WASHINGTON, D.C. – Starting today, federal student loans will become more affordable to repay as a new Income-Based Repayment (IBR) program takes effect.  IBR will allow borrowers to cap their monthly loan payments based on how much income they earn. This program, in conjunction with a lower interest rate on subsidized – or need-based – student loans and an increase in the Pell Grant scholarship, will help make college more affordable and help alleviate devastating student loan burdens for millions of students, recent graduates and other borrowers.

“This help couldn’t be coming at a better time for borrowers in this tough economy, or for current and future students facing an escalating college affordability crisis,” said U.S. Rep. George Miller (D-CA), chair of the House Education and Labor Committee. “These benefits will make a serious difference for students and families working very hard to pay for college, and will provide millions of borrowers more flexibility in choosing a career they truly desire rather than one made necessary due to crippling student debt.”

“Under this new program, students no longer have to choose between serving their nation and communities and tackling a mountain of college debt,” explained U.S. Senator Edward M. Kennedy (D-MA).  “Our nation is better and stronger when the best and brightest young Americans choose careers in public service.”

Under IBR, borrowers have a portion of their income protected from loan repayment (up to 150% of the poverty level for their family size) which means graduates can afford to take jobs at lower salaries.    Borrowers are required to pay no more than 15% of any income above that threshold.  This program will allow borrowers to devote the first part of their paycheck to covering core costs like housing, food and transportation.  After 25 years of lower payments, borrowers’ remaining loan balances, including interest, will be completely forgiven. For borrowers in public service fields, like nursing, public interest law, or non-profit work, their debts will be completely forgiven after 10 years of service and loan payments.

The chart below illustrates the IBR benefits.

SOURCE: Department of Education: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

Income Based Repayment was enacted by the 110th Congress in 2007, as part of the College Cost Reduction and Access Act.  That bill invested an additional $20 billion in federal college aid for families at no additional cost to taxpayers. In addition to creating IBR, the law also halved interest rates on need-based federal student loans in equal steps over four years – making these loans more affordable for low- and middle-income students. Last July, the first of these four cuts took effect; today the second cut kicks in, as interest rates drop from 6 percent to 5.6 percent. The rate will continue to drop until it reaches 3.4 percent in 2011. Nationwide, about 5.5 million students take out these loans each year.

As a result of investments made by this law and more recently by Congress and the Obama administration, millions of low-income students will also receive a Pell Grant scholarship of $5,350 for the coming year. This is more than a $600 increase above last year’s award.

To view a fact sheet on these and other benefits, click here.

For more specific information on how the new Income-Based Repayment program will work and who will qualify, click here.

For more information on the College Cost Reduction and Access Act, click here.

Students in Tennessee -like young people all across America-are struggling to cope with the skyrocketing cost of higher education. In recent decades tuition has grown ten times faster than a typical family’s income – putting an undue strain on families and making the cost of higher education too expensive for far too many.

At the same time, students are competing in a global marketplace with countries like China and India, and we need to ensure that the American workforce has the tools to rise to the challenge. That’s why the President today announced a plan to make college more affordable and to continue his administration’s historic investment in America’s future.

President Obama has already enacted legislation making the cost of college more affordable by making working families eligible for a $2,500 tax credit to help offset the cost of tuition, modernizing and expanding federal loan programs and reforming the Pell Grant program. The plan the President announced today to eliminate waste in the current loan programs and expand Pell Grants will help ensure that more students can afford college and that our system is as efficient as possible.

As unemployment rises, a college degree is more important than ever. We must do everything we can to make sure all eligible students can get the education they need to get ahead. The College Democrats of Tennessee are thankful that with President Obama at the helm, we are much closer to making the dream of an affordable college education a reality.

About The Tennessee Federation of College Democrats

The Tennessee Federation of College Democrats of America is a group designated to unite, lead and coordinate chapters of College Democrats of America on university campuses throughout Tennessee.

Senator Claiborne Pell (1961-1997)

College students across the nation have lost a steadfast champion in their struggle to finance their education. Claiborne Pell died January 1st.

US Senator Claiborne de Bora Pell, Rhode Island-D, for whom the college financing grants program is named, died on New Year’s Day. He served in the US Senate for thirty-six years, from January 3, 1961 to January 3, 1997. Senator Pell was known as a long time advocate of expanding higher education opportunity in America by providing money to prospective and continuing college students.

He served as Chairman of the Senate’s Foreign Relations Committee. He was also committed to reducing the size of the world’s nuclear arsenal and stopping the spread of nuclear weapons. He had also been appointed as the US delegate to the United Nations. He was 90 years of age. Vice President-elect Joe Biden issued the following statement:

Statement by Vice President-elect Joe Biden

Both the House and Senate approved the changes, and in the bi-partisan Senate vote the numbers came in 79-12 in favor of the changes, with Democrats citing this win as one campaign promise fulfilled.

“We need a bold new commitment that will enable the current generation of Americans to rise to the global challenges we face. Today we will help millions of students achieve the American dream.”

–Sen. Edward Kennedy, Senate Education Committee Chair

The bill cut $20 billion in subsidies to lenders and applied much of that funding to direct student aid via the Pell Grant program, essentially restoring nearly $12 billion dollars that Republicans cut from the program last year. Pell Grant awards will rise from the current maximum of $4310 to $5300 a year over the next four years.

Representative George Miller of California, Democratic Chairman of the House Education Committee, said “we took 11.39 billion and put it back into Pell Grants. That’s the difference an election makes. ”

The House-Senate Conference Committee negotiated a number of changes to the student loan program, including loan forgiveness to students who work ten years or more in public service areas such as teaching, firefighting and police services, limiting loan repayment schedules to 15% of discretionary income, and cutting interest rates by half on student loans over the next five years.

The student loan industry has campaigned against the cuts, but faced an uphill battle against charges of potential conflicts of interest involving gifts and travel offers, and provision of financial incentives to college officials in exchange for steering college students to their institutions.

House Republicans called the loan forgiveness clause for specified provisions a form of “socialism” while representatives of the student loan industry said the reduction in lender subsidies would ultimately weaken their ability to provide loans to students and charged that the legislation “did nothing” to reduce the cost of college.

The bill will now move to the oval office for the signature of President Bush. Education Secretary Margaret Spellings said the bill “answered the President’s call” for more Pell Grant funding.

With many colleges and universities substantially increasing fees to offset caps on tuition increases, and with the cost of many colleges topping $30,000 a year in tuitions, fees, housing and meals, students have been caught in financial trap that sees many students graduating with tens of thousands of dollars of debt.