Graduate students should expect to pay more for loans next academic year after the federal government cut some financial aid programs.
The government will no longer subsidize interest payments on Direct Stafford Loans, which allow graduate students to borrow up to $20,500 per academic year, because of national funding cuts established in August by the Budget Control Act of 2011.
“There was a lot of maneuvering that went on across the whole government,” Associate Vice President of Student Financial Assistance Dan Small said. “It was basically to reduce federal spending.”
Students who demonstrated financial need were previously exempt from interest payments on the first $8,500 borrowed while in school.
“Now, at the start of the new academic year, the whole $20,500, the graduate student will have to pay the interest,” Small said.
The interest rate – which is set each July – was fixed at 6.8 percent this year. The shift will particularly affect students who used the federal loan program to take out less than $8,500 and previously paid no interest.
“A graduate student who took out the maximum will probably… have to add another $800 to $1,000 to the amount of the loan that they took out if it’s in excess of $12,000,” Small said.
The change will affect between 3,300 and 3,500 graduate students at the University who currently use the Stafford Loan program – a figure that does not include law or medical students because their aid is determined differently, Small said.
Most students will likely opt to pay the accrued interest along with the bulk of the loan when they leave school, Small said, a choice that increases the financial burden.
“It’s not too bad when you’re only doing it for a year or two,” Small said. “The concern is going to be those who do it for three or four or five years. That’s a lot of interest that gets added.”
Outreach to make the changes known to current and prospective graduate students began this summer, Small said. The increased cost may discourage students from borrowing extra money through Stafford loans.
