The Chronicle of Higher Education has recently caught on to an
issue that has already received considerable attention and one which could
have devastating implications for students who borrow money to pay for
their undergraduate education.
The issue is the elimination of government subsidies for interest payments
while students are in school by Republicans and Democrats looking to shave
money from the federal budget.
According to the article, the government's generosity is projected to
amount to $9.6 billion over the next five years. It has been widely
reported that the subsidies are high on the Democrat's budget-cut hit list
as well as the fourth-largest item on the Republican's budget cut proposal
as part of their "Contract with America."
While governmental higher education liaisons have assured the educational
community that they will do their part to inform students and their
families of the implications - they are already fairly sure that "[t]his
would increase their indebtedness substantially."
Right now, a student is allowed to defer payments on his loans while he is
in school and for six months after he gets out - while the government foots
the bill on the interest payments that are accrued during that time.
Eliminating the subsidization of this interest would drive up the principal
on the loan while at the same time compounding building interest. According
to the article, administrators fear that any movement to reduce or
eliminate government subsidies of interest payments will force private
institutions to "(get) out of the federal-aid programs altogether," and
possibly to create their own private loan systems.
Without these subsidies, the cost of higher education may prove to be too
much for many low-income families who simply cannot afford the interest
payments on students loans. The impact of this potential budget cut cannot
Considering the rather troubling situation many institutions are facing
with regard to private endowments and scholarships, the possible effect of
any legislation diminishing these subsidies is profound and will effect
thousands of UT students who receive government subsidized loans.
For those who do not feel these budget cuts will come to pass should
consider the rather conservative economic atmosphere that surrounds
Washington these days. Almost every victor in the mid-term election ran on
promises to reduce the size of government and promises to reduce the
budget. Unfortunately, the long arm of the supply side will also dip its
hand into the area of education.
Hopefully, as the article suggests, compromise will emerge from the battle
to cut the federal budget and to maintain a viable student-loan program.
Loan programs threatened by cut in federal budget
Published: Wed Nov 30, 1994 | Modified: Sat Aug 06, 2005 12:47 p.m.