Graduate students who depend on Direct Subsidized Federal Loans to help finance their education may encounter problems as a result of the federal government’s debt ceiling bill that plans to stop allocating funds to the program.
In a measure expected to save the federal government $18 billion dollars, the agreement is set to end the loan program — which pays the interest on loans collected by students while still attending school — for graduate and professional students starting July 1, 2012.
Additionally, the settlement will discontinue loan payment incentives — percentage-based rebates that graduate students can earn after 12 successive punctual loan repayments — starting in July 2012.
After weeks of wrangling between President Barack Obama and top GOP officials, the two provisions seemed to amount to necessary concessions for Democrats, who had rebuffed Republican calls to end the Direct Subsidized Federal Loan program since President Obama met with Republicans at the White House in early July.
Last week, student financial aid advocacy groups around the nation expressed fear that the end of these programs would diminish accessibility to graduate-level education for students and worsen the strain of repaying loans.
In an Aug. 2 statement, the Student Aid Alliance accused the federal government of trying to “balance the budget on the backs of students,” adding that the two provisions are part of “a clear pattern of an assault on the core student aid programs.”
“The elimination of the in-school interest exemption for graduate and professional students and on-time repayment incentives for student borrowers will result in college becoming more expensive for millions of students and their families,” the statement said. “With widespread recognition that our nation sorely needs to power up its economic engine, it is more important than ever to preserve and provide adequate funding for the array of federal student aid programs.”
Direct subsidized loans for graduate students at the University currently carry a borrowing limit of $65,500, with a fixed interest rate of 6.8 percent for loans awarded after July 1, 2011, according to the University’s Office of Financial Aid.
The Office of Financial Aid offered 3,992 graduate students Direct Subsidized Loans, totaling $35.7 million, during the 2009-2010 academic year. At the time, University officials said they were not certain if the rise in costs would result in lesser rates of graduate and professional school matriculation.
Stephen DesJardins, director of the University’s Center for the Study of Higher and Postsecondary Education, said enrollment is dependent on a range of factors, including tuition rates, cost of living, the government’s credit rating and federal interest rates.
“You would think that if the costs of gaining financing rise, there will be some people who decide to go to a less expensive school or some people … may not go,” DesJardins said. “But people have different sensitivities to changes in these prices. It’s really complicated the way it plays out … It’s not straightforward.”
In an e-mail interview on Aug. 5, Pamela Fowler, executive director of the University’s Office of Financial Aid, wrote that she was also unsure if the end to the subsidized loan program would reduce enrollment.
“We have no way of knowing if the elimination of the interest subsidy will have negative impact on an individual graduate student’s decision to enroll,” Fowler wrote.
Fowler wrote that ultimately the decision to attend the University is dependant on a variety of factors that must be considered when making a final choice, adding it’s important for students and detractors to look to the more auspicious aspects of the debt deal, like the preservation of the Pell Grant program
“We did not get everything we hoped for, but the cuts are not over and the fight to preserve all student aid programs continues,” she wrote.