The Obama administration has rolled out two new provisions that will give 5 million more college graduates the ability to enroll in income-based repayment plans and make it harder for schools to force students to use prepaid debit cards.
Here’s how it works…
More students can apply for income-based repayment plans.
The Education Department officially unveiled its long-awaited expansion of the income-based repayment program, Pay As You Earn (PAYE), which nearly four million federal direct loan borrowers are currently enrolled. The new plan, which takes effect this December, is called REPAYE (the “RE” stands for “revised”) and will allow 5 million more federal student loan borrowers to enroll.
The new plan accomplishes this by allowing borrowers to sign up regardless of when they borrowed their loans or their debt-to-income ratio. The existing PAYE model is only available to people who borrowed after 2007 and whose debt greatly outweighs their income. Those enrolled in the REPAYE plan can have their payments capped at 10% of their income. Allowing the additional 5 million borrowers to qualify for the program will cost the federal government an estimated $15.4 billion over the next 10 years.
No more deceitful debit card agreements.
The government has been trying to crack down on prepaid debit cards on college campuses. Thanks to the 2009 CARD Act, which stops banks from marketing credit cards on campuses, college credit card agreements have dropped by more than half between 2009 and 2013.
To get around this, the banks shifted their focus from credit cards to prepaid debit cards. Today, 40% of students attend schools that have agreements with banks to market student debit and prepaid cards on campus, according to a report by the Government Accountability Office. These cards are known to come with high overdraft fees and other hidden fees.
The new Department of Education rule requires schools to allow students to choose how to receive their student aid refunds. They can no longer be forced or urged to open a certain kind of account to get that money. The rule says schools have to make sure fees are not “excessive and confusing.”
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