WASHINGTON — Graduate students will pay more for loans taken out next July, and recent graduates will lose rebates for on-time repayment under a law Congress passed this summer to keep the federal deficit in check while protecting Pell Grants for low-income students.
The Congressional Budget Office estimates that the changes will save the government $21.6 billion — meaning students would pay that much more or borrow less — over the next 10 years.
Another change that a key Senate committee voted to include in the 2012 federal budget would “save” an additional $6.1 billion by getting rid of a grace period subsidy for undergraduate loans.
The elimination of repayment rebates and loan subsidies for graduate students was included in the bipartisan deal reached in July known as the Budget Control Act, the law that set 10-year spending caps while raising the federal debt ceiling.
Financial aid departments at colleges and universities are now starting to notify graduate students that Stafford loans they take out next summer will no longer include a subsidy that keeps interest from accruing while they are in school.
“This was one of the few federal subsidies provided to graduate students,” said Haley Chitty, communications director for the National Association of Student Financial Aid Administrators. “It is a pretty significant blow.”
Under the new law, students seeking advanced degrees will start owing interest immediately on loans issued after July 1, though they will have the option of deferring payments until they finish school.
“They can defer it, but it adds to what they owe, and we always encourage students to pay as they go so in the end it’s not so expensive,” said Ivon Nunez, financial aid director at the New Jersey Institute of Technology in Newark.
Exactly how much the subsidy is worth depends on how much a student borrows and how many years he is in school.
Nunez said a student borrowing the federal maximum of $65,000 could end up owing an extra $200 a month over 10 years.
Chitty said an analysis by the financial aid administrators group found that a medical or dental student taking out the maximum subsidized loan of $8,500 a year for four years got a $4,624 subsidy while in school.
Even if it’s a much smaller amount, however, students are worried about the effect.
“Students can barely make it now,” said Jacqueline Velastegui of Kearny, who’s seeking an advanced degree in industrial engineering at the New Jersey Institute of Technology. “We don’t live. We survive.”
Evan Toth is working full time as a teacher at the Community School in Teaneck, N.J., while pursuing his master’s degree in English at Rutgers University in Newark. He said he’s borrowed nearly all of the roughly $20,000 in tuition and fees, and “it was really helpful” not to have to pay interest while studying.
Congress also voted to end subsidies, starting with loans issued next July, that reward graduates who pay back their loans on time.
Under the program that is ending, borrowers who signed up for automatic debit repayment got a bonus equal to half the loan origination fee they paid, said Vincent Tunstall, financial aid director at Fairleigh Dickinson University. Borrowers could keep the rebate if they made their first 12 payments on time.
From the $21.6 billion the two changes to loans are expected to save, Congress applied $4.6 billion to deficit relief and $17 billion to the Pell Grant program, which benefits lower-income students.
Front Section, Pages 2 on 10/31/2011