Changes to new student loans to cost students $20 billion
As of July 1, changes to student loan policies enacted by Congress went into effect. The good news: Interest rates on federal loans didn’t double as they were at risk of doing. The bad news: Undergraduate students who take out loans no longer get a six-month grace period from interest accrued on subsidized loans after finishing their degree, and graduate and professional students don’t get subsidized loans at all. Worse, loan rates for undergraduates could still very well double within the next two years.
The price tag for this change is estimated at $20 billion over the course of a decade, according to Reuters. Undergraduate students will end up footing $2 billion of it, with the remaining $18 billion becoming the burden of graduate and professional students.
For Sarah Frey,@@http://uoregon.edu/findpeople/person/Sarah*[email protected]@ an undergraduate majoring in anthropology who recently transferred from the California university’s school system and is slated to take out her first loans fall term, is one of the impacted. Before being interviewed on the subject, she wasn’t even aware that the changes were happening. For her, the recent changes are particularly ill-timed.
“I have spent a long time in California trying to avoid going into debt,” Frey said, explaining that in California – where she had residency status – she was eligible for a variety of funding sources, the majority state-based. All of those sources, except for the Pell Grant, evaporated when she came to the University of Oregon, forcing her to look to other sources, such as subsidized federal loans. The timing of this increase, as she said, “makes things difficult.”
“It annoys me more than it frightens me,” Frey said. “It’s (only) six months of interest, and when you take out a chunk of money, you expect a certain amount of interest anyway.”
Nevertheless, she understands her situation and outlook isn’t necessarily common. For some students, she said, especially those that don’t qualify for need-based or merit-based grants and scholarships and require loans from the start, the timing of the policy changes sends a terrible message.
“We should be encouraging our youth to go to school, and making it easier for them,”@@[email protected]@Frey said. “Especially with our economy right now.”
Her fiancé and fellow student Joe Wyer,@@http://www.uoregon.edu/findpeople/person/Joe*[email protected]@ a graduate student pursuing a Ph.D. program in economics, agrees with the sentiment.
“It is disconcerting that all these borrowing costs for education are going up,” Wyer said, adding that higher education is not only important for the individual, but for society as a whole. “It’s a signal from Congress that investing in the country is not a priority.”@@[email protected]@
He also explained that, on a more personal note, it’s not just new students who will suffer from the changes. Indeed, the complete lack of subsidized loans for graduate and professional students will hurt them more than the eliminated grace period will hurt undergraduates — by many orders of magnitude.
Although he is confident that he can expect a healthy paycheck after graduating with a Ph.D. in economics, making his debts fairly easy to manage, Wyer also understands that not every graduate student or professional student is in the same situation.
“Ph.D.s in history or English, a lot of the humanities – they’re not looking at a very large paycheck when they come out of their field,” he said. “It hurts a lot for them.”
Jim Brooks, the University’s director of Student Financial Aid and Scholarships,@@http://www.uoregon.edu/findpeople/person/Jim*[email protected]@ thinks a large reason students across the nation are finding themselves in this increasingly messy situation is because Congress is being pushed into a corner by the struggling [email protected]@[email protected]@
“I think there has been real concern over the federal deficit, and because of that, we’ve moved beyond certain programs being sacrosanct,” he said. “Congress is looking for potential savings everywhere, and with the Department of Education being a part of discretionary spending, it is being reviewed.”@@cut [email protected]@
Still, despite the increasing cost of federal student loans, Brooks believes they remain one of the best options for financing higher education.
“They’re not perfect, but they’re better than alternative/private loans,” he said, explaining that so long as students take out loans only to cover needed expenses and stay on top of both their graduation plans and their payments when they graduate, they can avoid being overwhelmed.
His biggest piece of advice to students, though, was to not stick their head in the sand when it comes to dealing with loan debt.
“Unless the economy were to suddenly turn around, the impact will continue to be felt across all sectors.” he said. “Don’t just ignore the issue and hope it goes away or gets better.”