The government uses subsidized student loans as a method of motivating pupils to get advanced degrees. As of 2012, however, graduate loans will not have their interest subsidized, which will shift accountability for paying $18.1 billion over 10 years to students. Resource for this article: Graduate student loans to lose interest subsidy
The interest shift
As a part of one of the many debt deals made over the last few years, Congress negotiated a brand new limit on student loan debt. Graduate student loans will drop their subsidized status, meaning that the loans will accrue interest while the student is in school, and the student will be responsible for that interest. The deal does not change borrowing limits, but it does change what students are responsible for in the end.
What students will pay
Graduate students might have a hard time getting through school. It could be very expensive to cover school. A student could end up paying $200 a month in just interest rates if they borrow the full amount. During schooling before this, the government would normally have paid the interest up to six months after graduation. The deal also eliminates a credit on the loan that pupils obtain if they pay on a loan for 12 months without missing a payment.
Generations have different debt difficulties
For young people, this change to the student loan process could increase the debt gap between older and younger Americans. There has always been a gap between the net worth of older and younger Americans, but it has been getting larger. As a head of the household, someone 65 years or older will have much more net worth than someone 35 years or younger. The older person will have 447 times more net worth. That number was much smaller 25 years ago. It was only 10 times more worth. The bad job market and student loan indebtedness are reasons why the disparity exists. The cost of loans for higher education is going up which will hurt the gap.
Articles cited
Mint.com
CNN Money
The Fresh Xpress
CBS News
