Stafford Loan Justice

Let Them Eat Electronic Debit

A colleague from New Faculty Majority passed along news regarding the revised Budget Control Act of 2011 (S.627). Sen. Leahy (sponsor), and Coryn, Tester, and Whitehouse were the Act’s co-sponsors. Title V., Sections 503 and 504 of the Act amend The Higher Education Act of 1965 to eliminate many provisions of the Stafford student loan program, including the Federal Direct Student Loan program – named after Rep. William D. Ford (D-MI) who served on the Committee on Education and Labor (102-103 Congress). A read of the legislative history and debate from the Congressional Record would be needed to definitively see how the Stafford loan issue got tangled into “budget control.”

From the Congressional Research Service summary (emphasis added):

Title V: Pell Grant and Student Loan Program Changes – (Sec. 501) Amends the Higher Education Act of 1965 to increase appropriations for federal Pell Grants for FY2012-FY2013.

(Sec. 502) Makes certain graduate or professional students ineligible to receive a Federal Direct Stafford loan after July 1, 2012.

Limits the maximum annual amount of Federal Direct Unsubsidized Stafford loans such a student may borrow in any academic year or its equivalent.

(Sec. 503) Prohibits the Secretary of Education from authorizing or providing any repayment incentive not otherwise authorized to encourage on-time repayment of a loan for which the first disbursement of principal is made on or after July 1, 2012, including any reduction in the interest or origination fee rate paid by the borrower. Authorizes the Secretary to provide for an interest rate reduction for a borrower who agrees to have payments on such a loan automatically electronically debited from a bank account.

The Hill summarized the alleged “savings” created by the Budget Control Act:

The Budget Control Act of 2011 would end giving interest subsidized loans to graduate or professional students excluding those students enrolled in teaching credential or certification programs required by the state, while unsubsidized loans are still available. The Act would also give Pell Grants $13 billion in mandatory funds over two years to make up for the funding gap, but would give $20 billion total to the Pell Grant program. The elimination of subsidized loans for graduate students will save approximately $18.1 billion over 10 years for all three plans. Like Boehner’s plan, the current deal will also end the Department of Education’s loan repayment incentives saving about $3.6 billion over 10 years. Based on information comparing the three acts, the deal would reduce total direct spending by about $4.6 billion over 10 years, or about the same amount that Speaker Boehner’s act would save.

These outrageous actions affect grad student borrowers – my hardworking, brilliant students – in the most nefarious way by potentially forcing them to: 1. borrow money from banks and the private sector now the FDL Staffords are gutted (which has me wondering about how capitalization and interest will be configured – and credit scores?); 2. delay their education due to the limits on the maximum annual amount of FDL Unsubsidized Staffords and lack of subsidized loans (students may still apply for Direct Plus loans but the interest is higher, and capitalization on the entire balance of the loan is apt to increase); 3. struggle to locate grants, scholarships, fellowships, and private funding in an ultra-competitive environment compressed by the poor economy; and 4. drop out of school, simply because they can no longer afford to complete their degrees; and 5. shift payments to banks who will undoubtedly charge some sort of fee for handling unsubsidized loans, although borrowers get a crumb if they “have payments on such a loan automatically electronically debited from a bank account.” I’ve posed a lot of potentialities here that can be answered only with research and time.  It would have been nice to get a more complete analysis from Congressional Research Service or GAO to understand how Congress and the President arrived at the amendments to The Higher Education Act of 1965.

I believe these changes affront the right to education. Viewing Stafford cuts within a system (or network) that is the U.S., one might question how the Act resolves the current budget crisis if students drop out, or worse yet, never apply to attend graduate school due to severe economic hardship and inability to assume increased student debt? How will the loss of subsidized loans and abbreviation of Staffords influence minority recruitment?  Faculty positions? Much needed new programs and areas of study? Yes, grad students may still apply for Plus Loans, but the cushion that subsidized Staffords brought is gone.

The light has just gone out for millions of existing and potential graduate students, but society at large. As Cardinal John Henry Newman (1854) wrote in his Idea of an University, “one generation forms another” (para.2). Grad students are America’s future, the brain trust, the greater hope. Congress et al, y’all get an F for flawed reasoning, shortsightedness, and overall lack of imagination in “solving” the debt problem by punishing grad students. Subsidized Staffords gave borrowers breathing room semester to semester, thus allowing students to among other things, purchase costly texts and supplies, and yes, eat.  Subsidized Staffords also gave students a slight break in having to pay back additional loan interest as there was no capitalization for these subsidized loans. My sense is that Direct Plus and bank loans will add to the loan amount from capitalization.

IMHO, amending The Higher Education Act of 1965 officially splintered the vision of Kennedy’s New Frontier, Johnson’s Great Society, and of course, William Ford’s legacy. I hope I’m wrong but don’t think I am…

Update:

Baum & McPherson (2011, August 14) ~ Read opinion over at The Chronicle of Higher Ed with a critical eye as there are a few flaws and no references cited.

Nelson, Libby A. (2011, August 17),  A graduate student burden. Inside Higher ED.

Wurth, Julie. (2011, August 14). With end of subsidy on Stafford loans, interest will accumulate right away.  News Gazette.

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Written by S.

August 15, 2011 at 3:03 am