August 4, 2011
Budget Control Act Eliminates Subsidized Interest Loans for Graduate Students
Student Loans. As required under the Federal Credit Reform Act of 1990, most of the costs of the federal student loan programs are estimated on a net-present-value basis. The bill would make two changes to the student loan programs. CBO estimates those changes would reduce direct spending by $9.6 billion over the 2012-2016 period and $21.6 billion over the 2012-2021 period. The legislation would:
- Eliminate the subsidized loan program for graduate students. Beginning July 1, 2012, the bill would eliminate the interest subsidy on subsidized student loans for almost all graduate students while a borrower is in school, in the post-school grace period, and during any authorized deferment period. (Certain post-baccalaureate students would still be eligible.) The current annual and cumulative loan limits for unsubsidized loans would be adjusted to permit students to borrow additional funds in the unsubsidized loan program. CBO projects that, over the 2012-2021 period, the provision would shift approximately $125 billion in loan volume from the subsidized to the unsubsidized loan program. Because borrowers would be responsible for the interest accrued on those loans while in school, CBO estimates that this provision would reduce direct spending by $8.2 billion over the 2012-2016 period and $18.1 billion over the 2012-2021 period.
- Eliminate loan repayment incentives. Beginning July 1, 2012, the bill would terminate, with one exception, the Secretary of Education’s authority to make incentive payments to borrowers to encourage the on-time repayment of their federal loans. Specifically, the bill would eliminate the Secretary’s authority to offer a partial rebate of the origination fee but would still allow the current interest rate reduction for borrowers who agree to repay their loans through electronic debiting. Because borrowers would effectively pay a higher upfront origination fee, CBO estimates this provision would reduce direct spending by $1.4 billion over the 2012-2016 period and $3.6 billion over the 2012-2021 period.
That's a savings equal to three months in Afghanistan. See, Debt Deal Would End Subsidized Loans To Grad Students, Produce Savings Equal To Only Three Months In Afghanistan on Think Progress. For analysis by Annie Hsiao, director of education policy at the American Action Forum, see The delinquency of the debt ceiling and student debt on The Hill's Congress Blog. For commentary, see Elie Mystal's ATL post, Debt Ceiling Deal Includes Last-Second Screwing Of Graduate Students. [JH]