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Debt Ceiling Compromise Deals Blow to Borrowing Grad Students

Aug 03, 2011

The good higher ed news to emerge from the debt ceiling deal struck by lawmakers: Pell grants have survived more than $2 trillion in planned government spending cuts. The bad news: Pell grants have been preserved at the expense of some subsidized loans for grad students. The change will cost affected students an estimated $18 billion over the next ten years.

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By Douglas Fehlen

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Passing Costs on to Students

Going to grad school just got a lot more expensive for many students. An 11th hour Congressional deal to raise the debt ceiling - and prevent the U.S. from defaulting on its financial responsibilities - will end a program providing graduate students with subsidized loans that make college more affordable.

Currently, students can borrow up to $65,500 in subsidized loans from the federal government over the course of graduate degree programs. The government covers interest payments on these loans for the duration of a student's academic program and an ensuing 6-month grace period. New legislation, set to go into effect July 1st, 2012, will have graduate students - not the government - paying interest on loans, and they would be responsible for doing so while in school. The change is likely to result in individuals paying several thousand dollars more for their graduate education.

Saving Pell Grants

The Obama Administration and Democratic leaders in Congress have maintained that cuts in higher education funding impair America's ability to compete economically with the rest of the world. Among the most sacred initiatives officials have sought to preserve: Pell grants, the program of government-funded student aid that allows students from low-income backgrounds to attend college. The debt deal agreement does preserve these grants, gaining it praise from many higher ed advocates. Sandy Baum, policy analyst for the College Board, praised the legislation for not making cuts 'directed at students who need the help the most.'

With the preservation of Pell grants, however, came compromise. Congressional Republicans insisted on significant education cuts in order to help reduce government deficits. To avoid substantial cuts to Pell grants, Democrats conceded ground on the program aimed at making graduate school more affordable. Cutting the program will yield about $22 billion in savings, monies that will be redirected to cover shortages in Pell grant funding.

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Costly Changes in Wake of Deal

The effect of the budget deal is sure to be felt by many graduate students. Beginning in July of next year, these individuals will have to find a way to make loan payments of up to a couple hundred dollars each month. Engaged in vigorous academic programs that often leave them unable to work, some students are unlikely to be able to begin making debt payments while in school. The legislation has raised the limit on the total amount of loans students can take out so that they may defer paying the additional costs until after graduation. All told, this change in financial aid will lead to an increase of about $18 million in additional debt responsibility to students.

While higher ed groups have applauded the preservation of the Pell grant program, they have also voiced concerns about continuing increases in the cost of college. Many have stated the hope that the current change for graduate students will be temporary. Tony Pals of the National Association of Independent Colleges and Universities stated, 'Our hope is the subsidy is eventually restored once the nation's economy and budget outlook rebound.'

College tuition and fees have risen dramatically in recent years, causing many students to consider financial factors more carefully in making a decision. Learn about the trend of 'buying down' to reduce college costs.

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