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Changes to Student Loans Coming July 1

This article was written by in Debt Reduction. 10 comments.

While it’s great to avoid debt whenever possible, if you have to deal with federal student loans, including Stafford and PLUS loans, you might qualify for some better deals starting July 1.

Interest rates will be at the lowest rates in years. If you can consolidate, lock in rates after July 1. They will be at the lowest levels since the inception of the federal student loan program. The interest rate for graduates who are in a grace period is 2.00%.

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Former students now in the process of repaying their variable rate federal student loans will be able to lock in a rate of 2.50%. Parents who have taken PLUS loans will be able to consolidate at 3.38%.

There aren’t many places to find cheaper money than this, but there are a few of limitations:

  • Former students who have already consolidated are not eligible for these low rates.
  • These rates are only valid for loans originated before July 1, 2006.
  • Borrowers who are still in school do not qualify for consolidation.

There is more good news.

Income-based repayment. If a borrower is not earning enough to make monthly payments, they can apply for income-based repayment. The lender can extend the life of the loan and lower your payments to 15% of your income.

Student loan forgiveness. Borrowers who work for non-profit companies or the government will qualify for student loan forgiveness. After 120 payments (ten years), the government will write off any balance remaining on the loan. Student loan forgiveness applies to people who do not work for the public sector as well if they are repaying on an income-based repayment plan. In this case, 25 years of payments are necessary before the remainder of the loan will be forgiven, but will be considered income for tax purposes.

Rates for new student loans. Subsidized Stafford student loans will sport a new interest rate of 5.6% if the first disbursement is taken between July 1, 2009 and June 30, 2010. This is the second of four annual interest rate drops for new loans.

Increased Pell Grant scholarship maximum. Low and middle-income families might qualify for a Pell Grant scholarship. The maximum a student might receive from this federal program will increase on July 1 to $5,350.

These programs can save families thousands of dollars throughout the life of the repayment.

Updated October 21, 2015 and originally published June 15, 2009.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

What company is good to consolidate with? My variable rate student loan is with Sallie Mae, and they dont consolidate.

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avatar 2 Anonymous

Do you have private student loans from banks? Are your loans generally from the Federal Family Education Loan Program (FFELP) or Direct Loan program? My mom consolidated her FFELP PLUS loans (including Sallie Mae) with ease to the US Department of Education’s Direct Consolidation Loan program. I highly recommend it to check it out by going to their website at However, it only allows Federal guaranteed student loans such as FFELP.

Once piece of advice: when borrowing loans, consult with your Financial Aid Department when needed and see if it participates in FFELP and Direct Loan programs. FFELP and Direct Loan programs have very low interest rates (generally doesn’t go up to 8.25%), compared to private student loans that may be similar to credit card rates.

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avatar 3 Anonymous

I have been debating with myself on getting a student loan for the fall. I have the money to pay for school right now but the fall will be very tight financially for me and a loan would help a lot. I think I am leaning toward doing it.

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avatar 4 Anonymous

Bleh! It’s so hard to “win.” :) You graduate during good times – you have a great job but a sucky interest rate. You graduate in bad times, you have no job, but a killer interest rate!

Sometimes I regret having consolidated so early – maybe I could have taken advantage of this situation.

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avatar 5 Anonymous

Your post is very misleeding… you don’t state right away that the 2% only applies to those who took out loans before 3 years ago… I assume most of those people have gradutaed and already consolidated. I got really excited and called up my friend to tell her the good news. About an hour later I read back over it and realized that it doesn’t apply to her. She went to grad school between 2006 and 2009. I think this sucks, the people who need the intrest decreases the most won’t get them.

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avatar 6 Luke Landes

I thoght it was pretty clear in the article above that the lowest rates apply only to loans originated before July 1, 2006. I do hope that readers will read the full article before getting excited.

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avatar 7 Anonymous

So where can I sign up for this?

I have appx 100k in loans from attending university and flight school, I enrolled when times were good and companies were desperate for pilots and hiring guys right out of college to fly for the airlines.

Now times are bad, all the airline guys are laid off, and there is absolutely 0% hope for a low-time pilot to get a job, due to the surplus of laid off experienced pilots.

I search daily for several hours a day for jobs and there simply is nothing out there I qualify for in the aviation realm.

Any alternative job I have any real chance of getting (call center, mcdonalds, etc) pays at BEST 14$ an hour.

Paying on my student loans is not possible while still keeping a roof over my head and having some cash for repairs on my old & used vehicle.



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avatar 8 Anonymous

How do we sign up for this program? I am very interested in consolidating and by lucky coincidence, my prior attempts have failed, so this is perfect for me!! My mom told me about this program and I found this page – but where to apply???

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avatar 9 Luke Landes

Go to and click on Borrower Services. Follow the instructions and apply for consolidation online.

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avatar 10 Anonymous

Now, if I happen to have borrowed between May 2007 and May 2009 – the worst possible time to borrow apparently in the history of the world – what can I do with my very high interest loans???? Will any policy be passed to help those of us with loan rates of 6.8% (stafford) and 8.5% (PLUS) that are now graduating into the worst economy in decades with the highest federal loan rates in decades? Can’t our government do anything about that?

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