Landmark Day in U.S. student loan history

On finance today, I wanted to point out to both my Japan-side readers, and those back home, that it’s July 1.

Historically, this was the start of the new U.S. federal fiscal year (so fiscal 1971 started on July 1, 1970). That got changed sometime in the 1970’s, but it didn’t affect every law and program.

The Higher Education Act of 1965, which is basically where most all the federal money for higher education comes from, does a lot of things on a July-to-June calendar year. So July 1 is a big day!

What’s happened is that Congress has prohibited private banks or other lenders from lending out federally-backed student loan money. What this means is that if you wanted to take out a “Stafford” or other kind of federal student loan (the only kind safe enough to take out, in my view), you now take it out under the Direct Loan Program.

I don’t know if it’s still called a Stafford (Direct Stafford?), but you get the idea. The lender is now the government, not some bank that gets the money from the government and then lends it to you. (As if you needed them in the transaction.)

The other thing I wanted to point out, is that it’s the one-year anniversary of something called “Income Based Repayment” or IBR. A social issue nonprofit based in San Francisco has a nice website, at, that explains this payment plan better than I can in detail.

If you’re out of college, there is something else you should know: it has never been easier to consolidate your federal student loans–even defaulted ones–with the U.S. Department of Education. If you are having a tough time paying, you are entitled to pay based on a percentage of Adjusted Gross Income or AGI. That’s the IBR.

You’re given a 150 of poverty level “zero bracket”, and then it’s 15% of AGI above that.

If you defaulted on the loans, your alternative is something called ICR, which is income-based but not quite as generous. I think after 12 “ICR” payments, you are considered rehabilitated, and can switch to IBR.

The government’s outsourcer, ACS (a division of Xerox) was screwing up some of the IBR calculations earlier this year. (Forbes wrote about it.)

So remember, if you do IBR, to make sure the government has your adjusted gross income figure.

Additionally, if you file and take the Foreign Earned Income Exclusion, the AGI number is the one at the bottom of the first page—not what’s in Line 7! Don’t make that mistake!