Believe it or not, Congress balances the budget on the backs of students
September 15, 2011
By Larry Cary, Partner, Cary Kane LLP
Soon graduate students will have to worry about more than just their dissertations. The deal recently made in Washington to raise the debt ceiling includes a pricey provision that will affect graduate student loans.
Currently, a graduate student may borrow up to $8,500 per year from a federal program that does not charge interest on the loan while the student remains enrolled. Beginning July 1, 2012, students will have interest accrue on the loan while still in school. Students will owe more than they borrowed when they graduate.
Like college, pursuing a graduate degree can cost a student as much as $50,000 per year for tuition, fees, books and living expenses, although attending a public university reduces this figure by about $10,000 a year on average. Under existing federal loan programs, graduate students may borrow up to $20,500 a year from the federal government. Graduate students may accrue up to $138,500 in direct federal loans, with $65,000 borrowed under the subsidized loan program.
However with the elimination of the subsidized loan program, the Congressional Budget Office estimates that students will pay $18.1 billion more for their education over the next ten years.
At the same time, the deficit-ceiling bill shifted part of the savings to fund the Pell Grant program for undergraduate students. But the bill does not deliver enough funding to cover the full costs of Pell Grant aid. The Pell Grant program will still need an additional $1.3 billion to maintain its program of providing as much as $5,500 a year for about eight million students based on financial need.
The debt ceiling law also eliminated a credit that encouraged students to repay their loans responsibly upon graduation. Currently, students pay a 1 percent origination fee when taking out the loan, but are given half of it back as a credit if they repay their loan on time (i.e. don’t miss a payment) during the first year after graduation. Elimination of the credit will cost students another $3.6 billion over the next ten years according to the government’s budget office.
Republicans first proposed cuts to education aid but as the deal got closer, Democrats, like Senator Harry Reid, spoke in favor of them too. It is a pretty sad day, and not one without irony, when passing the entire $4 trillion financial budget/deficit deal, hinged on hurting students: Young minds who want nothing more than to get an education and make a positive contribution to our society.