The federal government has made some very positive changes to their financial aid program.  Although the changes will not be implemented immediately, they still will help ease the burden on cash-strapped and debt-ridden students and their families.  Recent changes include ending subsidies to private lenders, which generate nearly $68 billion in savings over the next 11 years.  This savings means that more money will be available to students.  As part of the Health Care and Education Reconciliation Act, more than $40 billion will be invested in Pell Grants, which do not need to be repaid.

Pell Grants

Pell Grants are based on financial need, costs to attend college, the student’s status as either a full-time or a part-time student and whether the student plans to attend college for a full academic year or less. The maximum Pell Grant award for the 2010-11 award year (July 1, 2010 to June 30, 2011) is $5,550.   Any Pell Grant eligible student whose parent or guardian died as a result of military service in Iraq or Afghanistan after September 11, 2001 is awarded the maximum amount if the student is under 24 years old and was enrolled at least part-time in college at the time of the parent’s or guardian’s death.

A student can receive up to two consecutive Pell Grant awards during a single award year to accelerate the program toward the student’s degree. The student must be enrolled at least half-time and in a program that leads to an associate or bachelor’s degree or certificate.

Income Based Repayment Program

Much of federal student financial aid is in the form of loans.  However, a new program called the Income Based Repayment Program makes federal loans less painful.  Borrowers who participate in this program will have monthly payments capped at 10 percent of the income a borrower has left over after covering basic needs and after 20 years any remaining debt is forgiven.  If the borrower becomes a teacher, nurse, member of the armed forces or other public service worker, the remaining debt is forgiven after 10 years.  Federal loans were already a much better deal than any private education loan, but with this new program, they become even better.

Current Income Based Repayment Program (IBR)

Right now students are eligible for IBR if their monthly payments under this plan are less than their monthly payments calculated under a 10-year standard repayment plan.  Also students have to pay for 25 years and meet other requirement s before any balances of their loans are canceled.  However, public service workers already can have the remainder of their loans canceled after 10 years.

For more important information about IBR, go to IBR Plan Information. Or, to download an IBR Fact Sheet in PDF format, click here.

Fill Out the FAFSA to Qualify for Federal Student Aid

Remember, students must fill out the FAFSA to qualify for federal student aid, so even if you think you make too much money to qualify for grants, it is always smart to fill out the FAFSA.  Some of the loans are not dependent on income level, so they are going to be available no matter what your income.  Interest is lower for federal loans and the new Income Based Repayment Program makes federal loans even more attractive.