2016 Changes to Loan Forgiveness Laws

Each new year is now bringing new changes to the loan forgiveness laws for student debt. Here are three of many changes students and graduates should review with an experienced student debt attorney that we can expect for 2016.

The REPAYE, Revised Pay as You Earn, Repayment Plan

Students have a variety of options for repaying their government student loans, if they otherwise qualify. One of the new ones, which became on option in December 2015, is the REPAYE plan.

This plan helps 5 million new Direct Loan borrowers by capping their monthly payments to ten (10) percent of their monthly discretionary option.

Without this new plan, the best most graduates could do is a lower limit of 15 percent.

The REPAYE plan requires regular monthly payments for 20 years for undergraduate loans and 25 years for graduate loans. After the 20/25 year period of payments, the rest of the student loan will be forgiven.

This forgiveness can be quite substantial if the original loans were quite high.

There is one problem with the REPAYE plan. If you are married, your wife’s income will be factored into the amount you owe each month.

Variable-Rate Loans Can Mean Higher Payments

Many students repay their loans or get the original loans based on a variable rate of interest. This can be great news if the interest rate stays the same or goes down. But if the interest rate goes up, it means the monthly payment will increase to reflect the higher interest rate. For many banks and loan companies, the amount of interest that can be charged is tied into the Federal Reserve rates.

For the past several years, the Federal Reserve rates have been low because of concerns about the economy. In 2016 though, the Federal Reserve did increase rates which meant higher payments for students with variable rate loans.

Students with a variable rate loan may now want to consider changing or consolidating loans into fixed-rate loans to keep their interest amount stable.

Renewed Perkins Loans

Perkins Loans, more formally called Federal Perkins Loan Program loans are federal loans. They are low-interest, for students who are undergraduates or graduates, and for students who have extreme financial need.

The loans ended in 2015 but have been renewed in 2016 – with tougher eligibility requirements. Students still need to inquire whether their school offers these loans since it is the school that is formally the lender.

The tougher standards require that students exhaust the other possibilities for federal direct loans – unless the borrower already has a Perkins Loan. Whether the loans will be available beyond 2016 is unclear.