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Law School Loan Repayment Assistance Program (LRAP)

President Announces Changes to Student Loan Repayment

October 25, 2011

On October 25, President Obama announced two changes to student loan repayment.  Some details are clear already, but many will remain unsettled until the federal rulemaking process implements these changes.

The first change is to speed up improvements to the income based repayment (IBR) program that allows graduates to pay no more than a fixed percentage of their income to their federal student loans.  These changes were previously scheduled to happen in 2014.  Those improvements will lower the IBR percentage of income from 15% to 10% and shorten the time at which graduates can ask for loan forgiveness of any remaining balance from 25 years to 20 years.  The additional program allowing those working in public service careers—government and non-profit jobs—to ask for forgiveness after making just 120 IBR payments will remain.  This change will most likely help the class of 2012.  Depending on how the rules are negotiated, earlier graduates may be able to take advantage of these improvements, particularly if they have an additional federal student loan from 2012 or later—perhaps from an LLM or other degree program.  Unfortunately, as initially proposed, the program would require that graduates with any federal student loans originating prior to 2008 use the old numbers, 15% and 25 years.

The second change is to provide an interest rate reduction to encourage graduates to consolidate their loans if they have a mix of federal direct loans—federal loans issued by the federal government—and Federal Family Education Loans (FFEL)—federal loans issued by private banks or non-profits.  Graduates with this mix of loans who consolidate starting in January 2012 will receive up to a .5% interest rate reduction on at least part of their consolidated loans.  For qualified graduates who are consolidating and using Income-Based Repayment, this second change might not make much difference, but for those paying loans over a fixed time period—10 years, 20 years, 30 years, etc.—this will reduce the amount paid each month and over the term of the loan.

Student loan repayment options have been changing rapidly over the last several years, and will continue to change as these new announcements are implemented.  Please contact me if you want direction to resources on these changes.

For more information:

William Penn, Public Interest Law Coordinator
Lewis & Clark Law School
10015 SW Terwilliger Blvd.
Portland, OR  97219