The End of Government Subsidized Loans for U.S. Grad Students

In an effort to lower the country's expenses, the U.S. government will soon stop subsidizing student loans for graduate students. Right now, U.S. graduate students can borrow up to 20,500 USD per year in government loans. As much as 8,500 USD of the loan can be subsidized, if the student is found to have a financial need. Students with U.S. government subsidized loans do not incur interest while they are in school, and their loans have a six-month grace period following the end of their classes before interest begins to incur. The proposed budget plan will not allow any new subsidized loans to be issued to graduate students after July 1, 2012. The revenue that will result from the accumulated interest from graduate students will be used to support the Pell Grant. (The Pell Grant (free money) is provided to undergraduate students in the U.S. that are considered to have financial need. The Pell Grant can be for as much as 5,500 USD per year per student.)

How Will This Impact You?

The current interest rate (fixed rate) for direct subsidized loans for graduate and professional degree students is 6.8% (U.S. Department of Education, FAFSA). Therefore, if you borrow the maximum subsidized amount of 8,500 USD per year for two years you will incur interest on that amount each year while you are in school. Those that will likely suffer the most are part-time students that take three, four, and even five years to complete their master's degree. And, doctoral students. The longer you are in school and not paying on your loans, the more the interest is going to accumulate. 

Will This Impact Lots of Students?

According to a study by the U.S. Department of Education, in 2007-08 large percentages of graduate students utilized student loans.

• All master's degree students: 43.6% had some sort of loan, 39.4% had Stafford loans, and 3.1% had graduate PLUS loans
• All doctorate degree students: 31.7% had some sort of loan, 29.3% had Stafford loans, and 3.5% had graduate PLUS loans
• Of those seeking their first professional degree: 78.7% had some sort of loan, 76.4% had Stafford loans, and 25.4% had graduate PLUS loans

Although these figures do not breakdown the percentage of students that have subsidized loans, they do show that loans are popular for graduate students; particularly for those seeking first-time professional degrees.

Additional Resources

2007-08 National Post-Secondary Student Aid Study, U.S. Department of Education

Loan Repayment Calculator by FinAid.com

Graduate PLUS Loans FAQs, U.S. News and World Report

U.S. Congressional Budget Office, Letter from Speaker of the House on Proposed Budget Changes

Comments

[Jim D.]

That's too bad. I'm from R.I. where Senator Pell resided and he was an excellent advocate for education. I only hope the SBA does not follow suit and start limiting available startup capital for these graduating students who want to start a business.

[MBA in real estate]

This is a good option for the students who can not spend on their education..Thank you..

[cash loans]

This is sad. Without tutition assitance I would not have been able to attend ungraduate school. I've been planning to go to graduate school but now that you can't find a high paying job to afford the schooling, and now not having help from the govermenet, I guess your just going to have to run into a dead end.

[Chapter 7 Bankruptcy Attorney]

Student loans are becoming harder and harder for most people to pay off. Especially when they either take longer to graduate, or who have a hard time finding a job after graduation... Or both!

[loans for small business]

hi there,.. thanks for interested article,.