Debt Deal Cuts Student Savings

If the current debt ceiling deal is passed by Congress on Monday as scheduled, graduate students around the country will soon be faced with pricier college loans.

In an attempt to safeguard Pell grants for low-income undergraduate students, the proposed legislation would eliminate a popular interest-subsidy loan for graduate and professional students. At the present, the government pays the interest on these loans while students are in school and for six months thereafter. If the law is approved, as of July 1, 2012, graduate and professional students will be responsible for all of that interest. Neither the accrued interest or loan principal has to be repaid during the school years, but the added interest costs will still be factored into the post-graduation payments. In hopes of helping the students pay for the several-thousand-dollar increase in these Stafford loans, the annual loan limit of $20,500 will likely be raised a commensurate amount.

In a similar vein, the proposed plan would also kill a rebate currently offered to college students for making timely payments for a full 12 months.

The estimated savings from removing the interest-free subsidy will be $21.6 billion over the next ten years. From those savings, $17 billion will be given to the Pell Grant program, which serves roughly 8 million college students. These need-based grants can be as much as $5,500 a year.

“Full funding for Pell Grants is absolutely essential to fulfilling the president’s goal of the U.S. once again having the highest proportion of college graduates in the world by 2020,” said Pauline Abernathy, vice president of the Institute for College Access & Success, as quoted in a CNN Money article.

The remaining $4.6 billion will go toward reducing the national deficit.