Thinking about going to graduate school? You might want to reconsider: it just got a lot more expensive for students taking out federally subsidized loans. Congress just announced it has finally reached a deal on federal student loan rates, which will keep the rates from going higher in July, but only for a year. This is good news, for the next year at least. But the bad news is that the government will no longer pay the interest accrued on federal loans during graduate school or during the six-month period after graduation from either undergraduate or graduate programs. All together this will cost students $20 billion over the next decade.
The Washington Post reports that, starting this Sunday, students with federally-subsidized graduate school loans will begin to accrue interest on their loans. Before, subsidized Stafford loans were arranged such that neither graduate nor undergraduate students paid the interest accrued to their loans while they were in school. And furthermore, this benefit extended to include a six-month post-graduation grace period. Now, undergraduates’ deferment period will be limited to the period of time they are at school, and graduates will have no interest deferment at all.
According to the Chicago Tribune, this change will apply to “new loans issued through July 2014.”
The estimated $20 billion this will cost students pales in comparison to the estimated $1 trillion Americans currently owe in student loans. The decision was made, according to U.S. News & World Report, as a compromise to avoid cutting the Pell grant program, which provides grant money for students from lower-income families to go to college. If one had to fall — which is a false binary, but whatever — it seems reasonable that the Pell grants should be the one to stay. At the very least it does nothing to add to the ever-growing pile of student debt.
In the meantime, there is a limited amount of good news: Congressional Democrats and Republicans appear to have reached a deal on postponing the rate hike for federal student loans (the deal may be attached to the highway authorization bill also being debated on Capitol Hill.) Had Congress not acted on student loans, the interest rate would have doubled, to 6.8 percent from 3.4 percent. Now it won’t double for another year. That costs $6 billion.
The biggest losers in this whole ordeal are prospective grad students. Not only is the entirety of their subsidy gone, but they also face higher amounts of debt than those who only attend university, increasingly competitive job markets, and skyrocketing tuition costs. According to a New York Times study, in the two decades between 1989 and 2009, college tuition rose 71 percent while law school tuition grew by 317 percent. And in the down economy, it’s becoming increasingly difficult for law school graduates to find associate-level positions that might actually justify the expenditure — or more to the point, help pay off the debt.
For students from lower- and lower-middle-class backgrounds, who might have been eligible for these subsidized loans, graduate school might look like an even worse investment than it had been last week. That’s not good news for a country that prides itself on being a meritocracy.