Administrator Aid Association Financial National Student

Posted on November 03, 2011 by Admin
Administrator Aid Association Financial National Student

Administrator Aid Association Financial National Student

The elimination of repayment rebates and loan subsidies for graduate students was included in the bipartisan deal reached in July known as the Budget Control Act, the law that set 10-year spending caps while raising the federal debt ceiling.

Financial aid departments at colleges and universities are now starting to notify graduate students that Stafford loans they take out next summer will no longer include a subsidy that keeps interest from accruing while they are in school.

“This was one of the few federal subsidies provided to graduate students,” said Haley Chitty, communications director for the National Association of Student Financial Aid Administrators. “It is a pretty significant blow.”

Under the new law, students seeking advanced degrees will start owing interest immediately on loans issued after July 1, though they will have the option of deferring payments until they finish school.

“They can defer it but it adds to what they owe, and we always encourage students to pay as they go so in the end it’s not so expensive,” said Ivon Nunez, financial aid director at the New Jersey Institute of Technology in Newark.

Exactly how much the subsidy is worth depends on how much a student borrows and how many years he or she is in school.
Nunez said a student borrowing the federal maximum of $65,000 could end up owing an extra $200 a month over 10 years.

Chitty said an analysis by NASFAA found that a medical or dental student taking out the maximum subsidized loan of $8,500 a year for four years got a $4,624 subsidy while in school.

Even if it’s a much smaller amount, however, students are worried about the impact.

“Students can barely make it now,” said Jacqueline Velastegui of Kearny, who’s seeking an advanced degree in industrial engineering at NJIT. “We don’t live. We survive.”

Evan Toth is working full time as a teacher at the Community School in Teaneck while pursuing his master’s degree in English at Rutgers University in Newark. He said he’s borrowed nearly all of the roughly $20,000 in tuition and fees, and “it was really helpful” not to have to pay interest while studying.

“I looked at that as being a great benefit,” Toth said. “An extra $1,500, or whatever it would end up being, would be a great financial burden.”

He expects to finish his coursework next semester, so the change in the law won’t hit him. But he said that in the future, it will hurt “the self-driven student who lacks independent wealth.”

“This is exactly the kind of student that our country must encourage to stay in the classroom,” Toth said.

Congress also voted to end subsidies, starting with loans issued next July, that reward graduates who pay back their loans on time.

Under the program that is ending, borrowers who signed up for automatic debit repayment got a bonus equal to half the loan origination fee they paid, said Vincent Tunstall, financial aid director at Fairleigh Dickinson University. Borrowers could keep the rebate if they made their first 12 payments on time.

From the $21.6 billion the two changes to loans are expected to save, Congress applied $4.6 billion to deficit relief and $17 billion to the Pell Grant program, which benefits lower-income students.

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Nelnet will participate in the Louisiana Association of Student Financial Aid Administrators (LASFAA) Fall Conference on October 26-28 in Baton Rouge. Ron Hancock, Regional Director for Nelnet Partner Solutions, will be available at the Nelnet booth to answer questions and provide attendees with information on Nelnet’s initiatives, including:

  • - Webinar Wednesdays: training series for financial aid professionals
  • - Money Mondays: financial literacy series for borrowers
  • - Enhanced borrower services
  • - New Nsight enhancements
  • - Other services and tools for schools and borrowers

Safe travels to everyone attending, and we hope to see you in Baton Rouge!