Changes could make higher ed even more costly.
By CANDICE CHOI
NEW YORK — College is already expensive. Now the government’s 11th-hour agreement to raise the debt ceiling is set to push costs higher.
That’s particularly true for those pursuing advanced degrees, with the government eliminating subsidies to graduate and professional students.
But that’s not where the budget tightening ends. A bipartisan panel of lawmakers is set to identify at least another $1.2 trillion in deficit reductions by Thanksgiving. There’s the possibility that the country could lose its top-notch credit rating. And broader decline in the stock market could eat away at college savings.
Here’s a look at how the deal in Washington could affect six aspects of paying for college:
1. SUBSIDIZED LOANS: Starting in July, graduate and professional students no longer will be eligible for subsidized federal loans. These loans keep the cost of borrowing in check because the government doesn’t charge interest while students are in school.
Graduate students can take out up to $138,500 in federal loans, of which $65,500 can be subsidized. That includes loans taken out as an undergraduate. They’ll still be able to borrow the same amount, but no subsidized loans will be available. The additional cost of an unsubsidized loan could push up total debt at graduation by around 16 percent, according to Finaid.org, which tracks the financial aid industry.
2. PELL GRANTS: The $17 billion in savings from eliminating subsidies for graduate and professional students will be used to fund Pell grants. The preservation of Pell grants is seen as critical because they provide undergraduate funding to the neediest students; the vast majority of the 10 million recipients have family incomes of $40,000 or less.
For now, students still will be able to get a maximum of $5,550 a year. But even with the funding injection, the program faces an estimated operating shortfall of $1 billion for the 2012 school year. And that gap could widen if the economy deteriorates and more students apply for grants.
That, in turn, could force the government to consider tightening eligibility requirements or lowering the maximum grant amount, said Terry Hartle, vice president of government affairs for the American Council on Education.
3. LOAN DISCOUNTS: The government’s debt deal also eliminates a discount given to borrowers who make payments on time.
The amount of the discount varies depending on when the loan was issued. But for federal loans made after July 1 of last year, students get a discount of 0.5 percent of the loan amount for making the first 12 payments on time. On a $10,000 loan, that’s a one-time rebate of $50.
The incentive disappears for loans disbursed after July of next year. Read more…