4 Big Changes in College Loans Start Today

Last Updated Jul 1, 2010 2:14 PM EDT

For college loan borrowers, today is a momentous day. Major changes in the federal student loan programs began at midnight. Here are four college loan changes that you should know about:

1. All federal students loans are now "direct."
In what will now be a simpler and less expensive system, no borrowers will obtain their federal college loans by contacting private lenders. Thanks to landmark student loan legislation, the federal government will make student loans directly to students through their colleges.

The prospect of this day ever arriving triggered intense lobbying and sky-is-falling predictions by the private student loan industry. For many years private lenders had enjoyed a cushy arrangement that had cost us taxpayers billions of dollars in unnecessary subsidies and triggered corruption.

2. The interest rate on a popular federal loan drops.
The interest rate on the subsidized Stafford loans drops from 5.6% to 4.5% for undergraduates. Subsidized Stafford loans typically go to families with incomes under $80,000. The federal government pays the interest on these loans until after a student graduates.

3. The interest rate has dropped on some federal parent loans and graduate student loans.
Until today, some borrowers were paying 7.9% and others 8.5% interest for their Parent PLUS loans and Grad PLUS loans. All new loans beginning today will be 7.9%

4. The interest rate for consolidated federal loans drops today.
The variable interest rate was reset today for borrowers who want to consolidate their old federal Stafford loans that originated before July 1, 2006. The new consolidation rate is dropping slightly to 2.47%.

Lynn O'Shaughnessy is the author of The College Solution, an Amazon bestseller, and she also writes for TheCollegeSolutionBlog. Follow her on Twitter.

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