4 ways the debt deal could hurt college students
By CANDICE CHOI AP Personal Finance Writer August 3, 2011 6:40PM
Updated: November 14, 2011 12:18AM
The government’s deal to raise the debt ceiling is set to push college costs higher.
Here’s what’s changing:
† Subsidized loans: Starting next July, graduate and professional students will no longer be eligible for subsidized federal loans. These loans keep the cost of borrowing in check because the government doesn’t charge interest while students are in school. The additional cost of an unsubsidized loan could push up total debt at graduation an average of 16 percent, according to Finaid.org. There aren’t any indications so far that the government will do away with subsidized loans for undergraduates.
† Pell grants: The $17 billion in savings from eliminating subsidies for graduate and professional students will be used to fund Pell grants. But the extra money only helps bridge a funding shortfall so the program won’t have to make any cuts in the immediate future. Future increases are likely on hold.
† Loan discounts: The government’s debt deal also eliminates a discount for borrowers who make their payments on time. The amount of the discount varies depending on when the loan was issued. But for federal loans made after July 1 of last year, students get a discount of 0.5 percent of the loan amount for making the first 12 payments on time. On a $10,000 loan, that’s a one-time rebate of $50.
† Tax breaks: It’s also possible that tax breaks to offset college costs could be scaled back. A bipartisan panel of 12 lawmakers will have the option of making tax reforms part of its proposal to reduce the deficit. Almost 10 million taxpayers deducted student loan interest in 2009, according to the Tax Institute at H&R Block. Taxpayers also can claim a credit of up to $2,500 for college costs through next year. After that, they’ll be able to claim a credit of up to $1,800 for the first two years of college.