Rep Walz Announces New Program to Make College More Affordable

Press Release

Rep Walz Announces New Program to Make College More Affordable

New benefits that will make student loans more affordable to repay went into effect on July 1. The program allows borrowers to cap their monthly loan payments at a reasonable percentage of their income. Certain eligible low- and moderate-income students taking out new federal student loans will also see lower interest rates and higher Pell Grant scholarships.

"As a teacher, I understand how important an affordable college education is, especially during the current economic climate," said Rep. Walz. "This new program gives recent college graduates financial flexibility in a challenging environment for job seekers. It's an important tool in mitigating one of the negative effects of this bad economy on our youth."

The program is going into effect as a part of the College Cost Reduction and Access Act, which Rep. Walz helped enact in 2007. The legislation invested $20 billion in college aid for families, at no additional cost to taxpayers - the single largest investment to help Americans pay for college since the GI Bill.

Beginning yesterday, July 1, for the first time, borrowers are eligible to participate in a new Income-Based Repayment program that caps their monthly loan payments at just 15 percent of their discretionary income (defined as 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 payments exceed 15 percent of their discretionary income will be eligible. After 25 years in the program, borrowers' remaining loan balances, including interest, will be completely forgiven.

Other benefits include:

Cheaper interest rates on need-based (subsidized) federal student loans. Starting yesterday, July 1, interest rates on these loans dropped again, 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. Nationwide, about 5.5 million students take out subsidized student loans each year.

Higher Pell Grant scholarships for low- and moderate-income students. Due to funding boosts provided by both the College Cost Reduction and Access Act and the American Recovery and Reinvestment Act, the maximum Pell Grant scholarship for the 2009-2010 school year will be $5,350 - more than $600 above last year's award. About 6 million students receive this scholarship each year.

In addition, Americans will continue to be able to enter into a new public service loan forgiveness program created under the law. College graduates - or workers of any age - who enter public service professions will have their federal college loans completely forgiven after ten consecutive years of service and loan repayments. Eligible public servants include firefighters, public defenders and prosecutors, first responders, law enforcement officers, early childhood educators and men and women serving in the military, and more. This program can be used in conjunction with Income-Based Repayment.

Recent data shows that Americans' interest in public service is surging. This year's applications for programs like AmeriCorps have skyrocketed by 200 percent.

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