Budget Control Act cuts subsidized loans for graduate students to save Pell grants

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The bill to raise the debt ceiling that passed Congress this week offers mixed results for students as it preserves Pell grants but cuts from subsidized loans for graduate students.

The stalemate in Congress ended Tuesday with a bipartisan deal to raise the debt ceiling by a trillion dollars in exchange for cutting more than $2 trillion over the next 10 years in federal spending.

Rep. Gene Green, D-Texas, who voted for the bill, said in an email it was a difficult decision for him. He said he was dissatisfied with several portions of the bill, particularly those that increase the cost of postgraduate education by eliminating subsidized loans. The deal reached, however, was the best they could have agreed to, Green said.

“While the cuts to the forbearance of interest on government subsidized student loans for postgraduate education is unpleasant, the alternative was to see Pell grants dramatically cut,” he said in the email.

The bill will preserve Social Security, Medicaid, most of Medicare and Pell grants for the time being, Green said.

At the last minute, the deal averted a bad credit rating for the United States that would have caused interest rates to skyrocket and a default that would have prevented the government from paying its bills. Democrats and Republicans agreed the deal isn’t perfect but it saved the country from a self-inflicted financial crisis. A powerful new Joint Select Committee formed Tuesday will make recommendations to reduce the U.S. deficit by cutting back on more public programs, Green said in the email.

Director of Student Financial Services Tom Melecki said undergraduate education will not be affected as much as graduate education. Currently, the government pays interest on subsidized loans for graduate students until six months after they graduate, he said. Congress eliminated subsidized loans for graduate students, which means they will have to rely on unsubsidized loans and pay the interest as it starts accruing from the moment they take out the loan, Melecki said.

“[Eliminating subsidized loans for graduate students] is expected to yield savings of $21 billion over the next several years for the country as a whole,” he said. “Seventeen billion of that savings will be used to preserve the Pell grants [and] $4.6 billion will go to reducing the federal deficit.”

Congress also eliminated a 0.25 percent interest reduction for all students who make payments toward their loan through their checking or savings accounts online, Melecki said.

College Republicans Vice President Cassandra Wright said even though cutting back on education is a big sacrifice, the decision to reduce spending was inevitable. For the past three years, the club advocated cuts to federal spending, she said.

With a Republican majority in the U.S. House of Representatives since last year, Wright said the organization and its leaders were excited about spending cuts that will allow the country to reduce its $14 trillion debt.

“In general, we are just glad that cuts will be made as much as possible,” she said.

Ray Perryman, who runs an economic analysis firm in Waco, said in an email the impact of the deal will not be immediately clear on education and research. Still, he said, it will be very important for the education community to effectively communicate the value of education and research to the new Joint Select Committee.

“There will be a lot of areas targeted for potential cuts. Educational support and research grants will certainly be among them,” Perryman said in the email. “There will no doubt be challenges, and they will be exacerbated by much of the anti-intellectual rhetoric that seems to permeate the thought of some constituencies at present.”

Printed on Thursday, August 4, 2011 as: Grad student school loans lose backing in budget cuts