On October 26, 2011 the President introduced two changes to the federal student loan program that are meant to assist borrowers with repayment.  The implemented changes are meant to encourage student loan consolidation and assist those who struggle with their obligation through the lowering of their minimum monthly payment based upon their current income.  Although it will not help everyone currently struggling to repay their student loan debt, it is said to potentially lower payments for some 1.6 million borrowers and allow an additional 6 million to decrease their interest rates.

As part of the reform, the Department of Education has created a temporary Special Direct Consolidation Loan Program.  To qualify, a borrower must have at least one loan, known as a Direct Loan, borrowed directly from the government, and one federally backed Federal Family Education Loan (FFEL) issued by a private bank.  Graduate students with PLUS loans are eligible; however, Perkins loans and loans for those entering the medical field are not.  In addition, borrowers who are currently in default cannot qualify for this type of consolidation.  Those who do qualify should be contacted by the Department of Education loan servicers in the early part of 2012 with information on how to consolidate, and will have until June 30, 2012 to take advantage of the program.

Fortunately there is no limit on how many loans can  be consolidated and there is a considerable decrease in the amount of accumulated interest.  The new interest can be calculated by subtracting 25 basis points from the original bank issued loan and another 25 from the government issued loan.  This can be done for all loans considered for consolidation.  The newly found interest rate will be the weighted average of the discounted rates; additional discounts are available depending on the loan balance.  Once consolidated, the government will automatically pull payments from the listed account on a monthly basis.

The plan also includes a proposal for changes to the existing income-based repayment plan; where depending on your discretionary income, your will not have to pay more than 10% of your total income; currently that minimum is at 15%.  Keep in mind, discretionary income is considered to be anything 150% above the poverty level according to state of residence and size of family.  In addition to this lowered minimum payment, loans not paid off after twenty years will be forgiven as opposed to the twenty-five year limit currently in place, relieving the long term burden of paying back student loans.  It is important to note that this portion of the new student loan reform will not go into effect right way-these details will have to be worked out through negotiated rule-making sessions.