Changes in student loans could mean savings for you

What do you get when you combine a rocky job market with soaring student debt? Student-loan defaults, and they're at the highest level since 1998.

This year's graduates are facing hiring freezes, and many of last year's have been laid off or are still struggling to find a well-paying job. Luckily, there's a bit of a silver lining: On July 1, important changes occurred for federal student loans.

Variable interest rates change and any new terms take effect on July 1 each year. But this year, not only are interest rates falling, but also a new repayment option is available.

Here's what you need to know:

Low income can equal low payments. A new repayment option, called Income Based Repayment (IBR), caps your monthly federal student-loan payments based on income and family size. If you make less than one and a half times the federal poverty level for your family size, your payment will be zero. (You can find the poverty guidelines at http://www.hhs.gov.) Anything you make above that is considered discretionary income, and your monthly student-loan payment will be 15 percent of that amount.

To find out your options, contact your lender. The best part is, after 25 years, any remaining balance is forgiven.

Your interest rate may go down. If you have a variable rate Stafford loan -- and you do if you took the loan out before July 1, 2006 -- your interest rate resets each year on July 1, as long as you haven't consolidated. This year, the interest rate is falling nearly two percentage points, to 2.48 percent. If you consolidate now, that change can save you thousands over the life of the loan, depending on your balance. Graduates in the Class of 2009 have an even better deal, says Edie Irons, communications director of the Project on Student Debt. "If you consolidate during your grace period, which is the six months after you graduate, you can lock in a rate of 1.88 percent."

New borrowers of subsidized (need-based) Stafford loans are also going to see lower rates. Because of the College Cost Reduction and Access Act of 2007, the interest rate on these loans for 2009-2010 is going to be 5.6 percent, compared with 2008-2009's rate of 6 percent. Even better, rates on these loans are going to continue to fall until they hit 3.4 percent in 2011.

Pell Grants are worth more. "The American Recovery and Reinvestment Act of 2009 increased the Pell Grant to $5,350 for 2009-2010," says Mark Kantrowitz, publisher of http://www.finaid.org. Pell Grants are awarded based on need, and they don't need to be repaid. To find out if you're eligible, you have to fill out the Free Application for Federal Student Aid, available at http://www.fafsa.ed.gov.

Take advantage of other perks. If you work full time in a public-service job, your Federal Direct Stafford loans, Federal Direct PLUS loans and Federal Direct Consolidation loans will be forgiven after 10 years. The range of public-service jobs is large and includes government jobs, public health, education, many social-work positions, public defenders, public librarians, law enforcement and firefighters, and employees of 501(c)(3) organizations.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today" show. Her Web site is http://www.jeanchatzky.com.