Tuesday, September 06, 2011

The Debt Ceiling and Student Loans

The passage of the debt ceiling includes a $17 billion increase in spending for Pell grants and scholarships for low-income undergraduate college students and would protect cuts from the programs until 2013. Approximately 19 million students are eligible for the funds.

However, it would eliminate federally subsidized student loans for graduate and professional students (doctors, lawyers, dentists, etc.) which would affect approximately 6 million students seeking advanced degrees. It also eliminates usage of Pell grants for summer undergraduate programs.

The maximum amount of money a graduate student can borrow from the federal government is $20,500 a year, including $8,500 from subsidized loans. Currently students don't have to start paying interest on subsidized student loan loans until six months after graduation. During that time the government pays the interest.

The debt ceiling eliminates this and eliminates a credit on the origination loan fee provided to students who make 12 months of on-time payment. Students currently get half of the money paid for the origination loan fee which is 1% of the loan back. These changes go into effect beginning July 1, 2012. At that time graduate students would begin accruing interest on student loans while in school. Students have the option to pay on the interest while in school but don’t have to make payments until after graduation.

Student can use the Income Based Repayment (IBR) plan which does not require students to make payments on the federal loans until their incomes exceed 150% of the poverty line and payments are a percentage of the amount their incomes exceed this level. This protects students if their incomes are not enough to make the loan payments. The 2011 poverty line for one person is $10,830 except for Alaska and Hawaii where the poverty lines are slightly higher.

Under the new laws starting July 1, 2012, if a student with no children has an income of $30,000 per year and has monthly loan payments of $350, their $30,000 income exceeds 150% of the poverty line (($10,830 x 150% )+ $10, 830) = $27,075. The student would be required to pay no more than 10% of the amount their income exceeds the poverty line $2,925 ($30,000 - $27,075 x 10%) or $292.50. Currently the student has to pay no more than 15%.

Students who are voter age must voice their concerns with their congressman and during elections to preserve funding for undergraduate and graduate grant and scholarship programs.

1 comment:

Debt Advice said...

Students currently receive half the amount paid for the costs of mounting loan is 1% of the loan. These changes are effective.