Budget Control Act of 2011 Affects Graduate Students

The recently agreed upon debt ceiling deal which aims to cut nearly $2 trillion in spending will affect graduate students who have chosen to fund their higher education through federal student loans.

Although the deal protects Pell Grants for the time being and keeps the maximum amount available at $5,550, the deal wipes out the interest subsidy for federal graduate student loans. The “Subsidized Federal Direct Loan” category is a very attractive option since the government does not charge interest on the principal and pays off the interest while a student is enrolled as a full-time graduate student.  Interest begins to accrue 6 months after graduation.  In addition, repayment incentives such as a 1% rebate on direct loans dispersed between July 1, 2009 and July 1, 2011 if payments were made on time for 12 months will also be cut.  The interest subsidy and incentive rebate will be eliminated beginning July 2012.

Becky Timmons, assistant vice president of government relations at the American Council on Education, provided a dire outlook on the federal higher education loans and grants stating, “There really isn’t a program that’s safe.” 

Savings will total $21.6 billion over the next ten years, but the cuts are estimated to add many thousands of dollars to each graduate student’s debt load.  This is quite significant given the economic climate soon-to-be graduates will encounter.

For further reading on the cuts to federal education funding for graduate students, click here.