Students who thought they had the paying-for-college game down: Listen up. New rules came into effect July 1, changing the college financing picture for you and your families.

Most of the changes are positive. Here’s a summary of financial aid changes and how they affect you.

Uncle Sam steps in

“The biggest change is the switch to the Direct Loan program,” says Ashley Buchanan, associate director of admissions and financial aid for Mary Baldwin College in Staunton, Va. “Students who were used to going through private lenders to get federal loans will now go to the government.”

Instead of going through a private company to originate federal Stafford, Perkins and PLUS loans, students will now get their loans through and make payments to the federal government. Students who already have federal loans from the phased-out Federal Family Education Loan program will need to keep track of how much they owe and to whom.

“Because of the credit crisis, the government created a special provision earlier this year called ECASLA (Ensuring Continued Access to Student Loans Act), which created more liquidity for banks. Those loans will likely be taken on by a different servicer,” says Kevin Walker, co-founder and CEO of SimpleTuition.com, a student loan comparison site based in Boston. “Students who are juniors or seniors could have a federal loan they got through a private lender, a loan through the ECASLA program and a new one this year through the federal government. They’d have to pay three different places.”

Before starting repayment, students should talk to their financial aid counselors about where they should send loan payments.

Reduced fees

A positive side effect of the government taking over student loans is the reduction of origination fees on federal loans. As of July 1, origination fees on federal subsidized and unsubsidized loans were reduced to 1 percent with a 0.5 percent fee rebate available after the loan is disbursed. Unfortunately, the fee rebate is one of the few borrower benefits associated with Direct Loans.

“It used to be that lenders could offer benefits like an interest rate reduction after a certain number of payments, but Direct Loans don’t come with any of those,” says Walker. Aside from the 0.5 percent rebate, “The only borrower benefit Direct Loans offer is a 0.25 percent reduction on interest for those using automatic debit.”

Lower interest rates

Due to an unintentional legislative glitch, parents could previously get PLUS loans, but at different rates. But that’s changed, too.

“Before this year, some parents were paying 8.5 percent (interest) for parent PLUS loans and some were paying 7.9 percent,” says Lynne Myers, director of financial aid for College of the Holy Cross in Worcester, Mass. “Now everyone’s going to pay 7.9 percent.”

Rates are also dropping for students. According to the Department of Education, students taking out a Stafford loan for the 2010-2011 school year will enjoy an interest rate of 4.5 percent, 1.1 percent lower than last year’s rate and 2.3 percent lower than the rate on loans taken out in 2007.

Changes in income-based repayment

Last year the feds rolled out a new income-based repayment plan that allows borrowers to keep their federal loan payments capped at 15 percent of their discretionary income, defined as any income over 150 percent of the poverty line. This year, they’re improving the plan.

According to the Project on Student Debt, a nonprofit research and policy organization based in Oakland, Calif., the government has implemented two major fixes — one which calculates income-based repayments for married borrowers who both have federal student loans by weighing the total student loan debt for the household against total household income.

Prior to July, the system did not take into account total household student debt, forcing married borrowers to pay up to twice the amount that two equivalent single people would pay. Married borrowers in the income-based repayment plan should contact their lender to update their payment plans.

The second change gives a break to borrowers eyeing income-based repayment. Instead of calculating eligibility based on the original balance of the loan when the borrower entered repayment, the government will now look at either the original balance or the current loan amount, whichever is greater. The new rule allows more borrowers who have loans with accrued interest to enter income-based repayment.

Pell grants go up

“Students should also be aware that there’s more money in the Pell grant (program) this year than last,” says Buchanan. “The award is also available year-round now instead of just in fall.”

In addition to the Pell grant amount rising from $5,350 to $5,550 this year, more students will qualify. Students from households with expected family contribution levels of 95 percent of the grant amount or less are eligible to receive the award, according to the Department of Education.

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