Federal Graduate Student Loans to Cost More Some graduate and professional students will pay more interest on their federal student loans under the debt-ceiling agreement reached by Congress and the Obama administration in August. Under current law, the federal government pays the interest on Stafford loans—subsidized, low-interest loans based on financial need—while the student is in school ... Policy Analysis
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Policy Analysis  |   September 01, 2011
Federal Graduate Student Loans to Cost More
Author Notes
  • Neil Snyder, director of federal advocacy, can be reached at 800-498-2071, ext. 5614, or nsnyder@asha.org.
    Neil Snyder, director of federal advocacy, can be reached at 800-498-2071, ext. 5614, or nsnyder@asha.org.×
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Regulatory, Legislative & Advocacy / Policy Analysis
Policy Analysis   |   September 01, 2011
Federal Graduate Student Loans to Cost More
The ASHA Leader, September 2011, Vol. 16, 19. doi:10.1044/leader.PA3.16112011.19
The ASHA Leader, September 2011, Vol. 16, 19. doi:10.1044/leader.PA3.16112011.19
Some graduate and professional students will pay more interest on their federal student loans under the debt-ceiling agreement reached by Congress and the Obama administration in August.
Under current law, the federal government pays the interest on Stafford loans—subsidized, low-interest loans based on financial need—while the student is in school and during certain grace and deferment periods. The new agreement (Public Law 112-25), which takes effect July 1, 2012, eliminates this provision as well as repayment incentives for students who repay their loans on time.
However, according to the new law, students enrolled or accepted for enrollment in a program “at an eligible [college or university] necessary for a professional credential or certification from a state that is required for employment as a teacher in an elementary or secondary school in that state” are exempt.
Eliminating these two financial aid supports would save the federal government an estimated $21.6 billion over 10 years. Of this total, $17 billion would go to shore up Pell grants—need-based grants to low-income undergraduate and certain post-baccalaureate students to “promote access to postsecondary education”—and $4.6 billion would go toward deficit reduction.
The concept of eliminating the subsidy was first proposed in a report by the College Board, “Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid,” published in September 2008. The concept was included in and then taken out of 2009 legislation to reform the federal student loan programs. In 2010, the National Commission of Fiscal Responsibility and Reform (known as “The Debt Commission”) also recommended the subsidy elimination. Subsequently, President Obama included it in his fiscal year 2012 budget request; Speaker of the House John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.) included the provision in their debt-ceiling bills.
Despite efforts by groups such as the Council of Graduate Schools, of which ASHA is a member, and Student Advocates for Graduate Education (SAGE), the concept was incorporated in the final bipartisan agreement. The administration justifies the inclusion because of “reduced repayment burden resulting from previous action taken by Congress—such as the new Income-Based Repayment program, and the Public Sector Loan Forgiveness and other loan forgiveness programs. In addition, graduate students often study in specialized, higher-paying fields and thus are less in need of subsidized loans. Moreover, student aid experts have repeatedly noted that providing these subsidies has no effect on encouraging students to pursue graduate education.”
However, according to SAGE, the program elimination equals a 22% increase in cost for a five-year degree, compounding to an additional $17,400 under a standard repayment plan for the maximum loans, which many students choose (Table 1 [PDF]). SAGE claims that keeping the subsidy will significantly benefit low-income students, especially those with undergraduate loans to repay.
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September 2011
Volume 16, Issue 11