STUDENT LOANS IN ARIZONA

posted by Paul Ingram

A consequence of last year’s national debt ceiling debate, Congress and the White House passed the Budget Control Act of 2011. As part of the negotiations, the act dismantled the interest-free subsidy for student loans for graduate and professional students which when into effect on July 1, 2012.

Before the act, graduate and professional students could borrow money from two different sources under the Stafford Loan program: subsidized loans, which the federal government paid interest until six months after graduation; and un-subdized, direct finance loans that included a 3.2 percent interest rate that accumulated even as the student was working through their respective program.

Undergraduate students were spared and the amount of money available for Pell Grants increased to $17 billion. The act also eliminated direct loan payment incentives, a discount that students received for agreeing to have money pulled directly from their accounts every month.

According to the National Association of Student Financial Aid Administrators, this included a 0.25 interest rate reduction.

According to the Congressional Budget Office, this specific part of the act Budget Act saves the federal government about $18.1 billion over the next ten years, with additional savings from the interest change adding up to $21.6 billion.

With the Pell Grant increase, this leaves about $4.6 billion for deficit reduction, a tiny percentage of the total $1.5 trillion that Congress needed to address.