A guest post by Suzan Bekiroglu.
In October of 2011, President Obama unveiled changes to the federal student loan program. 
The changes he introduced could affect millions of student loan borrowers.
If you are a college student, student loan borrower or a high school student looking towards the future, then you should be aware of the changes to federal student loans that will take effect in 2012. If you are considering federal student loan consolidation, it is helpful to know what to expect ahead of time.
Eligibility
Only federal student loans are eligible to be consolidated under this program and there is an estimated 5.8 million borrowers who would be eligible.
If you have at least one federal student loan that was borrowed directly from the government rather than a private or bank lender, then you may qualify under the new rules.
If you do have federal student loans, but have obtained them from a bank or private lend-ing institute, you can still consolidate your loans under the original loan program, but it will not save you money.
Also, important to note, if your loans are in default, you are not eligible regardless of who the lender was.
Income Based Repayment Plan
The first change is in capping monthly payments due on federal student loans to what the borrower can afford to pay.
For example, if a teacher makes $45,000 a year and owes $60,000 in student loans, under the typical repayment plan, he or she would most likely pay about $690 a month.
But, now with the In-come Based Repayment plan, the payment would be reduced to $358 as it is capped to 15% of her discretionary income. In 2014, the IBR’s rates are scheduled to change from 15% of discretionary income down to 10%. Loan forgiveness after 25 years is also included in this plan.
Debt Consolidation for Easier Payments and Reducing Default Risk
The second change has to do with the federal government’s *student loan consolidation program which encourages borrowers towards federal student loan consolidation.
It is important to note that these changes only affect the federal student loan program- private and bank loans will remain the same as before.
The Department of Education is encouraging borrowers with multiple student loan payments to consolidate their debt under the Direct Loan program. Eligible borrowers should be notified by the Department of Education to let them know more about this opportunity.
For example, if a borrower is about to start making payments with two FFEL Stafford Loans for $4,500 each with an interest rate of 6% and one direct Stafford Loan for $5,500 at 4.5% interest, this borrower will be paying over $4,300 in interest until the loan repayment terms are satisfied.
However, if he consolidates his loans, they would save almost $400 a month in interest and have only one monthly payment to make, rather than multiple payments.
*You can find the article at Student Loan Consolidation
About the author
This guest post is written by Suzan Bekiroglu. Ms. Bekiroglu is a published freelance writer and editorial and SEO consultant. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the obstacle of paying over $24,000 in student loan debt. Ever since, she has sought to educate prospective students and parents on student loan debt. She also writes about general personal finance and money saving tips.
A note from the CSGP team.
We think you will find this post informative and useful. We stress that is essential for families to plan college finance as far in advance as possible, in order to avoid the heavy burden of debt on students and, increasingly, on parents. We address this in great detail in the CSGP membership site.
