How to boost your student loan payments

By Laura KipnisPublished Nov 07, 2018 12:02:03It may sound like a good idea, but the Federal Reserve’s latest move to boost student loan debt isn’t helping much.

The central bank said Tuesday it will start to ease the restrictions on how much it will lend to borrowers.

The move comes as the Federal government prepares to begin the third phase of a stimulus program that will make it easier for families to pay off student loans.

The Fed said the move is intended to encourage borrowers to start repaying student loans sooner, rather than delaying them by a few months.

“The recent changes will be helpful in assisting borrowers who are trying to avoid default and make timely payments,” the Fed said in a statement.

“The timing of these changes will depend on the timing of the next round of Fannie Mae and Freddie Mac loan modification requests, as well as the timing and magnitude of the Fannie/Freddie modification requests.”

The Fed will begin gradually lowering interest rates for the first time in seven years beginning Jan. 2.

The new rule will allow lenders to increase interest rates up to 2.5% on average over the next three years, with no more than a 1% increase.

The Federal Reserve said the rule would reduce the average monthly payment for student loans from $1,300 to $1 in 2020, and to $715 by 2022.

The maximum monthly payment would be $1.3 million.

The interest rate reduction will affect borrowers who make less than $50,000 a year, and would reduce their average monthly payments by about $5,400, the Fed’s statement said.

The average monthly loan payments for borrowers making between $100,000 and $250,000 will be cut by about 30%, and those making between 50,000 to $75,000 by 15%, the Fed added.

Borrowers with balances that have been above $75.7 million will see their payments cut by more than $5.5 million, the statement said, while borrowers with balances below $50.7 would see their average payments cut from $2,900 to $2.5.

A small number of borrowers with outstanding balances of more than more than about $100.7 billion will also see their monthly payments cut, according to the Fed.

But the move isn’t expected to be a boon for the borrowers who owe the most on their student loans, who have faced the greatest pressure.

The vast majority of borrowers who borrowed in the past three years will see the maximum interest rate decrease, the Federal National Mortgage Association said.

Those with balances between $30,000,000 or less and $100 million will receive the largest reduction.

For borrowers with higher balances, the largest drop will come from borrowers with smaller balances, as $40,000-plus balances would be reduced by more, the group said.

Those with balances above $100 billion will see interest rates decrease slightly.

But borrowers with debt from more than one generation and those with balances of $200,000-$500,000 would be hit the hardest.

For example, a borrower with $50 million in student loans and an average loan balance of $250 would see his or her interest rate drop from 2.0% to 1.8%.

For borrowers with more than five years of debt, the average rate would drop from 3.4% to 2%.

For those with debt of more $250 or more, borrowers with a total of $1 million or more in student loan balances would see rates drop from 5.3% to 4.4%.

But the Federal Home Loan Mortgage Association, a group representing lenders, said the rate cut would help some borrowers who have a high level of debt.

“Student loan debt is a major burden for many people who cannot find jobs or who do not have access to credit, and many of those borrowers would benefit from the proposed interest rate relief,” the group’s chief executive, Jim Miller, said in the statement.For more: