There are a host of changes to student aid programs coming on July 1. Many of these changes will benefit students by lowering the cost of student loans, increasing grant aid for Pell Grant recipients and military veterans and providing new assistance for students with unmanageable education loan debt. This article summarizes some of the major upcoming changes to the student aid programs.

Loans

• Lower Interest Rates. On July 1, the interest rates on subsidized federal student loans for undergraduates will decrease from 6 percent to 5.6 percent. This is the second of four annual cuts in this interest rate; it will continue to drop until it reaches 3.4 percent in 2011. Also, borrowers with Stafford loans issued prior to July 1, 2006, will benefit from a more than 1.7 percentage point reduction in their rates due to declines in prevailing interest rates.

• Reduced Fees. Upfront borrower origination fees on Stafford loans will be lowered 0.5 percentage point. The maximum upfront origination fee that will be allowed to be deducted from a student's Stafford loan funds will decline from 1 percent to .5 percent on loans with initial disbursements between July 1, 2009, and June 30, 2010. (An additional 1% may be charged for insurance for a total possible upfront deduction of 1.5%).

• New Income-Based Repayment Program. On July 1, a new Income-Based Repayment (IBR) program will go into effect that caps borrowers' monthly loan payments at 15 percent of their discretionary income (that is, 15 percent of what a borrower earns above 150 percent of the poverty level for their family size). Any current or future borrower whose loan payment exceeds 15 percent of his or her discretionary income is eligible. After 25 years in the program, borrowers' debts will be completely forgiven. Borrowers with hefty debt or low-paying jobs are most likely to qualify for the program. IBR will cover all federal loans -- both Direct and FFELP -- made to students, including Stafford, Grad PLUS and federal consolidation loans, but not those made to parents (PLUS loans). Perkins loans are also eligible if a borrower consolidates them into a FFEL or Direct Loan.

• 20/220 Elimination. Despite efforts by NASFAA and other higher education organizations, the current 20/220 debt-to-income ratio pathway for borrowers to qualify for an economic hardship deferment in the FFEL and Direct Loan programs is scheduled to end on July 1, 2009. Currently, students can qualify for an economic hardship deferment if they 1)are employed full-time, 2) have an education loan debt burden equal to or greater than 20 percent of monthly income, and 3)have an income minus the education debt burden that is less than 220 percent of the greater of the minimum wage rate or the federal poverty line for a family of two. H.R. 1615, the Medical Economic Deferment for Students (MEDS) Act, would extend this program. The Department of Education has argued that the program does not need to be extended because the IBR program will provide relief for students currently being served by 20/220.

• Competitive Loan Auction Pilot Program Canceled. The PLUS Loan Auction Pilot program was scheduled to begin July 1, but the Department of Education can celled the program due to a lack of interest from FFELP lenders.

Grants

• Maximum Pell Grant. Funding provided by the College Cost Reduction and Access Act (CCRAA) and the American Recovery and Reinvestment Act (ARRA) increases the maximum Pell Grant for the 2009-10 school year to $5,350 -- more than $600 above last year's award.

• Minimum Pell Grant. The HEOA eliminated the $400 minimum award and sets a new minimum award at 10 percent of the appropriated maximum award set each year. Students who are eligible for an award equal to or greater than five percent but less than 10 percent of the maximum award will receive an award amount of 10 percent of the maximum award appropriated each year. For the 2009-10 school year, 10 percent of the appropriated maximum is $486, but the CCRAA adds $490 to all full-time awards, so the minimum Pell Grant for a full-time student will be $976. (For part-time students, these amounts are prorated.)

• Sex Offenders and Pell Grants. The HEOA provides that a student who is subject to an involuntary civil commitment after completing a period of incarceration for a forcible or nonforcible sexual offense is ineligible to receive a Federal Pell Grant.

• Children of Soldiers. The HEOA provides maximum Federal Pell Grant eligibility for a student whose parent or guardian was a member of the Armed Forces and died as a result of performing military service in Iraq or Afghanistan after 9/11/2001, provided that the child was under 24 years old or was enrolled in college at the time of the parent or guardian's death. These students will be considered to be eligible for the maximum Federal Pell Grant award for the period during which the student is otherwise eligible to receive a Federal Pell Grant. ED will work with the Departments of Defense and Veterans Affairs to identify affected students.

• Year Round Pell. Students will be eligible to receive Pell Grants year round after July 1. The Department of Education is currently drafting proposed regulations to implement this new benefit for students.

• Expanded ACG/SMART Grant Eligibility. Eligibility for these grants will be expanded to include eligible non-U.S. citizens and students attending at least half-time. In addition, awards will be made based on grade level and not academic progress. Interim final rules implementing these changes were published May 1.

Military Benefits

• Excluding Veteran Education Benefits. Congress is expected to pass a HEA technical corrections bill this month that will change the date (from July 2010 to July 2009) for financial aid offices to begin excluding veteran education benefits when determining eligibility for student loans and campus-based aid. This would ensure that benefits provided by the Post 9/11 GI Bill - that goes into effect this July - does not reduce veterans' eligibility for additional aid. Keep an eye on Today's News for final disposition of the amendment.

• Post 9/11 GI Bill -- Effective Aug. 1. The Post-9/11 GI Bill is for individuals with at least 90 days of aggregate service on or after September 11, 2001 (see http://www.gibill.va.gov/). This program will pay an eligible individual's:
  • tuition & fees directly to the school . Payment is not to exceed the maximum in-state tuition & fees at a public Institution of Higher Learning;
  • monthly housing allowance based on the Basic Allowance for Housing for an E-5 with dependents at the location of the school;
  • annual books & supplies stipend of $1,000 paid proportionately based on enrollment; and
  • one-time rural benefit payment.
  Under the auspices of the Post-9/11 GI Bill, private institutions can enter a matching program with the Department of Veterans Affairs (the "Yellow Ribbon" program) to fund some or all of the difference between actual tuition and fees and the basic tuition and fee benefit.

• In-State Tuition. The HEOA prohibits public institutions of higher education from charging a member of the armed forces who is on active duty for a period of more than 30 days, and whose domicile or permanent duty station is in a State that receives assistance under the HEA, his or her spouse, or his or her dependent children, tuition at a rate higher than the public institution's in-state tuition rate for residents of the State. In addition, if a member of the armed forces who is on active duty, his or her spouse, or his or her dependent child pays such an in-state tuition rate, the public institution must allow the individual to continue to pay such a rate as long as the individual is continuously enrolled, even if there is a subsequent change in the permanent duty station of the member to a location outside of the state. This provision is effective at each public institution of higher education in a State that receives assistance under the HEA for the first period of enrollment at the institution that begins after July 1, 2009.

  By Haley Chitty
  NASFAA Director of Communications

  Posted 06/15/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.