Congress cuts subsidized loans

Congress eliminated loan interest subsidies for graduate and professional students next year.

To reduce government spending, the Budget Control Act ends loan interest subsidies for almost all graduate and professional students starting July 2012, making loans more expensive for some students.

The maximum amount graduate students can borrow from the government will remain the same, but the loan will be unsubsidized, said Kathy Elsea, director of Financial Aid at Truman.

The government pays the interest on a subsidized loan while the borrower is in school. On unsubsidized loans borrowers are responsible for all the interest. Last year, Truman graduate students borrowed twice as much in subsidized loans than unsubsidized loans, according to statistics from Financial Aid.

Based on current interest rates, a graduate student with a $5,000 subsidized loan saves $680 in interest payments in two years of school.

Next year, the borrower will be responsible for interest after graduation.

The provision will cost students, but save money for the government. The Congressional Budget Office estimates that eliminating the subsidized loans will save $18.1 billion throughout  10 years.

To put that in context, $18 billion is less than 1 percent of the $2.5 trillion in cuts the Budget Control Act mandates. The act included $1 billion in spending cuts, and a Congressional joint committee has until Thanksgiving to pose ways to come up with the rest, according to the bill.

The reason subsidized loans were among the first cut could be that college students have less political clout than other constituents, such as the elderly, who are represented by the powerful AARP lobby, said Randy Hagerty, chair of the political science department at Truman.

"[Students] tend not to be as organized, and they tend not to vote as much as other groups," Hagerty said. "If you look at voter turn out, 18 ­- 24 year olds have the lowest rates of turnout than any other age group. So, if you're a politician what are you going to cut first? Policies that affect young people, or are you going to go after Social Security and Medicare?"

This recent cut to higher education shows that groups who don't participate in politics pay a price, he said. Most college students don't pay attention until something directly affects them, he said.

"Write, call your congressman, that's about all you can do," Hagerty said.