Need to borrow money for college? There’s good news today

July 1, 10:13 AMCollege Admissions ExaminerLauren Starkey

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Beginning today, the federal Education Department will offer a tuition repayment plan that ties monthly payment to your income. Because federal student loans remain the most attractive option for higher education funding, and the ability to borrow from other sources, including home equity loans, has been hampered, the new plan will affect millions of students, according to Edie Irons, a spokeswoman with the Project on Student Debt.

The typical repayment term was ten years. But under the new plan, payments will be based upon income, which will potentially lengthen that term and require much smaller payments. The income-based program will limit payments to 15 percent of the difference between gross income and 150 percent of federal poverty guidelines. After 25 years, any remaining balance will be forgiven.  The Department of Education has more information website about the new plan, including a calculator to determine payments, on its website.

But the good news doesn’t end there. Today the interest rate on the most popular federal student loan, the Stafford, will drop from 6 to 5.6 percent. And Congress has mandated a schedule that will bring that rate to 3.4 percent by 2012. The maximum Pell Grant will also increase $619 to $5,350.