Students pay Obama´s bill

Nieuws | de redactie
3 augustus 2011 | Obama finally reached an agreement in the debt limit controversy. For this compromise, many students will pay dearly. Non-governmental loans will no longer be subsidized in a country where an average student has $24.000 in debt.

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 Pell Grants of up to $5.500 a year in casetheir family is below a certain income level.

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 here (in Dutch)

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