Student Loans & The Debt Ceiling Deal

If you are someone like me, with lots of student debt, or you are about to borrow for school, hop on over here and read from Heather Jarvis, Student Loan Expert. She offers some excellent tools, webinars, and savvy insight into navigating the scary world of student loans.

She recently wrote a piece entitled, "What the Debt Ceiling Means for Your Student Loans" and I wanted to share some tidbits with you:


There are three main provisions in the debt ceiling deal related to higher education:

• Funding is provided for the Pell Grant program.
• The in-school loan interest subsidy for graduate and professional students is eliminated beginning July 1, 2012.
• “Repayment incentives,” or cost reductions earned by certain borrowers, are eliminated for loans disbursed on or after July 1, 2012.

I have student loans, what steps should I take? 

• Always borrow federal student loans first and only consider more expensive private student loans if you must.
• If you are still in school and you can afford it, consider paying student loan interest as it accrues.  You’ll lower your costs over time.
• Choose the repayment plan that makes the most sense for you. Income-Based Repayment (IBR) is a good option for people with low income compared to their student loan debt.
• Pay off your most expensive loans first.
• Find out if Public Service Loan Forgiveness can help.

 What should graduate and professional students expect?

Graduate and professional students will pay more for student loans. The Budget Control Act eliminates the in-school interest subsidy for graduate and professional students, so these folks will pay more interest over time.  However, it does not eliminate the interest subsidy for undergraduate borrowers.

What about repayment incentives?

Subsidized Stafford Loans have historically been available to both undergraduate and graduate borrowers with demonstrated financial need.  In the case of Subsidized Loans, the government pays the interest that accrues on the loan while the student is in college.  Without the subsidy, students must themselves pay the accruing interest as they go, or have the unpaid interest added to the principle amount of their loan and pay it later.

To encourage borrowers to repay on time, the Department of Education was previously authorized to provide certain incentives, including an origination fee rebate and interest rate reduction.  Borrowers would earn these benefits by making on-time payments over 12 months.  Beginning on July 1, 2012, the Department of Education is no longer authorized to provide these repayment incentives, but may continue to allow an interest rate reduction for borrowers who enroll in payment by automatic electronic debit.

Is it possible that there will be even more cuts to student aid?

Yes. The Budget Control Act requires Congress to come up with a lot more deficit reduction by Thanksgiving.  Additional spending cuts may come in part from higher education.  Stay tuned…

If you want to learn more about student loans, visit Heather Jarvis' site. Because I have so many student loans, I always find resources like this to be SO useful.