College Cost Reduction and Access Act of 2007

President Bush signed HR 2669, the College Cost Reduction and Access Act of 2007 into law on September 27, 2007. Provisions of the bill may enable more individuals to readily enter careers in the government and nonprofit sector, as the bill allows for a new, a)   Income-Based Repayment Plan (which places an annual ceiling on loan payment for borrowers with high federal educational loan obligations compared to their incomes) and b) enables borrowers to make affordable monthly payments for ten years while in the public service, after which, the government will forgive the remaining obligation.

Income Based Repayment

Section 203 of the Act takes effect on July 1, 2009. It will allow borrowers of Stafford, Perkins, Grad PLUS, and Federal Consolidation loans to repay on the basis of their income at the time of repayment. If the annual payment on a loan amortized on a 10-year basis (the standard repayment term) exceeds 15% of the amount by which the borrower and borrower’s spouse’s (if applicable) adjusted gross income exceeds 150% of the poverty line applicable to the borrower’s family size, the borrower is eligible.

If Income Based Repayment calculated payments won’t cover all the interest on the subsidized Stafford loans, the government pays interest for three years. After 25 years of repayment, any remaining balance is forgiven. The amount forgiven may be taxable.

Public Service Loan Forgiveness

Borrowers can enter into Income-Based Repayment except that remaining debt is forgiven after 10 years of full-time public service during which the monthly payments are made. Breaks in public service are allowed, however 120 payments must be made during public service employment before forgiveness may be granted. Qualifying debt includes Stafford and Graduate PLUS loans, and Perkins Loans if consolidated. Qualifying jobs: All government and all 501(c) (3) organizations

Effective Dates: Borrowers in repayment were able to start counting the 10 years on October 1, 2007, providing they borrowed via the Federal Direct Loan program. Borrowers who borrowed through the FFEL program (New York Law School students) must graduate and then consolidate into a Federal Direct Consolidation loan before the 10-year count begins. Borrowers may repay through the Income-Contingent repayment option currently available until the Income-Based Repayment option becomes available in 2009.