Leaders debate an end to college loan subsidies

As the national debt debate rages on in Washington, policymakers are now considering a budget cut that specifically targets college students.

In negotiations last week over conditions to raise the debt ceiling and reduce the national deficit, House Majority leader Eric Cantor proposed slashing federally subsidized loans to undergraduates, thereby making students pay for the interest accrued on such loans during their time in college.

It’s a move that would effectively end the subsidized Stafford loan program, and save the government $40 billion over the next decade. But it would also put more financial pressure on the approximately 59 percent of undergraduates nationwide borrowing their way through college — at a time when they can least afford it.

“This would restrict access to college for more and more young people, and that’s the wrong direction to go,” said Oregon Congressman Peter Defazio, adding that if he had been faced with more interest payments as a college student, “I’m not quite certain I would have made ends meet.”

According to news source Inside Higher Ed, if subsidized loans were to be eliminated, students who borrow the maximum amount and take six years to graduate will owe $5,000 more after graduating and $9,000 more over a 20-year repayment period.

“The bottom line is it means students will have to pay more, take out more in loans and pay them off for longer after they get a degree,” said Ben Eckstein, ASUO president and board officer of Oregon Student Association.

More importantly, “it’s part of a disturbing larger trend that is putting the burden of the deficit onto the backs of students,” Eckstein said.

At the University of Oregon — where 55 percent of students graduate with debt — federally backed loans are a major component to financial aid packages.  In the last school year, close to 9,000 University undergraduates borrowed a combined total of $64 million in Stafford loans.

“The impact to students is significant,” said Roger Thompson at the University’s Office of Enrollment Management. As subsidized loans are need-based, however, it is the low-income students who would be the most affected.

“It impacts all, but it hurts at that level a bit more,” Thompson said. “Those subsidies are some of the tools that allow for upward mobility in this country, to allow students with need to obtain a college education.”

Yet, while a cut to federal subsidies might seem daunting to most students, a slight increase in monthly payments would make the debt more manageable, according to Inside Higher Ed. While other options, such as lowering the maximum Pell Grant, could jeopardize a student’s prospect for attending college altogether.

Obama was resistant to Cantor’s proposal last Tuesday, replying with “I’m not going to do that … I’m not going to take money from old people and screw students,” as reported by The Daily Beast.

Still, the idea has significant momentum. Inside Higher Ed cites a variety of budget cutting methods considered by the federal debt commission, the College Board and President Obama himself, who previously proposed ending subsidized interest payments on both need-based Perkins loans and graduate student loans.

However, Obama and the College Board panel aimed to use those savings to expand financial aid to low-income students, rather than pay down the deficit.

A frustrated Defazio called Cantor’s suggestion predictable, and typical of the Republican Party, most of whom, he said, are out of touch with middle-class Americans.

“They have adopted a totally discredited and disproven economic theory that all you have to do is cut taxes and the economy will boom and jobs will be created,” Defazio said. “Even if this means cutting investments in education, transportation and infrastructure.”

Whether this proposal will be included in any final negotiation is unclear. But Thompson, like many educators, is hopeful that concessions in Washington will not include higher education.

“We’re in a stay-tuned kind of mode,” Thompson said. “I just keep holding out optimism that we’ll find other ways to deal with some of these issues other than increasing the costs to students.”


Deborah Bloom

Deborah Bloom