The Government’s Student Loan Interest

Thanks to changes made by the Obama administration to rules governing student loans, graduate students’ debt will actually increase, a lot.

According to a piece by Amanda Terkel at the Huffington Post:

In an interview on CNN’s “State of the Union” on Sunday, Office of Management and Budget Director Jacob Lew said that interest on graduate school loans will begin building up while students are still in school. Currently, interest does not begin compiling until after students graduate.

Lew suggests that, because students won’t actually have to pay the loans back until they graduate, the new higher interest fees won’t reduce access to education. Well no, but only because those students aren’t paying attention; it will ultimately increase the cost of attending graduate school and rack up the amount of debt students carry.

The new interest should generate $2 billion next year. The administration plans to use this new money to help pay for Pell Grants.

While Pell is facing a funding shortfall problem, paying for Pell by charging graduate students interest on their loans while they’re still in school seems a little different from the implied message in Obama’s 2011 State of the Union speech, in which he said said:

To compete, higher education must be within the reach of every American. That’s why we’ve ended the unwarranted taxpayer subsidies that went to banks, and used the savings to make college affordable for millions of students. And this year, I ask Congress to go further, and make permanent our tuition tax credit — worth $10,000 for four years of college. It’s the right thing to do.

Charging higher interest on one group of low-income, nonworking students to pay for subsidies to allow another group of low-income, nonworking students to attend school is, however, arguably not at all the right thing to do.

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer