Lawmakers ante up more money and boost incentives for civic-minded grads. By Jane Bennett Clark, Senior Editor October 12, 2007 A new federal law increases college financial aid for families who qualify, offers grants to students who plan to teach and helps struggling graduates repay their student loans. Need-based aid. Pell Grants, awarded to students with financial need, climb to a maximum of $5,400 per year over the next five years (the current maximum is $4,310). The interest rate on subsidized Stafford loans (also need-based) drops to 3.4% over the next four years, half the current rate. The rate on unsubsidized Staffords remains at 6.8%. Loan repayment. As of July 2009, borrowers "will have the assurance that their loan payments won't cripple them," says Robert Shireman, of the Project on Student Debt. Rather than make fixed payments over ten years, the standard repayment schedule, struggling grads may make payments based on up to 15% of their "annual discretionary income," defined as gross income above 150% of the federal poverty level. That currently works out to $10,210 for an individual and $3,480 for every additional family member. The formula replaces less-generous income-based programs. Uncle Sam will pick up the interest on subsidized loans for three years if the reduced payments aren't enough to cover it, and the government will forgive the balance on subsidized and unsubsidized loans after 25 years. Advertisement Public-service incentives. Students in teacher-prep programs who commit to teach for four years after graduation can apply for annual grants of $4,000 to defray college costs. If they decide later not to teach, the grants must be repaid. Student borrowers also have an incentive to go into the public sector. If they work for ten years in a qualifying civil-service job, the feds will forgive their loan balance (only students who borrow directly from the government get this deal). Protected income. Students will also be able to earn more from jobs before crimping financial aid. For this academic year, $3,000 was ignored by the financial-aid formula; by 2011, that figure will rise to $6,000.