When a student borrows a subsidized loan, the federal government pays the interest that adds up while the student is still in school. An end to the interest subsidy would mean that low income students would graduate with more debt.
Yesterday at the White House, Republican majority leader Representative Cantor called for an end to the interest subsidy. The Daily Beast reports that when Representative Cantor called for students to be responsible for the interest that accrues on their student loans while still in college, President Obama said, “I’m not going to do that. I’m not going to take money from old people and screw students.” (There is a Bill Clinton joke just waiting to be told here, but I’ll leave that to Letterman).
For now, needy students can qualify for limited amounts of subsidized student loans. Insider Higher Ed reports that students who borrow the maximum amount of subsidized loans, $23,000, and take six years to graduate would owe $5,000 more by graduation and $9,000 after a 20-year repayment period. Pauline Abernathy, vice president of the Institute for College Access and Success said about the proposed subsidy elimination, “It merely is shifting the debt from the federal government to the next generation of Americans.”
Republicans proposed requiring students to pay interest accruing on their loans before they graduate as far back as 1994, as part of their "Contract
On With America." A 2010 report by the deficit-reduction commission appointed by President Obama also endorsed eliminating the interest subsidy, saying the elimination would save the government $43-billion over 10 years. President Obama has expressed support for a more limited reduction in subsidized loans, targeting only graduate and professional student subsidized loans. The President has proposed using the savings to fund Pell Grants for the neediest students. Cantor’s proposal recommends using the savings from an interest subsidy elimination to pay down the deficit.