Wednesday, August 3, 2011

Extra hoping that I don't have to take out loans next year

So I'm paying for my first year of business school in cash, but I'm not yet certain that I'll be able to the same for next year.  Now I have extra motivation to try to get through next year debt free.  CNN reports that the debt ceiling compromise cuts out all subsidized loans for graduate students.  The money saved will be redirected to Pell Grants and deficit reduction.  I know I won't get any of those new Pell Grants, the program is reserved for very needy undergraduate college students, but now I won't be getting an offer of subsidized Stafford loans either.

Subsidized loans do not accrue interest while you're enrolled in school full time.  Removal of this option means that any student loans taken out while in graduate school will accrue interest.  This is not so bad for business school students since MBA programs are only two years long, but for law and particularly medical school students the impact will be much stronger.  These students have longer programs (three and four years plus residency respectively) which means more years of tuition, fees, living expenses and no income that need to be paid for and more years in which interest can accrue.

I'd considered a subsidized Stafford loan as a potential source of an emergency fund for next year (I have cash for one this year) but that option is off the table now.  Most likely I'll use a loan from my SO if we can come to a mutually beneficial agreement or my roth IRA as my emergency fund instead. This also means that if I do have to take out student loans next year I'll be limited to loans that accrue interest, making the process more expensive.

I probably wouldn't have picked subsidized student loans as an area I'd cut were I in congress since the program cost is relatively low and I imagine that they will have more students opting for private loans instead while interests rates are low meaning they may have less revenue coming in long-term.  I don't know if this will be substantial enough trend to result in the end of subsidized loans causing a greater reduction in revenue than the original subsidy did.  Either way, having a compromise in hand and not defaulting is significantly more important.

Are you affected by the end of subsidized federal loans for grad students?  Was this the right decision in the debt ceiling compromise?  Will students opt for private loans instead at a high enough rate for the decision to cost money instead of saving?

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  1. When I got my MBA about ten years ago, I was lucky in that my employer picked up a good chunk of it and I was able to kick in the rest from savings.

  2. Yah let's cut funding to the very people who will probably leading an economic recovery and give it to people to get B.A.s with (and I even have a B.A!) that makes a lot of sense in the long term.

  3. I didn't know they were cutting subsidized loans. When I was in college I had no idea what they even were, but was pleasantly surprised at the exit interview when I found out that all of my loans had been subsidized.

  4. Wow, I can't believe they are cutting subsidized loans for Grad students! I've got 6 more classes and thankfully I'm getting some reimbursed from the job and eating beans and rice in order to pay for the rest!

  5. I wish you a lot of luck with this one. I was very lucky as hubby worked for a major state university and the education benefit paid for 75% of the tuition. Good luck.

  6. Yep, good luck for sure.

    Have you revealed yet which school you are attending?

  7. Best of luck to you for next year, NDM. It will be a whole new budget battle, maybe with some new players.

  8. Money Beagle - My employer is picking up the tab... I'm self employed ;)

    MissGina - Beans and rice feature heavily in my plan too. Good thing I like them. We buy like five types of beans on a regular basis.

    Barbara Friedberg - Tuition benefits are something a lot of people forget about since they are only open to a small group. Powerful benefit though!

    Financial Samurai - Haven't revealed the school. I feel like it'll make me a bit too identifiable. 80-90% fewer people to hide among. But maybe I could narrow the list from the current seven to just three? Have to think about it...

    101 Centavos - Thanks!

  9. I think this will be difficult for students. However, I think IBR (Income Based Repayment) takes the sting out of it. Yes, the student loans will be high, but IBR allows people to save for house or pay off other loans.

  10. My husband is getting ready to graduate with both subsidized and unsubsidized loans. The unsubsidized ones are killing us. I can't believe that is to be the only option for grad students now.