Student Loan Programs under Fire in Washington Budget Talks

Barry Lenson

Student Loan Programs under Fire in Washington Budget Talks

“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 End of Subsidized Loans?” by Libby A. Nelson, writing in Inside Higher Ed.

If you’ve been taking part in the federally funded Stafford loan program, you might want to sit down. Here’s some news you should know.

In current budgetary negotiations in Washington, the Republican majority leader Eric Cantor has reportedly proposed that students should start being assessed interest on their Stafford loans while they are still attending college. (Currently, interest only starts piling up after students graduate college and begin repaying the money they borrowed.)  According to Nelson’s post on Inside Higher Ed, Cantor estimates that the change he is proposing could save the Government as much as $40 billion over the next decade.

Bear in mind, this proposal would not end loan programs, but just alter the repayment terms so that students would begin to owe interest on loans as soon as they took them.

If you are a Stafford Loan borrower, how much money would the proposed changes cost you? The answer is, it depends on how much you have borrowed, and also on how long you will take to pay it back. Interest is an ornery thing – the longer it accrues on money you’ve borrowed, the more the total amount that you owe can snowball.  You borrowed only a little, but you end up owing a lot. And the chances of that snowball rolling down your personal financial slope increase if interest starts to add up three or four years earlier.
In the past, students enjoyed a small protection against that, because interest didn’t start to kick in until they began repaying their loans.

Maybe the proposed changes are necessary. Maybe they are even fair. But they is troubling too. Don’t our country’s leaders often say that our national future depends on the success of today’s college students?

Personally, I would rather pay an extra 10 cents on every gallon of gas I buy to protect Stafford loans, or to check a box on my Federal tax return and contribute money that way. But I don’t think I will get the opportunity to do either of those things. The U.S. will hit its borrowing limit on August 2, and what will happen to students on that day is anybody’s guess.

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