What Student Loan Changes Mean for Grads

By Candice Choi, AP Personal Finance Writer

NEW YORK (AP) — Graduation season is here. Which means student loan bills are close behind.

Students received an early reminder of their looming debt a few weeks ago, when a new law overhauled the federal lending program.

Under the rejiggered system, the Education Department will provide all federal loans through college financial aid offices starting July 1.

Previously, families were able to obtain government-backed loans from private lenders through the Federal Family Education Loan program, or FFEL.

Students who already have FFEL loans won't be required to make any changes. But there are scenarios when it makes sense to switch over to the direct loan program.

In the meantime, the government expects to save $68 billion over the next decade or so by ending the subsidies it paid to private lenders. The savings will be used in part to boost education grants to the neediest students starting in 2013.

There are no benefits for those who already took out loans. Still, there are some payment options new graduates will want to keep in mind.

Payment Plans

Graduates don't have to fear being handed a bill with their diploma; most federal loans come with a six-month grace period. But interest continues accruing during that time, so the sooner repayment starts the better.

The exception is with subsidized federal loans, in which the government waives interest charges until the loan comes due.

The standard payment option spans 10 years, but there's no penalty for paying off debt earlier. Of course, that's probably not an issue for those carrying huge debt loads.

Those pursuing fields that don't pay a lot will want to look into a program called income-based repayment, or IBR. The option was introduced last summer to help make debt more manageable. Essentially, it caps payments at 15% above any earnings beyond $16,000 or so. Any debt remaining after 25 years is forgiven.