And those graduate students taking out new loans from the federal government won’t be getting the same subsidized help they’ve have had access to in the past. The change is part of the federal government’s efforts to cut costs and reduce the deficit.
Students get a better deal under federal student loan programs than they do from other lenders. Federal Stafford loans have been either unsubsidized or subsidized. In the case of a subsidized Stafford loan — awarded based on financial need — the federal government pays the interest while the student is enrolled in school. With an unsubsidized loan, the student is responsible for the interest payments, which begin to accrue immediately, unless the borrower decides to defer these interest payments until after graduation. Most students take the latter option, in which case the interest is tacked onto the loan. This, of course, increases the loan’s cost.
As of July 1, new federal Stafford loans taken out by graduate students will all be unsubsidized. Graduate students can borrow $20,500 per academic year. Unless you make interest payments while you’re in school, the federal loans will accrue interest at a fixed rate of 6.8 percent.
“While many graduate students, particularly those in the sciences and engineering, complete graduate school with little or no debt, the data indicate that a growing number of graduate students are not that fortunate,” says a report by the Council of Graduate Schools. “The increased reliance on student loans to finance graduate education, combined with the elimination of subsidized Stafford loans for graduate students, increases in tuition and fees, and decreasing or stagnant support for higher education in many states suggest that debt levels will continue to rise. Many graduates are already entering the workforce saddled with debt that exceeds their annual salaries, and without changes to existing financial aid policies, more graduates will be in this position.”
In its report, the council recommended that the federal government, state governments, universities and businesses work together to help students earn advanced degrees without incurring massive debt. For example, the organization has recommended a tax break that would encourage employer-provided assistance for graduate studies.