Tag Archives: student aid

Debt Deal Leaves Students With Higher Loan Costs

We all know by now that Congress passed the debt deal yesterday, and it was signed into law by President Obama.

That sounds great, as our nation avoided default and a potential market crash, but what does that mean for you as a student?

There were three main categories of student financial aid that were affected by the debt deal. Here is the recap from NASFAA.org:

  • Pell Grants: While many programs faced cuts in this bill, the Pell Grant program was provided with additional mandatory funding for both FY 2012 and 2013.  Specifically, the package provides an additional $10 billion in mandatory funds for Pell in FY 2012 and $7 billion for FY 2013, amounts that should come close to preserving a $5,550 maximum award.  When the President released his budget in February, Pell faced a projected $20 billion shortfall for FY 2012.  The elimination of the Year-Round Pell Grant in the final FY 2011 budget bill reduced this shortfall to $11 billion.  Even with the additional mandatory funding provided in the debt reduction package, Pell will still face a $1.3 billion dollar shortfall for FY 2012.

  • Interest Subsidy for Graduate Students: The Budget Control Act also eliminates the in-school interest subsidy for graduate and professional students beginning July 1, 2012, a provision that would save $18.1 billion from FY 2012-21, $8.2 billion of which is from FY 2012-16, according to the Congressional Budget Office (CBO).  The legislative language clarifies that the subsidy elimination does not apply to students taking preparatory coursework and those in programs leading to teacher certification where the credential is awarded by the state instead of the institution.

  • Direct Loan Repayment Incentives: Repayment incentives were also eliminated in the final package.  The incentive for using automatic debit repayment provided borrowers with a 0.25 interest rate reduction and the up-front interest rebate incentive was equal to 0.5 percent of the loan amount and applied toward the 1 percent loan origination fee.  For PLUS loans, the up-front interest rebate was 1.5 percent applied toward the 4 percent origination fee. Borrowers were able to keep the rebate if they made their first 12 payments on time.  The language prohibits the Department of Education from authorizing or providing repayment incentives on new loans disbursed on or after July 1, 2012, except that an interest rate reduction may be provided to a borrower who agrees to automatically debited electronic payments.  The CBO projects the elimination of the origination fee rebates would yield $3.6 billion from FY 2012-21.

So what this means for you as a student is that your Pell Grant is safe.

If you are a graduate student, you will be stuck with paying the interest on your loans while in school, which will drive up the cost of your students loans.

When you go to repay your student loans (all federal Stafford, Grad, and PLUS loans) you will not have access to repayment incentives that will lower the cost on your loan.

Bottom line, you will end up paying much more for your loans!

Also, please stay tuned as another provision of the debt deal is to continue looking for ways to further reduce costs. This means that all federal student aid programs might not be out of the water yet!

Once again, it is important to contact your congressman to let them know how you feel about your federal student aid.

Your voice is important!