Debt ceiling deal hits grad loans

Gillian Smith — Senior Writer
Wednesday, September 7th, 2011

The federal government has eliminated loan subsidies for graduate students as part of the summer debt ceiling bill, leaving students with more financial worries about graduate school.

By axing subsidized loans and repayment benefits for some students, the government is using the savings to help fill the shortfall in the Pell Grant program.
With the elimination of these subsidized loans, graduate students — who are not eligible for Pell Grants — will now accrue interest while in school.
The new changes to the system will go into effect in the 2012-13 academic year and will mostly affect graduate students whose federal loans will begin accruing interest upon dispersal.
Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators, said the Pell Grant system operates as an entitlement program in which students can get money they are eligible for, even if Congress hasn’t appropriated enough funding to cover it.
The Pell Grant system is a federally funded aid program that gives financial aid to low-to-middle-income class students. These are students whose annual household income is less than $30,000 per year. The maximum grant per student is $5,550 per year.
Pell Grants do not have to be paid back to the government and are different from subsidized loans, which are loans that do not accrue interest while the student is still enrolled in school.
“In previous years’ budgets,” Chitty said, “Congress has underestimated how many students will get awards, so the $17 billion will hopefully shore up that deficit.”
This year, the Congressional Research Service conducted a study that estimated 9.4 million students would receive Pell Grant aid for the upcoming academic year. A couple years ago, the number was estimated at 6 million students.
“There’s a couple different factors contributing to [the increase],” Chitty said. “Any time there is high unemployment, there is an increase in the number of students who go back to school and, combined with the economic conditions, there are more people applying for and being eligible for financial aid.”
At Ithaca College, 22 percent of undergraduate students receive Pell Grants. There are about 500 graduate students at the college, 22 percent of whom receive federal aid.
Anthony Hopson, assistant vice president of community and government relations, said there are some positives to the changes and some significant negatives to the debt ceiling bill.
“There are some protections built into the system for the next year so that’s a positive,” Hopson said. “Certainly some negatives are the impact it has on students who want to go to graduate or professional school down the road and the elimination of the subsidized loans.”
Senior Ashley Ellenberger said she has received a Pell Grant every year she has been at the college. Without it, she couldn’t afford to go to school.
“I am lucky enough to have the opportunity to pay for school and a lot of that opportunity comes from the financial aid, including grants and federal loans,” Ellenberger said. “It’s sad to think that interest accrued from loans could affect a student’s decision on whether to continue his or her education or not.”
Senior Perri Gross said over the years, her financial aid has become a struggle. The changes to the system concern her as she looks forward to graduate school because she said she feels it is getting more important to get a higher degree.
“When it comes to graduate school, I’m not sure if I’ll be as lucky,” she said. “It might be a struggle to pay tuition, or I might have to reconsider even going,” she said.
Eric Maguire, vice president of enrollment and communication at the college, said 22.6 percent of the 2011 incoming class received Pell Grants, compared to the 20.8 percent that received them in the 2010 incoming class.
While the Pell Grant program is now primarily focusing on maintaining the maximum loan of $5,550 as the costs of the program are running higher, it will still face financial troubles, even with $17 billion from the government.
Chitty said there is still a chance of Pell Grant cuts in 2012 budget talks to make up for the $1.3 billion deficit.
“There are a lot of lawmakers in Congress who would like to see the program modified,” she said. “That may mean lowering grant awards or changing eligibility standards in order to reduce the cost so that not as many people are eligible for the grant program.”
Hopson said the lack of subsidies and refined eligibility for the grants will “give students pause” when they are considering where to go for higher education. He said this will definitely have an impact on institutional enrollment.
“Those are red flags,” he said. “It all depends on personal circumstance, like if they know over the life of their graduate education there’s going to be an additional 10 to 13 thousand dollars added on to the life of their loan.”
He suggests students educate themselves on the new bill and how it will affect them.
“Students can empower themselves by engaging in the public policy process,” he said. “Our elected officials ask to hear about how their decisions impact students, so all they need to do is advocate for what they want.”
Fortunately for currently enrolled graduate students, the elimination of the subsidized loans will not go into effect until the 2012-13 academic year.
Potentially, there are a number of ways the cost of the Pell Grant program could be reduced. Among the most likely are lowering the maximum amount of the award, lowering how many students get the award and limiting the awards to only the neediest of applicants and phasing out those who are wealthier.
Ellenberger said she plans to go to graduate school, and the elimination of the subsidized loans is something to take into consideration while applying.
“Giving grants to graduate students is an excellent idea, especially in a time where having a higher education is so important,” she said. “I know it would help me out greatly in being able to continue my education.”
Maguire said they have not seen evidence to show that students are looking for less expensive options, but in the future that may change.
“The funding that was recently approved fills a financial shortfall that the Pell Grant is expected to experience in the next couple of years, so in the short-term students should see little change, assuming there are no additional changes to legislation,” he said. “However, the long-term financial shortfalls that are anticipated for Pell Grants have yet to be addressed, so questions remain.”