student loans and allow them to more easily receive loan forgiveness when they are able. In addition, these new materials will allow borrowers to find out now if their job and loan payments will qualify them for loan forgiveness in the future as well as how many payments they have left to make – information that is not currently available.

Public Service Loan Forgiveness was established through the bipartisan College Cost Reduction and Access Act of 2007, and applies to careers such as active-duty military officers and veterans, public school teachers, law enforcement officials, firefighters, and many nonprofit employees. Borrowers must make 120 monthly payments on their eligible federal student loans after Oct. 1, 2007, before they qualify for the loan forgiveness.

More details about the Public Service Loan Forgiveness program, including a detailed Q&A and copy of the form, can be found at: www.studentaid.ed.gov/publicservice.

Sara Gast is a Press Aide at the U.S. Department of Education