Students pay Obama´s bill
After weeks of Republicans and Democrats clashing in Congress,U.S. President Barack Obama signed off a $2,1 trillion debtreduction plan this Tuesday. From next year on, this newlegislation will also impact U.S. students who take out loans.Especially those who borrow non-governmental funds will see theirdebt increase by a couple of thousand dollars.
$11.178 extra in interest
During their four years of studies, students are able to takeout federal loans to a maximum of $138.500 with an additional$65.000 from subsidized loans. Approximately 8 million studentsfurther qualify for
A subsidized loan meant that students would borrow money whilethe government paid any interest that accrued during their studiesand 6 months after graduation. From July 2012 on, this support willbe scrapped.
With the new austerity measures in place, the $125 billion worthsubsidized student loan market will be turned into an unsubsidizedone. For a student who takes out the maximum of $65.000, this meansthat he will owe $207 in interest per month, accumulating over theyears to an extra of $11.178 to be paid in interest.
Compromise to save Pell Grants
Together with a number of other tweaks to the student loansystem, this will save the government $22 billion over the next 10years. Most of this money will be shifted towards the funding ofPell Grants.
Republicans wanted to cut these grants for a while now. Withthese measures, Obama reached a compromise shifting the burden tofinance these grants towards the broader bulk of students who takeout formerly subsidized loans.
Further analysis of the debt limit deal by UvT lecturerSylvester Eijffinger