Have you heard about this rumor yet? No more subsidized loans for graduate students? Could it be true? I hate to tell you all this, but is true. Beginning in July 2012, graduate students will no longer be eligible for subsidized loans. Soon, graduate students will only be able to receive unsubsidized loans. These changes were announced last summer amidst all the other regulatory changes being announced for federal financial aid. Yes, the Pell grant was saved, but do you know where they were finding these savings?
Almost one third of the financial used by graduate students is Stafford subsidized loans. What is the difference between Stafford subsidized and Stafford unsubsidized loans? Federal subsidized Stafford loans allow students to take out loans and not start paying any interest on those loans until 6 months after graduation. Federal unsubsidized Stafford loans require a student to start paying interest on their loans right away (interest is accruing as students are in school). These changes will impact the monthly payment owed by graduate students once they have finished their programs. According to the Chronicle of Higher Education:
A student who borrowed the 2009-10 averaged subsidized amount of $7,171 at the beginning of each of two years of graduate school would owe about $15,838 instead of $14,342 based on 6.8% compounding interest. She would face monthly payments of $182 instead of $165 over a 10-year standard repayment period. Students who are in school for longer periods of time–including most medical and law students–will lose a bigger benefit. For those in shorter graduate programs, the subsidy matters less.
Overall, this change will have an impact for those who are enrolled in school for longer periods and for those who depend on higher amounts of loans in order to complete their program. According to one of the comments regarding this article, the cuts made to subsidized student loans will save the federal government $21.6 billion dollars and $17 billion of that savings went to help save the Pell grant. The Pell grant is awarded to low-income students pursuing their undergraduate degrees. While I do not like the changes that will influence my future, I was extremely happy that Pell was saved. Without Pell, community colleges and other schools would not be able to survive. The Pell grant assists many students attending urban colleges and without it they would never be able to afford college.
It is not all bad news for graduate students. Students typically have 6 months to start making payments once they have graduated. One very exciting thing that many students have not taken advantage of is Income-Based Repayment (IBR). PAY ATTENTION TO THIS PART IF YOU PLAN ON WORKING IN THE PUBLIC SECTOR (this includes colleges or universities). Income-Based Repayment allows students to repay their student loans based on their income and family size instead of just paying a set amount established by a 10 or 15 year repayment schedule that may not work for borrowers. The Chronicle of Higher Education put together these 7 bullet points about IBR and who is eligible:
· You will qualify for IBR if your debt is high relative to your income and/or your family size. Don’t think, in other words, that being a single person means you won’t be eligible for the program.
· Under IBR, your monthly payments will be determined by your income and family size, instead of being determined by both what you owe and a set timeline for repayment.
· To apply for the program, you will have to verify your income and family size with your loan servicer. In short, this means you will send them a few pages from your most recently filed federal tax return on a yearly basis.
· Since you pay according to your income rather than a set window of time for repayment, additional interest may accrue on your loans. However, the federal government will pay the interest on Subsidized Stafford Loans for up to three years when you enter the program. This means that participation in the program costs you nothing for the first three years.
· Also, since you pay according to your income rather than a set window of time for repayment, it may take you longer to repay your loans. The end result of this is that you might pay more in interest than you would otherwise. (This is the possible downside of IBR.)
· However, if you are in the IBR program for 25 years and you have still not finished paying off your loans (remember, you pay according to your income rather than what you owe), then your remaining balance will be canceled!
· Also, if you work in “public service” and meet other conditions, your loans could be forgiven after 10 years of monthly payments. And yes, public universities appear to count as “public service.” (For more, see this Federal Student Aid “Loan Forgiveness for Public Service Employees” fact sheet [PDF].)
The fact sheet is of particular interest. You can also learn some additional information on the federal website. Some folks that have used IBR stated that it worked for them when they were in a financial jam, but they strongly encouraged users to investigate how high they repayments could become as they earned additional money. For those working in the public sectors, one issue with IBR may be that the payment is too high. However, if you can do it for 10 years your loans will be forgiven, which may make the sacrifice worth it.
Oh wow. Thanks, Lori, for your post. I knew about the 10 year contingent repayment plan for public servants. I'm hoping this will be my saving grace personally.
ReplyDeleteThat's just nuts that the Feds are eliminating the subsidized loan for graduate students. I wonder what this will do to graduate student enrollment, as it is already down this year from previous years, and the speculation is because of the economic downturn. I am personally using subsidized loans to help to pay for this degree, so it makes me nervous in a lot of ways. It especially makes me nervous for law and medical students whose student loan debt is already egregious coming out of grad school.
However, I do agree with you that the saving of the Pell grant is paramount in terms of access to higher education. We all know that the under-funding of higher ed is becoming an increasingly large problem, but this feels to me that the Feds are just pushing the problem elsewhere--robbing Peter to pay Paul if you will. I'll be interested to see the long term effects of both the removal of sub'd loans for grad students and the 10 year plan.
Also, just to put it on the radar, one of the major White House petitions at the moment is to eliminate all student loan debt!