Inside High er Ed— As talks continue and the deadline approaches on increasing the federal debt limit, the federal government’s subsidy for undergraduate student loans is now on the table….
The proposal would end the subsidized Stafford loan program, in which the federal government pays the interest that accrues while students are enrolled in school….
Subsidized loans, which are awarded based on financial need, make up just under half of all Stafford loans, which are the federal government’s largest pool of student loans. Students who borrow the maximum amount of subsidized loans, $23,000, and take six years to graduate would owe $5,000 more by graduation and $9,000 after a 20-year repayment period, said Pauline Abernathy, vice president of the Institute for College Access and Success…
The elimination of the subsidy, combined with the fact that the interest rate on federal student loans is slated to double next year — to 6.8 percent — would mean that low-income college students would graduate with far more debt…
As Congress and the White House have put forward plans that slash spending in recent months, student aid programs have come in for their share of cuts, and there is widespread agreement, even among the programs’ supporters, that some kinds of changes will be necessary. The Pell Grant Program, which has become increasingly expensive, is perceived to be vulnerable not only in the talks about long-term deficits, but in more immediate deliberations over the next federal budget, for 2012….
Losing the interest subsidy is far from ideal, and could harm student borrowers, they said. But other options, such as a Pell Grant cut, would be far worse.
“Certainly it would be a blow to students,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators, who said he strongly objected to the idea of shifting funds from student aid toward deficit reduction. “But it doesn’t decrease the total amount of aid available to them up front to pay for college.” A cut that could change whether students are able to pay for school at all, such as lowering the maximum Pell Grant, would have a more dramatic effect, he said.
It sounds as if any change to Stafford loans would simply add more to the amount owed upon graduation. With all the stories of naive students taking on massive debt while failing to realize the potential negative repercussions, maybe an “up front” cut in aid would actually be a better idea. Or, is that being too harsh?
President Obama’s reaction to cutting student loan subsidies:
“I’m not going to do that,” Obama said. “I’m not going to take money from old people and screw students,” not without some compromise on the tax-increase side.
Found at Instapundit