2011 Budget Control Act cuts subsidized loans for graduate students

For graduate students throughout the country, the struggle to pay the bills just became more difficult. The 2011 Budget Control Act hits eliminated subsidized graduate student loans.

Beginning July 1, 2012, all graduate students, regardless of financial need, will have to make the monthly interest payments while hitting the books.

Subsidized loans let students borrow money from the government interest-free from beginning graduate school to six months after completing their advanced degrees.

Unsubsidized loans require students to make monthly interest payments, at either 7.9 or 8.5 percent, from the moment they sign the dotted line on their loan papers.

The Congressional Budget Office estimates this move will cost graduate students $18.1 billion over the next 10 years. Before the debt ceiling agreement, students could borrow a maximum of $65,500 in subsidized loans. Now, students borrowing that much will have $207 monthly interest payments for 10 years, including while they’re in school.

Another casualty of the debt ceiling agreement is loan repayment incentives. Students will no longer receive a partial loan refund for making 12 months of on-time payments on their loans. However, students will still receive interest rate reductions for making loan payments online.

But there is an upside for undergraduates: three-fourths of the money saved from eliminating subsidized graduate loans go to subsidize undergraduate grants.

Pell Grants don’t have to be paid back, and $17 billion in savings from cutting subsidized graduate school loans will fund them.

Ind. politicians vote with mixed opinions:

Rep. Todd Young, R-Ind 9th District: Yes

Young said the bill begins moving the country in the right direction to spending controls and a possible Balanced Budget Amendment.

“As our country faces the prospect of a default tomorrow, an even larger danger looms on the horizon in the form of an unsustainable debt burden. Both of these problems threaten job creation and economic growth at a time when Hoosiers most need relief. Throughout this entire process, I’ve maintained that both of these problems must be addressed at the same time. This package isn’t the bold solution we were hoping for, but it’s a start.”

Sen. Richard Lugar, R-Ind.: Yes

Lugar called the amendment “a victory for conservative fiscal responsibility.”

“Republicans succeeded in gaining substantial cuts in spending and no increases in taxes. We were also successful in gaining spending caps to restrain future spending. We were not successful in convincing the president or Democrats — who control the Senate — to support the Balanced Budget Amendment to the Constitution. However, the final agreement continues to advance the cause with additional votes and incentives to encourage more support for it.”

Sen. Dan Coats, R-Ind.: No

Coats vowed to continue to decrease government spending, reform the tax code and overhaul entitlement programs.

“The bill falls significantly short of what is needed to address the severity of this financial crisis. While I am disappointed with the final legislation, I believe progress has been made in this debate. The culture of Washington is changing from ‘what can we spend’ to ‘where can we cut.’ This is a step in the right direction and I am optimistic that we can carry this momentum in the months ahead.”

— Colleen Sikorski